16th January 2017
Fiona Kellow, head of private client at Thrings, comments:
A recent survey has revealed that 30% of parents will not pass on assets to their married children to avoid them falling into the hands of their offspring’s spouses if they divorce.
It is not uncommon for parents offering financial support to their grown up children to be worried about it being dwindled irresponsibly. But as the study (and my years as a family lawyer) have shown, there is also mounting concern among parents that inheritance and gifts could fall, at some point in time, into the “matrimonial assets” pot.
If a couple separates, there is no automatic right to exclude the child’s partner from benefitting from a parental gift, particularly as time goes on and family finances become progressively merged.
A number of factors need to be considered when dividing up assets during a marriage breakdown. This is a subjective exercise based on the particular circumstances of the couple – but common factors such as the length of the marriage, age of the parties, the existence of children and the couple’s incomes are all important considerations when determining the outcome.
If family dynamics are such that it’s possible to discuss the parents’ wishes, then this is advisable. The receiving adult child may then consider entering into a pre-nuptial agreement with their fiancé or fiancée to ring-fence and protect that gift should the couple divorce at a later date.
Alternatively, if they are already married, the son or daughter might consider setting up a post-nuptial agreement to provide similar ring-fencing. This is often used effectively where the adult child works in the family business and is to receive a greater share, which the family wish to futureproof against divorce.
Post-nuptial agreements have also proved to be a good method for protecting farms, particularly as agricultural assets are often owned by complex family structures.
Rachel Brooks, private client partner at Thrings, adds:
Discretionary trusts are another option since assets can be held for the benefit of the child whilst being removed from the parents’ estate for tax purposes. Subject to certain tax thresholds, it means trustees can control how and when payments are made and, most importantly here, for which purpose.
Having said that, the courts can still take a trust into consideration - but if it was created prior to the marriage of the adult child, it is less likely to be considered an asset to be shared between the divorcing parties.
For help and advice on family and inheritance law issues, please contact Fiona Kellow, Rachel Brooks or another member of Thrings’ Private Client team.