How to prevent an ex-spouse receiving your family's inheritance
Inheritance and divorce can be a tricky issue. For those hoping to keep as much wealth as possible within the immediate family, across many generations and to provide for the future, the question of whether a divorced spouse can inherit this family wealth is a significant one.
How much can a divorced spouse inherit from your family wealth? And is inheritance part of a divorce settlement? How can you prevent an ex-spouse receiving inheritance money? If you’re a little unsure about the future of your loved one’s marriage, it’s wise to know where you stand.
Why parents may be holding back financial support
While parents will often support their adult children through gifts, loans or inheritance, the potential of divorce later on down the line can mean that some may not want to risk losing wealth that may have been built up over many generations. So, it’s little surprise when clients ask the question - can an ex-spouse claim inheritance?
In the event of divorce, assets can be considered either matrimonial or non-matrimonial. The former includes money and property acquired during the marriage by either party, while the latter includes money and property that have come from outside the marriage – including inheritance. Non-matrimonial assets aren’t automatically considered as joint assets to be divided, and you may be able to exclude them completely from the divorce settlement, unless the matrimonial assets aren’t enough to meet the reasonable needs of both parties, in which case non-matrimonial assets like inheritance or financial assistance could be divided.
It’s also important to note that assets can change from non-matrimonial to matrimonial over time. If an inheritance, for example, was received during the marriage, the court may look at how it was used before deciding whether it might be divided or not. For example, if the money was in a joint account and used by the couple together, it may then be considered joint property to be divided.
Can future inheritance be part of a divorce settlement?
Is inheritance part of a divorce settlement? For many divorcing couples – and their families – this is a real concern. Usually, when a couple gets divorced, all assets currently owned are normally pooled and treated as joint assets as shared by the couple, and money or other assets that a party has inherited will not be excluded from the joint assets by default.
However, when it comes to future inheritance, it can be a little different. Future inheritances aren’t usually taken into account when a couple is divorcing, but this isn’t always the case. If the person giving the inheritance is expected to die in the near future, and the amount is expected to be significant, this may mean that the future inheritance could form part of the divorce settlement.
In fact, sometimes courts could adjourn the settlement until the party in question receives the inheritance.
How to prevent an ex-spouse receiving inheritance money
Can an ex-spouse claim inheritance? In theory, yes, but there are ways to prevent a former spouse from receiving inheritance money, or otherwise allowing one of the parties to protect family wealth after a divorce. As explained, inheritance money may or may not be considered a joint asset depending on the circumstances, but there are things that can be done to at least reduce the chances of an ex-spouse receiving inheritance money.
If both parties agree, it may be worth taking out a consent order. Consent orders are legal documents that confirm the agreement that the couple comes to concerning their finances and protecting or dividing assets like pensions, property, savings and investments.
It’s also worth considering loan agreements. Should a parent expect their contribution to be repaid, this should be set out in writing. A loan agreement that’s been drawn up correctly can help to protect that money in the event of a divorce – a clear loan agreement indicates that the advance is not a gift but is to be repaid.
The other perhaps more commonly known alternatives, which are often entered into by couples either before or after marriage, are pre-nuptial and post-nuptial agreements, which can serve to protect their assets in the event of a divorce.
Benefits of a pre-nuptial agreement
Prenuptial agreements, which are made before marriage to set out how assets would be divided in the event of a divorce, are often used to help in preserving family wealth and other contributions that parents may have made or intend to make to their children.
With a prenuptial agreement, or a ‘pre-nup’, any gifts, assets or inheritance given from a parent to their adult child will be protected after a divorce – for some parents, it’s a condition of the gift.
While a pre-nup is not technically legally binding, it’s enforced in practice as long as both parties have freely entered into the arrangement with full appreciation of what it entails – and as long as the outcome wouldn’t leave one of the parties in real financial difficulties.
The clarity and transparency that a prenuptial agreement provides, ensures less chance of confusion in the event of the marriage breaking down and it can offer future security for both parties too. Pre-nups can also provide more security in international marriages – for example, determining where the divorce proceedings might take place – and when a couple has been living together before getting married.
Benefits of a post-nuptial agreement
Similar to a prenuptial agreement, there are postnuptial agreements, or a ‘post-nup’. However, unlike a pre-nup, a post-nup can be entered into any time once the parties are married – couples may well get post-nups if they hadn’t considered making an agreement before the marriage, or if they ran out of time before getting married or there’s been a notable change in the financial situation of one of the parties since the marriage.
The benefits of post-nups are much the same as the benefits of pre-nups, helping to protect the parties in a marriage and make things clearer and more transparent. It can also be a good option for those couples who have been separated but then decided to work on their marriage rather than go through with a divorce. However, some people will prefer to sign off on an agreement before the marriage begins.
The rise and pit-falls of the DIY divorce
Over recent years, the ability to complete your own divorce online for a relatively low price, the option now of a ‘no fault divorce’ and promise of ‘no need for a court appearance’, has meant that a number of people have chosen to take the task of initiating their divorce themselves. However, failure to get specialist independent legal advice tailored to an individual's specific circumstances could result in very costly litigation several years down the line.
A ‘Clean break’ provision ensures that neither party has the ability to pursue future financial claims against the other, or against each other's estate upon death. The costs of a Solicitor drafting a ‘Clean break consent order' are likely to be a fraction of the costs faced should an ex-spouse pursue financial claims against their former husband or wife, who may have received a significant inheritance.
How we can help
The financial aspect of divorce is something that can be hard to deal with, but there are ways to help protect your finances and preserve family wealth – even if you’re dealing with many generations of wealth that you need to look after for your future generations.
Here at The Private Office, we can offer advice either before marriage or when going through a divorce. The earlier you engage with us the more we can help to protect your wealth. Far better outcomes are achieved when appointing a financial adviser much sooner in the divorce process. Advice can help to understand tax implications, planning opportunities and establishing how much capital and income you need to live the lifestyle you wish to live.
If you’re looking to protect either your wealth in divorce or protect your family's inheritance why not get in touch online for a free initial consultation?
In our latest webinar The Art of Avoiding Inheritance Tax, experts Steffan Alemanno and Harry Donoghue showcase the steps you can take to pass down your wealth in the most tax efficient way. Watch it back here!
Please note: This article is for information only and does not constitute individual advice. The Private Office are not legal professionals, and this article has been written upon our understanding of the subject matter, as such professional legal advice should be sought prior to proceeding with any advice in this area.
The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.