A Family Affair

With 42 per cent of marriages ending in divorce, it is important when advising wealthy clients to put mechanisms in place to protect family assets. Jenny Cutts and Rosie Schumm provide a guide.

According to the latest figures from the Office for National Statistics, 42 per cent of all marriages end in divorce. It is important when advising clients on wealth planning to factor in the possibility that they and their children will not necessarily have long happy marriages, and to put in place mechanisms to protect family assets.

In this article, we will review the fictional scenario of a married couple, Simon and Sarah, with their four adult children, Edward, Emma, Eve and Ethan. Edward, Emma and Eve are children from Simon's first marriage, and Ethan from his marriage with Sarah. Edward has two children and is divorcing; Emma is on her second marriage and has one child and two stepchildren; Eve is engaged to be married; and Ethan is 10 years old.

We consider the estate planning Simon and Sarah can undertake to protect each other and the family wealth, while also balancing the complex family dynamics through solutions available to them and the use of wills, trusts, different asset strategies, nuptial agreements, divorce settlements, separation agreements and lifetime giving.


Wills are the starting point for Simon and Sarah to protect the assets they want to pass to their children.

They should consider creating wills with an immediate post-death interest (IPDI) trust in each other's favour, with discretionary trusts arising on the second death. The IPDI should contain overriding powers to allow the trustees to distribute capital to the survivor and to any of the class of discretionary beneficiaries during the survivor's lifetime. These trusts would achieve the following.

Protection of Simon and Sarah's financial positions: they will be entitled to the trust income and the trustees will have the power to loan or distribute capital to the survivor. This means neither Simon nor Sarah need worry about the survivor redirecting the family money to a new partner. Third party claims: the discretionary trust will provide a layer of protection for any of their children (or grandchildren) who are at risk of a third party claim (such as a divorcing spouse) on their assets. The trustees will be able to make smart distribution decisions based on the beneficiaries' personal circumstances at the time. Protect minor children: there will be sufficient flexibility to protect Ethan and any minor grandchildren. It will also be important for Simon and Sarah to choose guardians to look after Ethan's wellbeing. A solid letter of wishes will leave the trustees with no doubt about how Simon and Sarah want the IPDI and discretionary trusts to be administered. It can set out:

how income and capital is to be distributed, in what circumstances, and to whom any concerns about family money being dissipated, perhaps by an 'evil ex' or because of general financial irresponsibility in the family how the trusts can be used for long-term wealth planning for the current generation and onwards tax planning objectives and the weight to be given to these. The importance of choosing the right trustees cannot be underestimated. They will need to be financially responsible and have the diplomatic ability and strength of character to act impartially, and to navigate the complexities of family bonds and...

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