September 26, 2017What happens to inheritance on divorce?

Inherited assets - divorce

This article is for you if you are thinking about leaving a gift to your child or grandchild in your Will.

Whilst nobody wants to think about the possibility that their child or grandchild might have to go through a divorce (especially if they haven’t even got married yet), the reality is that 42% of marriages will end this way. So what happens to the money you leave your child if you die and they then split from their marital partner?

In this article we look at:

  • How the courts treat inheritance on divorce
  • Other threats to your child’s/grandchild’s inheritance
  • How you can protect your child’s/grandchild’s inheritance

Division of the matrimonial assets

Unhappy couple

Where parties cannot agree how to split the finances, they can ask the court to decide

Some couples can agree between themselves how the marital assets will be split. Indeed, this is the sensible approach and can save many thousands of pounds in court and legal fees. For those struggling to agree, mediation can be a good option. A day with a professional mediator might cost anywhere between £750 and £2,000 – but this is substantially less than the costs that can rack up where two people simply cannot agree how to deal with the finances. An additional benefit of mediation is that both parties remain in control of the outcome, rather than handing over the decision to a judge.

Where the parties cannot agree, they can ask the courts to make a decision for them. Typically this will involve applying for various types of order to be made.

Courts have a great deal of discretion and flexibility when deciding how to divide up the available assets, afforded to them by the Matrimonial Causes Act 1973. Of note, the Act requires the courts to consider ‘all the circumstances of the case’ when making their decision. This might mean, for example, the interests of one of the party’s new partner and children are taken into account (and consequently a larger financial award could be made to that party).

Which assets are considered by the Court?

Inherited assets

A court can divide up property on divorce, even if acquired before the marriage

Some assets may be referred to as ‘non-matrimonial’. These might include:

  • Assets that were acquired by one party prior to the marriage or after separation
  • Assets that were inherited by one party prior to the marriage, during the marriage or after separation

There have been many cases in recent years on this topic. The consensus is that when considering whether to make an order, the courts do not have to restrict themselves to assets that were acquired during the marriage. A court can deal with either party’s resources, however and whenever they were acquired.

This means that the court is entitled to reach the conclusion that despite the fact an asset is a ‘non-matrimonial asset’, it should nonetheless be treated in the same way as the other assets in the case. Consequently either party may be entitled to the asset, or a share of it.

One reason for this approach is that quite often non-matrimonial assets become so intermingled with the assets acquired during the marriage, it is impossible to distinguish them. Another reason is because the marriage was a lengthy one and the fact that a particular asset was acquired before the marriage has become less significant over time.

Perhaps the most common reason nowadays why a court might refuse to treat non-matrimonial assets differently is because there are not enough other assets in the marriage to meet the parties’ needs. For example, in GS v L (Financial remedies: Pre-acquired assets: Need) [2011] EWHC 1759, the judge refused to accept the husband’s argument that around £1.5 million of the total £4 million in assets should be ring-fenced on the basis that he had owned them prior to getting married. The judge took the view that it was simply not necessary to consider the ‘vexed question’ of whether those assets were non-matrimonial, since they were needed to meet the needs of the parties and the children. 

Specific cases on inherited property

Judge

Without question, a court can divide up property on divorce, even if it was inherited by one party

A number of cases have made it very clear that the courts will not allow inherited property to be excluded from their discretion to make a financial order. For example:

Norris v Norris [2002] EWHC 2996 (Fam) – a wife wanted the court to deduct £373,000 of inherited property from her assets. The judge concluded that Section 25(2)(a) of the Matrimonial Causes Act 1973 requires the court to take into account ALL property – including property acquired during the marriage by inheritance.

GW v RW [2003] EWHC 611 (Fam) – the judge concluded that the reasoning applied in Norris (above) could not be challenged and that it must be artificial and contrary to the express words contained in the Matrimonial Causes Act 1973 to exclude non-matrimonial assets from the pool of assets available for division.

There are many more cases to consider, some of which are quite complex. Generally it would seem that meeting the parties’ needs is more important than identifying where a particular asset came from. You may therefore assume that (unless you take steps to protect their inheritance), if your child or grandchild inherits from you and then at some stage during their life goes through a divorce, their ex-partner may end up with some or all of the inheritance – your life’s work.

Other threats to inheritance

Creditors

Creditors can seek to recover money from inheritance

Divorce is not the only way that someone other than your child or grandchild could benefit from your life savings. Other threats include:

  • Care fees: If you die and your spouse needs care after your death, your share of the family wealth could be used up almost entirely to pay for that care. This leaves nothing to pass on to future generations.
  • Creditors: If your spouse, child or grandchild gets into financial trouble after your death, creditors or HMRC could take the money inherited from you to meet the debt.
  • Remarriage: If you die and your spouse remarries, their new spouse will be next in line to inherit some or all of the family wealth – including your share. If your spouse then dies without making a new Will, the new spouse stands to inherit a substantial portion of the family fortune. Alternatively a divorce could see your partner’s ex taking some or all of your hard earned money.

How to protect your children’s and grandchildren’s inheritance

Grandparents

Protecting your wealth for future generations is easy and very affordable

There is a surprisingly simple and affordable way to avoid all of the above problems and this is through the use of trusts in your Will.

We recommend two types of trust and both can be used side by side.

1. Care fee protection

By severing the joint tenancy and giving your partner a life interest in your share of the family property, you ensure that they are taken care of for life without putting your assets at risk.

  • If they go into care after your death, only their share of the home can be used to pay for care fees (and after their income depletes past a certain point, the Local Authority will take over paying the fees).
  • If they get into financial difficulty after your death, only their share of the family home can be used to pay debts.
  • If they remarry after your death, the most their new spouse could take is their share.

Your share of the family property is safe and will pass to your children or grandchildren (as you choose) after your spouse dies.

2. Bloodline trusts 

Once your children or grandchildren do inherit, you want to be certain that their inheritance does not become part of a divorce settlement. Neither do you want the money to be taken by creditors if they get into financial trouble. The simple solution is to create a bloodline trust. This is a type of trust that allows the beneficiary access to the property whilst keeping it safe from ex-partners or creditors. Your wealth can also be protected for future generations – grandchildren and great grandchildren – if you choose.

Our lawyers have helped thousands of people throughout the UK to protect their children’s and grandchildren’s inheritance in this perfectly legitimate and legal way. We charge just £240 + VAT per person to make this type of Will. Speak to us about safeguarding your family’s inheritance today – call 08700 120 130 or email info@aprilking.co.uk to make a free first appointment, without obligation. Alternatively you can order a free information pack below, without obligation.

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