Impact Of Extended Family Wealth On Divorce

13 May 2024 | Lisa Pepper
money

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Can the Wealth of Extended Family Affect Your Divorce Outcomes?

While there is no fundamental legal difference between a high-net-worth divorce and a divorce for people with more moderate assets, matters can become complicated when one half of a divorcing couple has significant family wealth behind them.

The natural question is whether help from the extended family—whether it comes in the form of monthly income, cash gifts or the promise of a substantial future inheritance—should be taken into account when negotiating the financial settlement.

Unfortunately, there is no simple answer to this question. However, a recent case sheds light on how the court will approach these situations.

WC vs HC (2022): The Facts

H grew up in Switzerland and came from a very wealthy family who held a significant stake in a publicly quoted company. His wife was a UK national. The couple were together for 16 years and had two children before separating in 2019.

In 2004, the couple signed a series of documents that constituted a pre-nuptial agreement. Per the agreement, H transferred a London property he owned into joint names, and placed £1.3m of his own money into a joint bank account. The pre-nuptial agreement adjusted the financial benefits for W based on the length of the marriage.

The parties enjoyed an affluent but not extravagant lifestyle. H worked in the family business in Switzerland for a modest income and W had no meaningful earning capacity. Almost all the wealth available to the parties originated from H’s very wealthy father, who made gifts totalling £1.17 million as a tax efficient way of rewarding the husband for his work.

H’s father also settled a trust for the benefit of himself, H and H’s siblings which would constitute an inheritance on his father’s death in excess of €100 million.

In 2017, it was agreed that W and children should live in England where the children would attend school. At this point, H raised the idea of a post-nuptial agreement. W objected but, nevertheless, lawyers began to hammer out the terms. In the end, W refused to sign the post-nuptial agreement which would have provided her with about £7.15 million in the event of divorce, representing 56% of the parties’ combined net asset worth of £12.57 million.

A complicating factor was that H’s father had formed a relationship with a woman 38 years his junior, and H and his siblings were barely on speaking terms with their father as a result. The father’s gifts to H ceased, though H’s father made no threat to disinherit H.

The issues

  • Whether the pre-marital agreement was valid as W claimed she was pressured into signing it.
  • Whether the unsigned post-nuptial agreement should have any bearing.
  • Whether the cash gifts from H’s father would resume and thus were a relevant factor in the financial settlement.
  • Whether the future inheritance from H’s father should be taken into account.
  • The wife’s financial needs.

What the law says

The judge confirmed key points of law that informed his decisions.

#1: Fair distribution of assets
During divorce, the court’s main concern is the fair division of the assets included in the ‘shared’ matrimonial pot. Non-matrimonial assets such as inheritances, wealth brought into the marriage and third-party gifts ordinarily are retained by the party to whom they belong, unless the marital pot is insufficient to meet the financial needs of both spouses.

#2: Family gifts
There is a clear difference between a situation where one spouse shares ownership of an asset with other members of their side of the family, and pure gifts (or loans) – where a family member is willing to make money available to the spouse.

In the first situation, the court can, in a careful and appropriate manner, encourage the family members to agree to release funds to benefit that spouse (and therefore pay a financial settlement on divorce to their ex). In the second situation, there is no obligation that the family members come to the rescue – the family members can make their own decision as to how to gift their money. The Judge said: The court’s function is to distribute the parties’ resources, not the resources of wider families.

#3: Future inheritances
Future inheritances may be available for division, but it is rarely appropriate to do so. They generally would be considered only if the death of the person leaving the inheritance was impending, their intentions were clear, and the inheritance would have a substantial effect on the positions of the parties.

The court’s primary concern will always be the principle of fair distribution based on each spouse’s needs.

What the judge decided

The wife was awarded £7.45 million net, which is close to the figure offered in the unsigned post-nuptial agreement. Here are the key points of the court’s decision:

  1. The pre-nuptial agreement was made with the benefit of full legal advice and thus was valid and should be upheld.
  2. The (unsigned) post-nuptial agreement was not binding, but the Judge found an agreement had been reached, and he was not willing todiscard and ignore it altogether. The law required him, under s25 MCA 1973, to take account of all the circumstances of the case. The Judge felt he was entitled to take it into account and “attach such weight to it as I think fit. It is one of the factors, to be considered in the mix. The terms agreed… are relevant, albeit not determinative.”
  3. The gifts from H’s father were discretionary and, given H’s relationship with his father, it was unlikely they would resume. The Judge described the gifts from H’s father as a ‘safety net’ rather than a guaranteed ongoing resource, and thus not a factor in the wealth distribution.
  4. It was likely that H would receive a significant inheritance on his father’s death. However, since the nuptial agreements did not anticipate splitting the inheritance, and the inheritance would be received long after the separation, it would be entirely non-matrimonial.
  5. The award was thus based on the assessment of W’s needs, having regard to the length of the marriage, the needs of the children, the couple’s assets and income, the standard of living, and the nuptial agreements.

Final words

In the final analysis, despite the significant wealth and past generosity of H’s family, the court awarded the Wife on the basis of her assessed needs. The family wealth was nothing more than background detail to a conventional ‘needs’ division which saw W receiving 60% of the assets which the parties already held. This award was approximately what was in the post-nup, although the court went beyond it to meet the wife’s needs.

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