Protecting inheritance from spouse

[jevoudrais]

Prompted by another thread.

Friend is due to inherit six figures soon from a relative. Is happily married at present but has had bumps in the road before, has 2 DC with her spouse.

To 'protect' the inheritance as much as possible, is it enough to keep it in separate bank accounts or assets eg. Premium bonds in my friend's name only? Some may be used on family assets eg. Paying off a small loan and friend accepts that would then be gone, but would anything from inheritance clearly in a separate bank account or asset for her sole benefit be likely to be excluded if divorce was on the cards further down the line?

No, he would be entitled to half of any bank accounts and PB’s etc.
I’m interested to see if there’s any way of ring fencing it when received during marriage, so interested to see replies.

Separate bank accounts/premium bonds etc are still assets and he will be entitled to some of it if they divorce. The only way to safeguard this money from him is to put it in someone else’s name. It would obviously have to be someone she trusts 100% obviously

If she has no need of the money then she could put it in an account for her dc’s.

She has seen sites like this, which I gather from posts may have given her false hope...

www.divorce.co.uk/your-finances/inheritance

She knew if she used it to clear the mortgage it would be in the family pot type of thing, but was hoping if it stayed ring fenced away from any family money that it might be different.

In reality if they did split the money would be needed which is why she doesn't want to put it into a trust or similar for dc now

If she paid off the mortgage would he be prepared to give her a larger share of the house on the deeds, or wherever your share is documented ?

I'll n some places inherited money is kept separate as long as it isn't used for mortgages etc. but she would need legal advice to see what applied where she lives.

No, it doesn't matter if the assets are in her sole name. Assets acquired during the marriage are all part of the pot to be divided if there is a divorce. It's not necessarily 50:50 as different needs will be relevant and if she will be primary carer of the children she may be able to show she has a greater need for a larger share of the assets.

If the relative isn't dead yet then there's 2 options. Either get the divorce done quick before the relative dies (probably a bit too drastic) or ask the relative to leave the entire sum to her children but with her having a lifetime interest (so the money is hers but she can't dispose of it or give a share to her ex on divorce but can use it to buy a house so long as that house or its value go to her children when she dies)

@BuanoKubiamVej what legal qualifications do you have?

For a start the laws are different between Scotland and England.

Definitely need legal advice. You can enter into a post nup with a spouse. Also, If she sets up a trust, it isn’t necessarily for someone else, it can name her as the main beneficiary, with a third party (lawyer usually) as trustee (It can be expensive though) and the children as beneficiaries if something happens. Trusts are very flexible like that. Effectively she would have benefit, with the kids not having a vested interest until such and such time.

If it’s only £100k, post nup is preferable from a cost perspective. If it’s £900k, that’s different. Maybe she should test the water and say it’s £10k. See how he reacts??

No. She either puts it in trust for her kids and nominates someone other than her spouse as a trustee or something else. Just putting it in her name isn't enough. She also has to make a will if she hasn't already.

In Scotland it would not be matrimonial property unless turned into matrimonial property by eg extending the house
Get proper legal advice

I'm not sure about protecting while alive, but I have put something in my will where all my assets go to my children when they turn 25, rather than to my husband. They go into a trust until the kids are 25. I would assume this will include any inheritance that I get. We have separate bank accounts, mortgage etc and nothing joint

Keeping the money separate and not mixing it in with marital finances can help but there is no guarantee. In this situation the courts will generally try to preserve the inheritance, but they will dip into it if that is the only way to ensure that everyone's reasonable needs are met.

A post-nuptial agreement would provide better protection if your friend's spouse is willing to enter into one. Whilst such agreements are not legally binding, the courts will respect them unless it would be unfair to do so provided they are properly drawn up and freely entered into by both parties with a full appreciation of the implications.

She can give a substantial portion of it straight to her children. Once the 6 years is up the inheritance liability on amounts over £320k is gone.

It ceases to be part of your estate as a joint asset if you gift it.

Another thing to do is transfer the government child trust fund (if you have one for each child) into a child ISA each.

You can put £9k per child per tax year inheritance tax free into a junior isa.

If the inheritance is above the personal threshold of £320k then it might be worth doing something like this alongside.

Ultimately if the money is going into a marriage it is at risk as it can be seen as a joint asset in the event of divorce. Often inheritance is disregarded but the equity would be offset to compensate the other party. So, it's not a case of it being disregarded and you also get 50/50.

The courts have the power to set aside any transaction intended to defeat a claim for financial relief in divorce. Giving the money to the children therefore may not work.

Those posters saying it automatically goes into the pot to be divided on divorce are wrong. If it is kept separate from the family finances it may be possible to ring fence it in divorce. But, as per my previous post, the best approach is to get a post-nuptial agreement if possible.

The posts of @prh47bridge sim up the law in this area. It is of course a bit more complex than that, so you'll need legal advice.

Nothing to add but I do think that this equal sharing is so unfair!

@cato40

Nothing to add but I do think that this equal sharing is so unfair!

It is a good job we don't have that, then.

Whilst a lot of people talk about assets being split 50/50 when a couple divorce, that isn't necessarily what happens. The Matrimonial Causes Act 1973 sets out the factors the court must take into account when deciding the financial split.

If it’s part of your estate it is at risk because you cannot prejudge what the situation will be if there is a break up.
Getting your relative to put it into a trust for the children will do that, this can be done beforehand or by agreeing a variation with the executor.

It's 20 years since I did this kind of work for a living, but certainly back them people were experimenting with putting the money into either discretionary trusts (which had to be set up as part of the Will of the relative) so that the child had no right to it and therefore it wasn't an asset on divorce, or which gave the child an interest which would terminate on the earlier of death or divorce, at which point it would revert to the grandchildren.

I did a quick google and found this: www.burges-salmon.com/news-and-insight/legal-updates/private-client/the-treatment-of-trusts-in-divorce-proceedings

Whilst a lot of people talk about assets being split 50/50 when a couple divorce, that isn't necessarily what happens. The Matrimonial Causes Act 1973 sets out the factors the court must take into account when deciding the financial split.

It does. But since the decision in White v White in 2002, the 50:50 split is efffectively the default. Before that, once the poorer party's reasonable needs were covered, the richer party could keep the rest of their assets.

@TalbotAMan

Whilst a lot of people talk about assets being split 50/50 when a couple divorce, that isn't necessarily what happens. The Matrimonial Causes Act 1973 sets out the factors the court must take into account when deciding the financial split.

It does. But since the decision in White v White in 2002, the 50:50 split is efffectively the default. Before that, once the poorer party's reasonable needs were covered, the richer party could keep the rest of their assets.

That’s more or less the way it works but the disruption caused by a spouse divorcing can be immense.

It might mean that a house has to be sold to provide for those “needs” and mortgage taken out by both sides, so a modest £250k house owned outright by one side can easily be split 50-50. It’s not so much of a problem with extensive assets held by one side because it’s only the “needs” (not wants) that are relevant.

So be very careful marrying a person with no assets, the solution don’t get married, there is no other safe remedy and it costs nothing!.

The White v White case was about a long term marriage which the wife had played a considerable part in the farming business and quite rightly was awarded a large settlement, reflecting her supporting role.

This would not apply to a short term marriage where no contribution to a business was made. Although the settlement would likely still run into 6 figures.