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  1. Wealth
July 4, 2016

Braving the Brexit storm: legal issues international families need to know

By Spear's

Families wanting to protect their wealth from the uncertainty of the judicial system should seek early advice. Sarah Green, Natalie Drew and Patrick Wooddisse report.

Political and market volatility after the UK’s decision to vote to leave the European Union will undoubtedly be a cause of concern for many international families. Is this a sign of things to come or just an inevitable short-term reaction?

There are clearly contrasting views and questions about the strength of the UK’s economic future and the implications of Brexit on areas such as interest rates, taxes and the property market. Also, whether pensions will take a hit – if gilt yields continue to fall, annuity rates will also decline leading to wider pension fund deficits.

Of course there is also talk of the opportunities.  For example, if you believe property prices will increase in the long term, now might look like a good time to invest. Stock market activity on Friday was apparently five times greater than normal; markets may be hit now, but there are many who point to the need to take a longer term view.

From a legal perspective, the potential issues are numerous. Here are our initial thoughts on some of the legal issues that international families should be watch out for in the months ahead:

Tax changes

Business structures: The EU influences UK tax policy. From a corporate perspective, it encourages European trade with harmonised VAT rules and, for example, directives about parents and subsidiaries within EU groups. The UK will need to negotiate similar treatment as part of the exit deal. If it doesn’t, international families should review their business structures. The use of UK companies by European businesses and (particularly) Luxembourg and Dutch companies by UK businesses may cease to be effective.

Non-domicile: We may see planned tax changes to introduce restrictions on non-domiciliaries de-prioritised as the government focuses on the massive legislative programme required to implement Brexit. On the flip side, the EU non-discrimination principles often force the UK to moderate its anti-avoidance rules affecting non UK residents and non-domiciliaries. These rules could now be changed without fear of a European Commission challenge.

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Family law

Although UK domestic laws govern our family justice system, several European regulations form part of UK law, and some of these affect jurisdiction, cross-border recognition and enforcement in family law cases.

Divorce rules: Broadly, our family law regime, especially in relation to finances on divorce, is already very different to elsewhere in the EU and so this in itself remains unaffected. The UK is seen as generous when it comes to dividing capital and maintenance provisions. This often results in petition races between two competing jurisdictions (EU and further afield) as each party tries to secure or avoid the potential for greater financial provision through the English courts.

Arguments over where a couple’s divorce should be heard are currently governed by an EU provision applicable across member states. It is presumed that this will in due course fall away leading to uncertainty about where a case should be heard but, also greater scope for those wishing to argue that their divorce should be heard in the UK.

Maintenance: It is likely that the EU Maintenance Regulation (Council Regulation (EC) No 4/2009) will fall away, making cross-European maintenance enforcement more difficult. Currently EU legislation enables a maintenance order made in the UK to easily be registered in another EU member state. We may, therefore, see a rush in enforcement regulations, not just in family law but across the arena, while the current regime is still in place. International families facing separation in the future may be left with less robust cross-border enforcement and protection, until and unless, cross-border treaties are negotiated to replace existing EU legislation.

With so much uncertainty likely over the next two years, families wanting to protect their wealth, have some control over their financial destinies, and avoid the uncertainty of the judicial system, should seek early legal and financial advice to ensure that they are able to weather the post-Brexit storm.

Sarah Green is an associate, Natalie Drew and Patrick Wooddisse are partners at TLT.

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