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  1. Law
July 20, 2010

For Richer, For Poorer

By Spear's

There are four percentage figures worth knowing, and they are 40%, 50%, 60% and 99%, and in 99% of all cases the outcome of any financial settlement in a large money divorce will be one of these figures.

Courts will always look at prioritising the welfare of any minor children and in smaller-money cases needs will always predominate, but in large-money cases the wealth creator will invariably argue that the court should depart from its standard approach of 50%-50% after a long marriage. The courts have seen a plethora of cases with wealthy parties trying to protect what they perceive as wealth that they have created, or indeed wealth they may have inherited or brought to the marriage, and contribution remains as valid today as it ever was.

In smaller-money cases, the courts have always sought to equate contributions from the homemaker and the wealth creator as being equal, i.e. there should be no discrimination, but in larger-money cases it is easy to understand why the wealth creator will seek to argue that their contribution is greater. In the Charman case, suggestions were made that to depart from equality to reflect contributions made by the wealth creator would probably need a starting point of £30 million, but recent cases have demonstrated that the figure can be significantly lower.

Length of marriage, children, pre-acquired assets, and assets built up post-separation all feature in the contributions argument, but one thing is certain – in larger-money cases, contributions are never equal and the wealth creator will never do worse than 50%-50%, whereas the homemaker often will and if there is to be a departure from equality then that departure is likely to be significant to the extent of 60%-40% or even greater in the wealth creator’s favour.

The question, then, is what can the wealth creator do to protect their wealth, particularly if it is pre-acquired? Trusts are not new but are as valuable today as they ever were, provided there is not a nuptial element. Family investment companies are a more recent example of how businesses can protect wealth. Articles of Association protecting voting rights and establishing different classes of shares are also an extremely valuable way of protecting family wealth.

Pre-nuptial agreements and post-nuptial agreements are much more relevant now than ever before. Pre-nuptial agreements remain persuasive, not binding, but that depends very much on the outcome of the Supreme Court decision in the Radmacher case, which should be announced shortly. Even if the husband is successful, the verdict is still likely to cap his claim at about £5 million, i.e. the lower court award from an estimated pool of £105 million.

Why would a wealth creator not want the certainty in advance of retaining in excess of 95% of the assets in the event of divorce? This is particularly true when we consider that the average length of marriage is now just over 11 years, meaning that the norm will be for parties to marry two or three times going forwards.

Post-nuptial agreements, providing they are fair and comply with the same formalities as pre-nuptial agreements, (to include full and frank disclosure, independent legal advice, lack of duress) are likely to be upheld because they are agreements entered into once the parties have married, and any client who has entered into a pre-nuptial in recent times should additionally have a post-nuptial agreement.

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There is little doubt that this will become common practice for high-net-worth individuals, going forward.

Whilst marriage remains a partnership, it is not a partnership of equals, certainly in larger money cases.

Marc Saunderson is a partner in the family department at Mills & Reeve

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