Setting up asset protection from Divorce & minimising tax liability

n141311

Hi,

First of all, I hope this thread is being made in the right section - it largely relates to seeking advice / suggestions for the best way to protect assets from primarily a) divorce AND secondarily b) minimising tax liability

If any one can suggest ideas, warn of pitfalls or recommend a good firm it would be appreciated.

Here's the background....

My siblings and I are all in our 20's and currently have just over £1m worth of properties (6 in total) and stocks / shares sitting in ISAs. Properties are in our individual names and none of us are yet married or have children. We have zero debt, no mortgages.

The current arrangement of doing annual tax returns for the property income works fine, while the income generated from shares held in ISA's are free from income tax so we're fine. However, what we have realised is that within the next 10 years or so we're likely to end up having an asset base of between £2-3m and also end up married. This brings with it two risks: increasing tax liability and the potential for some or all assets being brought into a divorce settlement. To complicate matters further, some assets are in joint names between my siblings and I, others are in 1 person's name.

What we'd like to do is setup a structure(s) that will a) protect our assets from potential divorce if one of us gets married and b) do so in a tax efficient manner.

The aim of the game for us to build a legacy with a view to eventually passing the assets to our not-yet born children. UK divorce rates are shocking & we'd rather get this wrapped up now before acquiring more assets.

PS. One final option I am considering is to either not get married (but rather have an informal ceremony) or get married overseas in a jurisdiction that recognises pre-nups. Not sure what the implication would be of then returning and living in the UK though if a divorce were to happen 10 years down the line.

Thanks in advance.

grey_gym_sock

i don't think that getting married in another jursidiction would guarantee that divorce proceedings would also take place there. OTOH, pre-nuptual agreements at least may be enforced by UK courts now: http://www.guardian.co.uk/money/2010/oct/20/prenuptial-agreement-enforced-uk-law

pretty sure you can't do anything to protect investments inside S&S ISAs without giving up the ISA wrapper.

possibly you could put properties inside a discretionary trust, to benefit you during your lifetime and your descendants afterwards. not sure whether that helps with a divorce, though. and a lot of the tax benefits of trusts have been removed now.

John_Pierpoint

Are the UK's divorce figures swollen by "divorce tourism" [We sure need something that brings in foreign exchange.]

The farmer's dilemma ?
Make sure you marry someone suitable who is your equal financially?

Some people never learn or is it third time lucky ?

http://www.nytimes.com/1997/12/02/world/divorce-in-africa-is-set-for-diana-s-brother.html

http://www.dailymail.co.uk/femail/article-1357198/Earl-Spencer-Dianas-brother-wed-time-ditching-fiancee-4-months-ago.html

le_loup

What a revolting way of thinking about marriage.
I hope she tells you to pizz off.

n141311

thanks for the replies.

@le loup - I can understand your sentiment but think you may have your wires crossed. None of my siblings or I are engaged or married. We're simply thinking ahead so my planning is solely driven by the fact that divorce rates in the UK are very high and it would be morally wrong for me / my siblings to put joint assets at risk. I was brought up to believe that marriage is for life, some people unfortunately don't see it that way and thus this kind of forward planning is required.

@Grey Gym Sock - Great article. I think it's a shame pre-nups are not more widely recognised in the UK, I think the article was correct in its quote that pre-nups are a good way to ensure that when two people marry it is solely for love, and if they end up separating then money is never a factor. That said, I still don't feel comfortable enough with a pre-nup as the law largely disregards them if the woman has custody of the children and therefore requires assets to support them.

@John - I think it's sad that some people marry two or three times. Once is enough for me. I just want to ensure that my siblings' assets aren't put at risk of liquidation should the worst happen. You hear so many stories...current divorce law if anything probably undermines the institution of marriage. It's so easy to separate.

After doing some reading around, I think what I will end up doing is placing all properties into a trust though my ISA will remain in my name. The beneficiaries of the trust will be my parents until my children are born. And the vehicle will be used to acquire assets and it will explicitly be stated I will never have access to either the rent or the capital from them. It will simply compound over the years with money going into the trust and the trust then acquiring assets. Very sad but that's the only practical solution I can think of.

If anyone reading this can recommend a good firm with specialist asset protection / divorce knowledge that would be great. Thanks for all the comments & happy new year

n141311

John_Pierpoint wrote: »

The farmer's dilemma ?
Make sure you marry someone suitable who is your equal financially?

Sometimes, you can't choose who you fall for. And I could never let money or status be a factor in being attracted to someone. I want to marry for all the right reasons but just have my !!! covered if my idealistic aspirations fall through. Statistically speaking, the odds are against me being someone who lives in the 'divorce capital of Europe' (culture problem perhaps?)

grey_gym_sock

n141311 wrote: »

I still don't feel comfortable enough with a pre-nup as the law largely disregards them if the woman has custody of the children and therefore requires assets to support them.

but why wouldn't you want your assets used to support your own children?

it's fine to want to understand your options. but if you get to the point of wanting to marry somebody, it would be a little strange if your attitude didn't change.

n141311

grey_gym_sock wrote: »

but why wouldn't you want your assets used to support your own children?

it's fine to want to understand your options. but if you get to the point of wanting to marry somebody, it would be a little strange if your attitude didn't change.

I'd want my children supported no doubt, but I don't see why that would require asset sales / 50% split of assets. It seems a little unfair to be honest especially if liquidation involves pre-marital assets. I was raised by two loving parents on a shoe string. Put simply, if divorce happens, money should never be motivating factor & neither party should benefit financially IMO.

Cook_County

Asset protection trusts are common in some jurisdictions, but not ours.

I suspect you may want to investigate a Family Limited Partnership to achieve the control that you want.

n141311

Cook_County wrote: »

Asset protection trusts are common in some jurisdictions, but not ours.

I suspect you may want to investigate a Family Limited Partnership to achieve the control that you want.

This is exactly the type of thing I was after. Thanks!

I will look into a firm that can help advise on setting it up. Hopefully this thread will help others too. I definitely think forward planning is the way to go when it comes to passing wealth onto the next generation.

kidmugsy

Do you live in Scotland or in E & W?

(When last I saw them the Scottish rules on assets on divorce were far more sensible: the assets you had before you married were not up for grabs by your spouse, though of course they could be directed to support your children).