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Second thoughts

Congratulations on your forthcoming marriage. It is important that couples who are about to marry are aware of the financial implications if they divorce as many people at this stage of their lives are so happy and in love that they cannot even think about separation. The divorce rate is the lowest it has been in England and Wales for 20 years but the number of second-time divorcees has doubled in the last 25 years. In 2006, second-time divorcees constituted one-fifth of all divorcees.

A number of recent court cases have helped to test what the divorce courts believe is a fair divorce settlement. A high-profile case last year was Charman versus Charman, where the husband had to provide his former spouse with an amount of £48m equating to 37 per cent of his wealth, the biggest-ever award on divorce from an English court. The judge ordered assets held within a trust set up by the husband for the benefit of his family and himself to be used as part of the divorce settlement.

You already have a proportion of your considerable wealth held in trust for your children. In relation to divorce and trusts, the legislation on pension-sharing and divorce says: “On granting a decree of divorce…the court may make…an order varying for the parties of the marriage and of the children…or either or any of them any ante-nuptial or post-nuptial settlement…made on the parties to the marriage.”

If you divorce, your former spouse may argue that the trusts you have set up are a sham and that the assets still belong to you, not your children. He could argue that your trustees act in accordance with your instructions and are not independent or that you deliberately set up the trusts when you realised that your marriage was failing. Spouses who are divorcing a settlor or beneficiary of a trust may demand a bigger settlement than would have been the case if the trust had not existed.

Divorcing parties are obliged to make full and frank disclosure of all material facts, documents and other information relevant to the issues before the court. The standard financial statement which the parties are obliged to complete and swear must include particulars of trust interests, including those under discretionary trusts.

If you truly believe you may get divorced again, I would make sure that you have correctly set up your trust deeds so that it is clear they were created and funded years before your second marriage was on the horizon. I would also check that the trust wording does not name you as potential beneficiary or your husband either, as by naming him as a potential beneficiary his access to information would be a powerful weapon in divorce proceedings.

If you follow the advice here, it will prevent the trust assets being included in a divorce settlement.

There would be no point in not disclosing the full details of the trust funds as the court can order a beneficiary to provide them and to give details of capital and income which has been received or which could reasonably be expected to be received in the foreseeable future from the trust. A beneficiary can only disclose what he or she knows or is entitled to know about a trust.

It is important that you and your soon to be husband enter into a pre-nuptial agreement. If you both disclose all your assets, the terms and conditions are fair and you have taken legal advice, the courts are likely to take notice of the agreement. Remember that a pre-nuptial agreement is not legally binding as a court may override the intentions, especially if it can be proved that one partner entered into it without full consent. You may appreciate this advice more in the future than now.

Kim North (kim@techandtech.co.uk) is director of Technology and Technical

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