Legal

Prenups And Asset Protection: Tips, Traps For International Families

Ruben Sinha, 23 June 2020

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Carefully considered and well drafted PNAs, the author of this article says, can significantly mitigate the risks highlighted and should now be considered a vital component of family governance and wealth planning.

The following article looks at the asset protection structure otherwise known as the prenuptial agreement. A good deal has been written about prenups down the years and how they work – or not – in various jurisdictions. Considering that marital breakdown can overturn years of patient wealth creation, often dwarfing the risks of falling markets and business failures, it is unsurprising that so much attention is given to the topic.

The article comes from Ruben Sinha, who is a lawyer and member of the London family asset protection team at the international law firm Bryan Cave Leighton Paisner. He advises ultra-high net worth clients, private banks, professional trustees and family offices on asset protection and complex high-value cross-border family litigation. Having practised in both London and Hong Kong, most of his work is of an international nature and he has particular experience of advising clients with connections to and interests in Asia and the US. (More details below.)

The editors of this news service are pleased to share these thoughts and invite replies. The usual editorial disclaimers apply. To comment, email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com 

 

The growth and globalisation of wealth over the last two decades has seen ultra-high net worth families establishing and implementing increasingly sophisticated asset holding structures and wealth planning strategies. Advice is often focused on tax mitigation, investment growth, succession planning and philanthropy. But is sufficient consideration being given to the potential impact a divorce may have on a family’s wealth?

In my opinion, asset protection is not high enough up the agenda. Too often, asset protection in the context of future family litigation – or “divorce proofing” wealth – is not on the agenda at all. This is perhaps surprising given that English divorce proceedings arguably pose the single biggest threat to family wealth.

What is at stake? 
A lot. On divorce, the English court has very broad discretion when dividing wealth. Ultimately, the court will seek to achieve “fairness”. An equal division of assets will only be departed from if there is a good reason for doing so. Wealth accrued during a marriage is now normally shared. But it does not stop there. All assets - wherever and however they are held - are potentially in the pot. Unlike many other jurisdictions, “non-matrimonial” wealth - such as pre-acquired, gifted or inherited assets - can be divided to meet a claimant spouse’s needs. All of this has, over the last 20 years, led to a number of very substantial financial awards being made and, rightly or wrongly, London earning its title as the “Divorce Capital of the World”. 

It is well known that, in certain circumstances, prenuptial agreements can be used as effective asset protection tools. However, despite widespread belief to the contrary, these agreements are not automatically binding in England. Broadly speaking, the court should now uphold the terms of a PNA which has been freely entered into with a full understanding of its implications unless it would be unfair to do so. There has certainly been a move over the last 10 or so years towards courts placing increasing weight on these agreements. 

There are, however, a number of important points which must be considered if a PNA is to prove effective. 

Planning ahead is key. Too often PNAs are done at the last minute or “on the cheap”. This is fraught with risk, particularly when substantial wealth is at stake. As the law in relation to PNAs continues to evolve, this work has become increasingly complex and nuanced. It is important that those considering a PNA obtain advice from specialist lawyers who routinely deal with this type of work - and in good time. 

Ideally, a PNA should be executed at least 28 days before a marriage to avoid possible arguments around duress and pressure later on. Careful thought will of course need to be given as to how and when the issue of a PNA will be raised. I suggest discussions should start at least six months before a wedding and ideally earlier if there are particularly complex or international angles involved.  
 

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