Legal
GUEST ARTICLE: How Big Money Divorces Differ From The Norm And How They Don't
This article argues that making divorce planning a part of wealth planning in general is an important first step for high net worth couples who want to make sure that there is a safety net in the event of a divorce.
As reported in various media recently, Russian billionaire
Farkhad Akhmedov was ordered to pay his wife a record £453
million ($639 million) divorce settlement, another example of the
eye-popping payouts in English courts and said to be the highest
ever in the country. (Other big cases that attracted heavy media
attention include those of retired Formula One motor racing boss
Bernie Ecclestone, or former Beatle Sir Paul McCartney.)
Tatiana Akhmedova was given a 41.5 per cent share of Akhmedov's
£1 billion-plus fortune. Such sums have drawn attention on how
London is seen, because of its divorce law regime, as an
attractive jurisdiction in which to fight such battles for those
looking to initiate a case. In England and Wales, pre-nuptial
agreements are still not yet formally recognised in law although
in recent times they have been taken into account by judges.
Unpleasant as such cases can be, the fact of divorce remains an
important agenda item for wealth advisors counselling individuals
about the sort of risks that exist. In this article, Katharine
Landells, partner in the family law team at Withers, the international
firm, ponders on whether, and in what ways, divorce is different
for the wealthy. The editors of this news service are pleased to
share these insights and invite responses. The views of
contributors aren't necessarily endorsed by this publication.
Email tom.burroughes@wealthbriefing.com
"The rich are different from you and me" – key factors in a high
net worth divorce
How apt is F Scott Fitzgerald's quote when looking at divorce for
the wealthy? There are some big differences in the approach
where there are significant assets. High net worth
individuals rarely have simple asset structures and with that
comes the potential for complex and high stakes disputes.
It is usual in these sorts of cases for there to be one in the
couple who has been responsible for generating or managing the
assets, and one who has taken more of a back seat. This
presents challenges on both sides. For the wealth
generator, it is not usually a welcome exercise to provide the
detailed exposition of the finances necessary to enlighten a soon
to be former spouse, that person's lawyers, and potentially a
judge. Without it, settlement discussions will often not
get off the ground. Selecting the right team to help get this job
done is vital. A savvy lawyer with a good commercial head and an
understanding of sophisticated structures will mean the task can
be approached efficiently and pragmatically. The support of other
advisors already part of the family's professional team, such as
accountants, investment managers, finance officers, and chiefs of
staff will lighten the load.
On the other side of the table, deciphering financial disclosure
needs a similar skill set, particularly where there is reluctance
or deliberate obstruction. Planning for a divorce is not
unheard of and asset tracing exercises are familiar to the family
courts. The higher the wealth, the bigger the amount the person
who has created it stands to lose, and the bigger inducement
there is to hide it. The family courts in this country have far
reaching powers to order production of documents and freezing of
assets, and, where assets are off shore, there is the potential
to call on the courts overseas to help.
Tax often comes into play in big money divorces. Where there are
assets offshore and they need to be brought onshore to meet a
divorce settlement, understanding how that transaction will be
taxed is vital. Failure to properly take tax into account could
lead to values being skewed and the outcome being completely
different to the objective envisaged.
One of the most common issues in a high net worth divorce is
around the valuation and the liquidity of a family business.
These businesses are often privately held and so working out
their worth for the purposes of a divorce balance sheet requires
specialist input from a valuer (normally an accountant) with an
understanding of the scope for a merger or acquisition, as well
as an understanding of the market the business operates in.
And even if a value can be arrived at, the extent to which that
value can be realised is another question altogether. Sometimes
the business will be jointly owned by the parties, which brings
into play issues surrounding buy out or, if the business is going
to continue to be run as a joint venture, detailed shareholder
agreements to translate what was a working family relationship
into a purely business one.
Another very common issue surrounds trusts. Used historically as
a way of ensuring succession to wealth down the generations,
divorce can threaten that dynastic intention, particularly if the
trust is one that can be varied by the court, or if it has been
used as a resource of the family's during the marriage. Assets
held in a trust can be just as vulnerable to attack as other
assets and so careful advice is needed about how to protect them
or, on the other side of the table, bring them into the
divorce.
Privacy is key to most high net worth clients. Keeping the family
out of the spotlight can require media law advice and, keeping
the case out of court completely, either through a pragmatic
early settlement or the use of arbitration or mediation, will
often be an important objective.
Making divorce planning a part of wealth planning in general is
an important first step for high net worth couples who want to
make sure that there is a safety net in the event of a divorce.
Prenuptial agreements are enforceable in England and Wales and
thinking at the start of the marriage about what might be fair in
the unfortunate event that it ends is an invaluable safety net.
So the rich are different. However, for our clients who fall into
the high net worth category, their overall objectives are just
the same as those who do not. They want to separate well, to do
their best to maintain a positive relationship for the benefit of
their children, and to finalise their divorce as elegantly and as
painlessly as possible.