Legal

GUEST ARTICLE: How Big Money Divorces Differ From The Norm And How They Don't

Katharine Landells 6 February 2018

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.  

 

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes