This is a question often asked by parents who are concerned that the wealth they have worked hard to build up, may be lost or dissipated if they gift or pass on by inheritance assets to children who subsequently find themselves in the divorce courts.
Asset protection is a very real concern, and parents are right to ask the question about whether gifted or inherited wealth from parents would be ring fenced from the other spouse (in-law).
It will ultimately depend on the circumstances of each individual case, but in reality, the wealth may well be vulnerable to a claim during a divorce. Having said this, with some pre-planning, there are steps that parents and families can take to mitigate the risk and strengthen their position.
The most obvious solution is the creation of a Pre-Nuptial Agreement between the marrying couple. Entering into such an agreement makes it possible for gifted or inherited wealth from the parents to be ring fenced in the event of a subsequent divorce.
There are, however, other options open to families wanting to protect their wealth aside from a Pre-Nuptial Agreement. One of the alternatives, for example, is to loan, rather than gift, monies. Passing on assets to children in this way may make it more difficult for these to be claimed against should they find themselves facing a divorce.
Additionally, creating a Trust for lifetime gifts, or any inherited wealth to be held in and managed by Trustees, is another vehicle which can be used to mitigate the risk of a claim against those assets.
It is fair to say that very little is absolutely safe from claims in a divorce situation but that is not to say that parents should not take steps to protect themselves and their children. In the circumstance of their children facing divorce, pre-planned actions, such as those mentioned here can make a significant difference to the outcome of the case.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.