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October 18, 2013

The Debate: Should High Net Worth Individuals Get Married?

Marilyn Stowe offer her thoughts on HNW marriage

Why getting married doesn’t always make sense
By Marilyn Stowe, Senior Partner, Stowe Family Law

Recent figures reveal that more ultra-high net worth (UHNW) individuals live in the English capital than any other city. The rising number of wealthy residents has also led to the media coverage of a string of high-profile divorce cases, which have been estimated to result in payouts amounting to hundreds of millions. Earlier this year, the former wives of billionaires Bernie Ecclestone and Roman Abramovich made it to The Sunday Times Rich List purely on the strength of their divorce settlements. Despite the relative wealth of the men in question, such highly publicised divorces make it increasingly clear that for an ultra-high net worth individual, divorce is rarely “cheap”.

No other kind of litigation, except for a criminal prosecution, declares open season on personal or business dealings to quite the extent as divorce. A divorce in England or Wales can prove expensive for a wealthy breadwinner, because all property is available for sharing and will be divided between the couple by the courts. However, this doesn’t necessarily lead to an enormous financial settlement or a cut down the middle, if a lesser eye watering settlement is appropriate because of the indisputable, stellar contribution of the UHNW. Generally, however, it is extremely difficult for UHNWs to avoid sizeable payouts.

At my firm, we are certainly seeing a rise in prenuptial agreements: they definitely encourage UHNWs who are concerned about their assets in the event of divorce, to marry. However, it is a mistake to presume that a prenup will always, automatically, provide the divorce equivalent of a “Get Out of Jail Free” card. At the time of writing, a prenup is still not automatically binding in law, although it may be upheld at the discretion of the judge. The outcome will depend on the circumstances and needs of the couple and the provisions made.

Even if the couple have children, a UHNW parent, if not the primary carer of the child, will be liable only to pay a “carer’s allowance” to maintain the living standard of the other parent for the benefit of the child, whilst that child is in education. True, the allowance could amount to hundreds of thousands of pounds a year and there will be Child Support to pay on top, but by law, the resident parent isn’t allowed to save any of it for the future. It is all theoretically for the benefit of the child.  If homes are provided by the UNHW parent, these will purchased to be on trust during the child’s minority and then revert back to the UHNW parent. All this can cause potential tax issues for the high earner, but the financial losses are minor in comparison to the financial impact of a divorce.

It is hard work to establish any claim when cohabiting, given the absence of cohabitation law, which exists in Scotland but nowhere else in the British Isles. Regardless of the parties’ wealth, a claim can only be made in ancient property law under the scrupulous gaze of a Chancery Judge. It will not result in a divorce style payout and may result in nothing at all, if the property in question is purchased with an accompanying declaration of trust and a signed cohabitation agreement.

This trend against marriage applies across the board. In the UK, the number of cohabiting couples continues to increase: the Office for National Statistics reports that by 2016, the majority of UK children will be born to unmarried parents. From a purely financial perspective for an UHNW individual in this country, living together beats marriage hands down.