How can advisers help protect assets from previous marriages?

Divorces are on the rise in the UK, according to the Office for National Statistics (ONS).

Latest data on divorce, published in 2017, stated there were 106,959 divorces of opposite-sex couples in 2016, an increase of 5.8 per cent compared with 2015. There were also 112 divorces of same-sex couples in 2016; of these 78 per cent were among female couples.

And with divorce and remarriage comes difficulty, not just emotionally and practically (who will the kids stay with on the bank holiday weekend? Whose house should we go to for Christmas?) but also financially. 

Financial advisers and solicitors have been working more closely than ever to help clients through the legal and financial complexities of divorce, remarriage, pension splitting, inheritance and estate planning.

It is a lucrative industry; figures from family justice organisation Resolution, published in a report earlier this year in partnership with the Personal Finance Society, said the divorce market is worth approximately £500m a year.

A lot of couples forget that, even if they have been together for years, they need a will. Jane Finnerty

However, the nine-page report, Unlock the Divorce and Separation Market: a £500m Opportunity for Financial Advisers, cited a "growing need" for specialist financial advisers in family law.

The report said only 42 financial adviser specialists were currently accredited in family law, which leaves "just one professional for every 5,000 potential clients".

Aside from this opportunity to specialise and capitalise on the divorce market, there are important things all advisers should consider when helping clients who remarry later in life.

Jane Finnerty, joint chairperson of the Society of Later Life Advisers, comments: "Often, later-life marriages are between people who both have their own assets and homes, etc. 

"Therefore it's a matter of managing those assets so that, on death, they benefit the beneficiaries they choose - which isn't necessarily each other."

Will writing

Helen Medhurst-Jackson, financial planning director at Investec Wealth & Investment, cites this as a priority. She explains: "Clients should write a new will and be specific about their wishes.

"It is also prudent to set up a lasting power of attorney (POA) at the same time."

If this is not something your advisory practice offers, Keith Richards, chief executive of the Personal Finance Society, advocates: "Encourage clients to seek advice in respect of rewriting an existing will."

He also strongly believes clients should be encouraged to create a POA, so their wishes can be acted upon in the event of lack of mental capacity at some future point. 

"In the case of divorce, if someone has chosen their spouse as sole POA, the existing lasting POA will be revoked. It’s therefore important to make sure any lasting POA is kept up-to-date," he cautions.

Ms Finnerty adds: "Well-drawn-up wills are essential. A lot of couples forget that, even if they have been together for years, they need a will. Also, step-children from a previous marriage may miss out otherwise."

Home is where the heart is

Home is also where the bulk of a couple's assets are likely to be, as Mr Richards observes: "Most people’s biggest asset is their home. When couples buy a home together, particularly if it is mortgaged, the legal ownership will probably be as ‘joint tenants’.

"This means that the parties own the whole property simultaneously. If one party dies, the other assumes sole ownership, no matter what the deceased’s will says."

They may have a better chance of retaining property brought into a marriage if it is kept separate from joint assets. Keith Richards

He says if people remarry in later life, and parties want to leave a share of a new property to someone else, such as a child from a previous marriage, they should consider becoming tenants in common, where each couple both owns separate shares.

Ms Medhurst-Jackson agrees with this, adding: "This means each spouse owns a defined percentage, and will make it possible to stipulate to whom the client wants their own share to go to."

Separation of assets 

On remarriage, it is advisable for some clients to keep their respective property or assets separate. Mr Richards explains: "The courts can redistribute property on (subsequent) divorce, but they may have a better chance of retaining property brought into a marriage if it is kept separate from joint assets.

"Some solicitors have suggested this position will be stronger if a portion of money is set aside - say for children from a first marriage - in sole name from the outset."

Any money accumulated before marriage or remarriage should be kept separate as a matter of principle, Ms Medhurst-Jackson advises.

This will help if the later-life marriage also ends in divorce - the ONS figures suggest there are a significant number of divorces among those aged 55 and above, with men far more likely to divorce in later life than women.

Setting up a trust 

Ms Medhurst-Jackson is strongly in favour of setting up trusts, as "these will specify how and when assets pass to beneficiaries".

Mr Richards elaborates: "Specifically, encourage clients to appreciate the role of a ‘life interest trust’. These can be used to give the surviving person a life interest in some or all of your estate – for example, stay in the home or receive an income from other assets but, once they die or go into care, it can go to the children."

This is a key point for Charlene Coulbeck, senior paraplanner for Informed Financial Planning. She says: "Writing investments into trust is another way of protecting assets for, say, children of previous marriages.

"For example, an investment bond written under discretionary trust, with the children from a previous marriage as trustees – and perhaps a solicitor too, will allow them to decide upon your death what happens to the investment rather than going to your new spouse.

"There are always tax implications of putting assets into trust of course, and so full advice should always be given for each individual circumstance."

Keeping everyone in the loop

Advisers should also be proactive in their communications with clients about these various issues, particularly at or immediately after a key life stage such as divorce or remarriage. 

While these subjects can be difficult to broach, because they are highly emotive, it is important to encourage clients to let you know how they wish their assets to be treated in the event of subsequent divorce via a pre-nuptial agreement (pre-nup).

Although pre-nups in the UK are not legally binding, when drafted fairly and properly, they have been seen as influential by the courts and are sometimes upheld by judges.

Older clients who have already been stung once by an earlier divorce may be more likely to seek some form of legal 'cushion' in this form, so it is worth forging professional partnerships with family lawyers to help protect your clients.

Protection policies

The PFS's Mr Richards also advocates updating or taking out life assurance policies, such as creating a whole-of-life second death policy written in trust, as this could extract an inheritance for the deceased's original children on first death.

Ms Medhurst-Jackson says it is important to review and amend any existing life assurance policies, as well as any mortgage or loan arrangements. She also stresses the need to update pension nomination forms, where necessary.

"Don't put off seeking advice from professionals who understand these dynamics", is what Ms Finnerty would advise those women seeking to marry later on in life, as fully accredited financial advisers and solicitors are best placed to help those with complicated financial and relational needs.

simoney.kyriakou@ft.com