06 November 2017

Divorce and family money – who is going to pay up?


Michael Gouriet
Partner | UK

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Clients whose wealth derives from inherited assets or who have the prospect of inheritance in the future, or who receive financial help from their parents will be interested in the recent Court of Appeal judgment of Alireza v Radwan & Others [2017] which looks at whether a future inheritance should be treated as a financial resource of a spouse on divorce. In that case, the first instance judge made an order which in large part protected the husband's inherited assets (c£14m-£17m) contained in a family arrangement with his mother and his sister from the wife's financial claims, declining to make a capital award to the wife to enable her to purchase a home. Instead, the Judge decided that the wife's inheritance (which was not likely to be received for another 16+ years) could be treated as a foreseeable resource and that therefore her needs would be met by living in a flat owned by the husband's family until her father died. The Court of Appeal held that this was wrong. After 14 years' marriage, the wife was entitled to a capital award which reflected her contribution to the marriage in order to purchase a property in her own right and this could be met from the husband's liquid funds in his family arrangement, without detriment to the funds owned by his mother and sister.

In most cases, certainly where a Will is made in England, uncertainties both as to the fact of inheritance and as to the time it will occur, mean that inheritance prospects are not considered to be a definite foreseeable resource on divorce. This case was different because the wife's (considerable) future inheritance was a definite entitlement under the forced heirship laws of another jurisdiction. However, in the Court of Appeal's view this did not negate the husband's financial obligations to his spouse and children. The Court of Appeal specifically stated that just because a father has helped his daughter and grandchildren in the past does not mean that he had accepted long term financial responsibility for them in the event of divorce.

This case is another example of the family court drawing a distinction between the relationship of trustee and beneficiary on the one hand (where it may be more inclined to make orders based on evidence or inference of access to a resource) and, as in this case, the relationship between donor and donee on the other hand (where greater caution is exercised). Obviously much depends in each case on the evidence of the spouses and relevant third parties, but a notable observation made by Coleridge J in the case of AM v SS [2014], which chimes with the Alireza case, was that 'it would be highly dangerous for the court to proceed on the basis of crossing its fingers and hoping such a rich parent would pay up'.

This article forms part of our Autumn 2017 family newsletter, alongside the other articles found in the Insight section below.

Michael Gouriet Partner | London

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