Don't plan to fail: asset consideration, planning and protection during marriage

Morton Fraser Partner Fiona Sasan
Fiona Sasan
08 February 2022
Individuals and Families
The Scotsman

"If you fail to plan, you plan to fail" and "proper preparation prevents poor performance" are phrases that haunt me from my school days but ones that I, as a family lawyer,  keep in mind when advising clients on asset planning and protection. 

In Scotland, if a couple divorces, the assets built up during the marriage (known as the "matrimonial property") are divided. The rules are designed to provide fair sharing of the assets which have built up during the marriage. The default position is an equal split of the assets, although there can be an unequal division in certain circumstances.

"Matrimonial property" consists of all the assets acquired by either spouse between the date of marriage and the date of separation (excluding assets acquired by gift or inheritance). Sound fair and simple? It can be. However, there are often complexities. One example is if an asset (e.g. a business) existed before the marriage but it changed form in some way during the course of the marriage. This could result in it forming matrimonial property. Another example could be where a party to the marriage inherits an asset during the marriage (e.g. a lump sum), but it changes form (e.g. if it is used to acquire an asset) and is converted into matrimonial property. So, what can be done?

In cases where there are complexities - and disagreement between the parties - in respect of division of assets the case can be taken to court, and a Sheriff or Judge can use their discretion to make a decision on what a fair division of the assets is. This is a process which can be very expensive, lengthy and stressful, not to mention result in an outcome that neither party is happy with. So how does one avoid this?

Proactive asset consideration, planning and protection (before and during the marriage) is the answer. Most couples do not want to think about the possibly of divorce when they get engaged (or indeed during the marriage), but divorce happens. There is planning that can be done to help parties achieve a speedy, fair and equitable division of the assets, and avoid things getting messy if they do divorce one day. 

Prenuptial and postnuptial agreements are one of the planning tools. Married couples can enter into contracts before (a "pre-nup") or during (a "post-nup") a marriage. These contracts provide for what they want to happen with certain assets in the event of marital breakdown. These contracts are a really effective planning tool albeit rather unromantic. I like to think of such agreements as marriage insurance policies. It is hoped it won't be needed, but is there just in case (like home or travel insurance). For many couples though, entering into such an agreement pre-marriage is just too emotionally difficult and or it is deemed unnecessary by them at the time due to their assets position.  In such cases it is worth bearing in mind that you can enter into a post-nup at any point after the marriage has taken place. So, if things do change, consider seeking advice, especially if there is an important financial decision or change taking place. A business restructure may be one such occasion. Another could be if one of the parties is due to inherit and wishes to protect the inheritance. 

Another, less formal, planning tool is to work with a family lawyer in conjunction with your other financial planners during the course of your marriage. Professional financial advisors such as accountants, tax advisors and corporate lawyers can inadvertently cause problems down the line. What might be a tax efficient decision now could be disadvantageous to you at the point of divorce. Having a family lawyer in the planning team could help to avoid a costly pitfall.

The final planning tool is for use at the point of separation. If you do separate, and you have not planned for it during the marriage, all is not lost.  Consult an expert family lawyer at an early stage. Be upfront and make full and comprehensive disclosure of your assets. This information will allow for your family lawyer to seek a negotiated division of the assets which is favourable to you and which best preserves and protects your assets for the future.

First published in The Scotsman


The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser LLP accepts no responsibility for the content of any third party website to which this webpage refers.  Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.