Possible divorce of a child

It is not uncommon nowadays for parents be concerned about where their estates might end up in the event that they pass away, leaving assets onto a child who seemingly does not have the most stable of marriages.

Sometimes parents have a suspicion a child’s marriage might end in divorce, or there might be more obvious evidence this is definitely going to happen. The bottom line is that it is not an attractive prospect to give away assets to a child, who might then end up losing them to a spouse in the division of matrimonial assets.

What can be done to protect assets if a child might divorce?

Broadly speaking, parents would have three options, in circumstances, like this: –

1. Give assets to the child

A simple Will or Wills could be made dividing assets between the children eventually, and hope that the child with matrimonial problems will secure a “clean break” financial settlement before any inheritance is received.

2. Leave assets to another child/custodian.

If the amount in question is not enormous, there is a possibility that parents could leave assets earmarked for the child who might divorce to another child or responsible individual to look after on their behalf. Once the child with matrimonial problems is in a stable financial and matrimonial position, the assets could then be transferred to that child. This is not an ideal solution in relation to taxation of these assets (ie, the custodian would be taxed personally on the income the assets might generate, etc) and indeed there would there be no obligation on the custodian of the money to eventually had it over to the child it was intended for.

3. Use a discretionary trust

The most secure alternative would be for assets to be left into a discretionary trust, appointing trustees. A number of beneficiaries could be defined and all that the child suffering matrimonial difficulties would be entitled to would be to be considered as a beneficiary for capital and income.

As such, it could not easily be argued by a divorcing spouse that the assets held in trust should be treated as part of the pot of matrimonial assets.

It is possible, in some circumstances, for the Courts in a divorce to look at a potential trust like this and class it as a sham, but provided it is drafted sensibly, this will be the most secure and sensible solution to the problem at hand.