Can I 'ring fence' inherited property on divorce?

Jennifer Allen provides a legal update on the complex issues of the impact on inherited wealth on divorce/ dissolution. 
 

Upon dissolution of a marriage or civil partnership it may be necessary to consider what assets are in the matrimonial pot and how that pot should be shared.  There are diverse factors the Court may give consideration to when considering if an inheritance ought to be shared (if at all) and if it is to be shared, in what proportions.  One of the fundamental considerations are parties financial needs and future needs.
 

The recent case of Y –v- Y [2012] concerned a divorcing couple and inherited assets from the husband’s side of the family.  The Court described the parties standard of living as being “exceptional” and “privileged” during their 26 years of marriage.  Shortly before the marriage the husband became entitled to a large Oxford Country estate owned by his family and it was fully passed on to him four years after the marriage.  The estate was valued by an expert at just over £35m and it comprised of a grade II* listed house, farms, over 1000 acres of farm land, 17 residential properties, a pub and other buildings.  Taking into consideration CGT and liabilities, the net value of the asset was just under £27m.  Upon divorce the wife sought a lump sum payment from the husband of £11.2m, comprising of approximately £7.3m to purchase a property in London and £3.6m investment fund to provide income.  The husband sought to ring fence the family estate entirely.  The husband offered £7m to comprise a housing fund and an investment fund for income.  It was husband’s opinion that the wife could later downsize therefore releasing capital in the future to increase her income.  Judge Baron J believed the husband was blinded by his wish to ring fence the inherited asset and failed to give proper consideration to the contributions of his former spouse during this long marriage and her future needs.  

The Judge concluded that the fair result was for the wife to receive a lump sum of £8.74m (32.5% of the net assets).  This calculation meant the inherited assets did need to be shared and so the husband could not ring fence the inheritance entirely. Case law provides guidance that in some circumstances (case and fact dependant), inherited assets can be invaded to meet needs.

Should you have any questions regarding inherited wealth upon separation, or you wish to consider how you could protect inherited wealth prior to marriage or civil partnership, contact Jennifer Allen on 01242 574244 or email jal@hughes-paddison.co.uk.