The 'Corbygeddon' effect
This article was first published in Solicitors Journal on 22 August 2019 and is reproduced by kind permission.
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The upsurge in wealthy clients seeking advice on moving money abroad means a greater appetite for legal advice on wealth protection in a matrimonial context, says Pippa Allsop
"Significant and rapid relocation of assets and people overseas will impact on wealth protection from a matrimonial perspective"
The increasing number of reports that the UK is about to experience a mass exodus of the super-rich, or at least of their wealth, recently led to the Sunday Times coining the rather alarming term "Corbygeddon".
Numerous private client law firms have confirmed a marked upsurge in high-net-worth clients seeking expert advice in relation to moving their money overseas in anticipation of a Labour government implementing its proposed tax increases, which will be applicable only to "the top five per cent". The Sunday Times Rich List 2019 investigation found there was a possibility of up to £1tn in assets and businesses being relocated abroad if Jeremy Corbyn made it into 10 Downing Street, leading the head of Courts bank to assert that this situation gives a greater cause for alarm than Brexit.
In the circumstances, it is clear there will continue to be an enhanced appetite among wealthy clients for expert legal and financial advice, particularly in relation to tax planning and wealth protection. There will also be a multitude of other pertinent legal issues arising from international re-location, whether it relates to people, their assets or both. This will unquestionably include wealth protection in a matrimonial context.
There is absolutely no question that pre and/or post-nuptial agreements have become much more commonplace in recent years. There are a number of reasons behind their increasing popularity, including a new focus on taking a pragmatic business approach in the context of romantic relationships; a rise in the average age of parties to a marriage leading to a greater level of pre-marriage wealth accrual; and multiple marriages becoming more common – creating a greater desire for the protection of existing assets.
It's not only the parties to a marriage themselves raising the issue. Very often we find it is the parents, or even grandparents of the betrothed, who advance the necessity of a nuptial agreement with a view to protecting family inheritance as far as possible within our existing legal framework.
The fact remains that pre and post-nuptial agreements are not at present enforceable under English law. This is to say, they are not automatically binding on any court tasked with the determination of a fair financial outcome on divorce, although they are given varying degrees of weight as a "relevant circumstance of the case". This means it is very important clients understand that provided such an agreement is drafted properly and – crucially – delivers a fair outcome at the point it is relied upon, then its provisions should be upheld.
Additional benefits of having in place a pre or post-nuptial agreement include transparency and certainty. The drafting exercise at the outset can itself often identify and clarify discussions which are an imperative part of what is, from a practical and realistic perspective, a romantic business partnership. The primary objective is, of course, to avoid the potentially emotionally and financially devastating consequences of an acrimonious divorce.
The effect of the parties to a nuptial agreement relocating to a jurisdiction where such agreements are routinely upheld needs to be carefully considered – whether that is part of the initial drafting exercise or considering if variation to existing agreements is required to ensure relocation does not adversely affect the intended purpose. Comprehensive legal advice should mean such discussions automatically form part of the ongoing wider family wealth planning and protection strategies for high-net-worth individuals.
Legal reform in relation to the enforceability of nuptial agreements has not really gained any momentum since the Law Commission's initial review of the issue ten years ago. With Brexit keeping the government more than preoccupied at present, such reform seems unlikely to be propelled to the top of the agenda any time soon; or indeed within the near to distant future.
However, this does not alter the current reality of the significant and rapid relocation of both assets and people overseas, which will undoubtedly impact on wealth protection from a matrimonial perspective.
It is crucial this aspect is not overlooked as part of the overall strategy when providing wealthy clients with advice in connection with these critical issues.