Inheritance on Divorce

Often, one of the most contentious issues that must be resolved when a couple divorces is how their finances should be divided. Parties who have inherited money or assets often feel that their loved one’s wishes should be respected, and the inheritance should be kept for their sole benefit. However, whether or not an inheritance will be ring-fenced ie kept out of the marital ‘pot’ depends largely on how the divorcing couple treated the inheritance and, therefore, whether it should be classed as a matrimonial or a non-matrimonial asset.

Matrimonial and non-matrimonial assets

Assets are divided into two types: matrimonial and non-matrimonial. Generally speaking, matrimonial assets are those held in joint names or acquired or cultivated by the couple during their marriage.  However, the Court is more frequently takes into account the assets from the date of cohabitation. The marital home is always a matrimonial asset. Non-matrimonial assets are those acquired by one partner in their own right, outside of the marriage.

Matrimonial assets always form the bulk of the pot to be divided between the divorcing couple when reaching a financial settlement. Non-matrimonial assets are generally excluded from the pot. However, non-matrimonial assets can morph into matrimonial assets regardless of their origin, for example, if they become mingled with matrimonial assets. Furthermore, the Court may take non-matrimonial assets into account to reach a fair outcome if the matrimonial assets are insufficient to provide for both parties’ reasonable financial and housing needs.

How is inheritance treated in divorce?

The key question, therefore, is whether the inheritance is classed as a matrimonial or non-matrimonial asset. Since inheritance is left to one of the partners individually, many consider that it should automatically be classed as non-matrimonial in nature. Indeed, in some cases, it will be, particularly if it is due to be received after the divorce is finalised or was kept in a separate bank account throughout the marriage. However, assets that are initially non-matrimonial can easily morph into matrimonial assets. So, for example, if the inheritance was held in a joint account or used to benefit the whole family, it may have transitioned from being a non-matrimonial asset into a matrimonial one.

Essentially, therefore, there is no hard and fast rule governing how inheritance will be treated in divorce. Whilst the Court will not automatically include one partner’s inheritance in the financial settlement, it will nevertheless carefully consider how the inheritance was treated during the marriage. If the couple used the inheritance for their joint benefit, the Court may decide it is, in fact, a matrimonial asset and should be shared between them.  Even if the Court concludes that the inheritance is a non-matrimonial asset, it may still include it in the pot if the matrimonial assets do not adequately cater for each party’s needs.

For personal advice on any family law matter please call 01524 386500 or 01772 253841.

Divorce without consent

Acknowledging that your marriage has ended and you want a divorce can be life-changing. The stress and emotional toll can be intensified if your husband or wife makes clear that they have no intention of agreeing to a divorce. However, with the introduction of the no-fault divorce in 2022, it is now far easier to divorce your spouse without their consent.

Can you divorce your spouse without their consent?

In short, yes, you can divorce your spouse whether or not they consent, provided you have been married for at least 12 months. When applying for a divorce, you do not need to apportion blame. It is enough to confirm that your marriage has irretrievably broken down. Your spouse is, generally speaking, unable to contest your application. They can only do so in very limited circumstances, such as if they question the jurisdiction of the English Courts.

How do you divorce your spouse without their consent?

Whilst couples can initiate a divorce jointly, either partner can also apply of their own accord, on a sole basis. The party applying for divorce becomes the applicant in the divorce proceedings, and the other party becomes the respondent.

When you file for divorce on a sole basis, the Court will send a copy of your application to your spouse. They must then acknowledge receipt of your application. If they seek to delay matters by refusing to do so, you can apply to the Court to request that the matter proceeds without your spouse acknowledging receipt.  However, the Court will need to be satisfied that your spouse has received the divorce application or that service of the divorce application can be dispensed with.  If the Court is satisfied after considering the evidence, an order will be sent out confirming this.  The divorce can then proceed without your spouse’s involvement.

How long does it take to divorce your spouse without their consent?

Whilst there is very little scope for your spouse to hold up your divorce by contesting your application, the process can nevertheless take many months. Once you have issued your divorce application, there is a 20-week ‘cooling off period’, during which time you and your spouse can reflect on whether reconciliation might be possible or otherwise try to reach an agreement over issues such as how your assets should be divided and where your children will live.

When the cooling-off period has ended, you can apply to the Court for a ‘Conditional Order’, which confirms that you are entitled to a divorce. Six weeks and one day later, you can apply for a Final Order. This is the document which will legally end your marriage. Taking these time limits into account, a straightforward divorce may take at least eight months to complete.  However in many cases the Final Order in the divorce proceedings is not applied for until after division of the matrimonial assets has been agreed which will, of course, mean the process can take much longer.

Key Aspects In Estate Administration

Being tasked with administering an estate as an executor or administrator can be daunting. You’ll have a multitude of jobs to fulfil, and it’s crucial that you get them right, as any errors could result in personal liability. Here, we give an overview of five key aspects in estate administration.

1.      Valuing the estate and protecting assets.

The first task you’ll need to undertake is valuing the estate. This involves obtaining valuations for the deceased’s assets, which may include property, land, cash, and investments. For property and land, it’s advisable to seek professional valuations.

You are also responsible for protecting the assets until the estate has been distributed. This may require you to take steps such as securing any vacant property and making all necessary insurance arrangements.

2.      Paying inheritance tax.

As executor or administrator, you are responsible for ensuring the correct amount of inheritance tax is paid on the estate. You must consider any applicable exemptions, allowances, and reliefs and calculate the amount of tax due, if any. You usually need to pay some of the inheritance tax before the Probate Registry will issue the Grant of Probate, and you can’t distribute the estate until you’ve paid it all.

3.      Applying for the Grant of Probate

Applying for a Grant of Probate is often a straightforward process that can be done online. Most Grants of Probate are issued within 16 weeks, but the process can take significantly longer if your application is incomplete or inaccurate.

4.      Collecting in the deceased’s assets and paying any debts

Once you have the Grant of Probate, you can begin gathering the estate’s assets to distribute to the beneficiaries. Before you can make any distributions, though, you must identify and clear any liabilities or debts the estate owes.

5.       Distributing the estate

Once you have paid any taxes and other liabilities, you can distribute the remainder of the estate to the beneficiaries named in the deceased’s Will. If the deceased died intestate, meaning they did not leave a Will, you will distribute the estate according to the Intestacy Rules. These rules dictate how an estate must be distributed and to whom.  If the deceased was married or in a civil partnership, the rules state that their spouse or civil partner should receive the entire estate. If the deceased had children and their estate is worth over £270,000, you should distribute the first £270,000 and half of the remainder to the spouse or civil partner and share the other half between the deceased’s children. If the deceased was unmarried and had no children, the Intestacy Rules list the order in which other family members should inherit. If the deceased did not leave a Will and has no relatives eligible to inherit under the Intestacy Rules, their estate will go to the Crown. 

Leaving money to children/grandchildren

For many parents and grandparents, the thought of using the wealth they have accumulated throughout their lives to help their children and grandchildren is a comforting one. Here, we discuss the three main methods through which you can pass your estate to your loved ones and continue to support them when you are gone: An outright gift, gifting money at a specified age, and through a discretionary trust.

Outright gift

When you leave money or assets to a child or grandchild as an outright gift, they will receive their inheritance as soon as you pass away or, in reality, as soon as the estate administration process has been completed. Since children under 18 cannot legally own property, any gifts made to those individuals will be held in trust for them until they reach that age.

Money gifted at a specified age

If you’re concerned about your children or grandchildren receiving significant sums of money or assets at a young age, you can delay their gift until they are mature enough to deal with their inheritance responsibly. The ages parents typically choose are 21 or 25, but, ultimately, the decision is yours to make based on what you feel would be best for the individual beneficiary.

Discretionary trust

When you set up a discretionary trust for your children or grandchildren, you leave the parts of your estate you wish to gift to them to a trust. You specify the categories of beneficiaries, which can include people who have not yet been born and appoint trustees to manage the trust on their behalf. The trustees have complete discretion as to how to invest the trust’s funds, who will inherit and when. That’s why it’s called a ‘discretionary trust’.

The concept of handing over complete power to trustees to decide who should inherit your estate may seem a little odd. However, discretionary trusts can be an ideal way to leave gifts to grandchildren who are yet to be born, or if circumstances exist that mean you’re not yet sure how to divide your estate. For example, you may have a child or grandchild who currently struggles to manage their finances but who may mature enough to do so in the future. A discretionary trust is an effective way of deferring that individual’s inheritance until the trustees consider it appropriate for them to receive their gifts.

It’s essential to note that gifting money and assets to children or grandchildren through your Will can have some unexpected and unwanted tax consequences. Therefore, you should take estate planning advice from experienced probate solicitors to minimise any tax implications and ensure that as much of your estate as possible goes to the ones you love.

What is a Deed of Variation, and when might you need one?

A fundamental principle of English law is that everybody should be at liberty to leave their Estate to whomever they choose when they die. However, sometimes, the chosen beneficiaries may wish to change their entitlement under the Will. The law permits them to do so in specific circumstances through the use of a Deed of Variation.

What is a Deed of Variation?

A Deed of Variation alters the terms of a Will after the testator (the person who made the Will) has died. It can also be used to change the application of the Intestacy Rules, which dictate how an Estate should be distributed if a person dies without leaving a Will.

You can use a Deed of Variation to redistribute the deceased’s assets, set up a trust, or include additional beneficiaries.

When might you use a Deed of Variation?

There are several reasons why you might choose to enter into a Deed of Variation, including the following:

To distribute the Estate in a more tax-efficient way.

• To provide for children or grandchildren born after the testator’s death.

• You don’t need your entire share and would like some of it to benefit somebody else.

• You would like some of your entitlement to go to charity.

• To add other beneficiaries who you feel deserve a share of the Estate.

• To even out the distribution, if some beneficiaries have received more than others.

How do you make a Deed of Variation?

Unsurprisingly, various legal requirements apply to Deeds of Variations. The exact requirements depend on the effects of the Deed, but generally speaking, they include the following:

• The Deed must be in writing.

• The Deed must be made within two years of the testator’s death.

• All beneficiaries who will lose out under the Deed must sign it.

• The Deed must clearly state the changes made to the distribution of the Estate.

• If the Deed alters the amount of inheritance tax payable, you must send a copy to HMRC.

• If the amount of tax payable increases because of the Deed, the executors or administrators must sign it.

• The Deed must include a statement that the parties signing it intend the variation to be effective for the purposes of inheritance tax and capital gains tax.

• An independent witness must witness each signature.

Deeds of Variation provide an invaluable opportunity for the beneficiaries under a Will or the Intestacy Rules to redistribute the deceased’s assets. However, your Deed must comply with strict legal rules and requirements to be effective, both legally and for tax purposes. Furthermore, Deeds of Variation can sometimes have unexpected consequences, notably in terms of the tax position, so it’s essential to take advice on the effects of your proposed changes before proceeding.

Can an executor purchase property from an Estate?

When someone dies, they entrust their executor with settling their affairs and distributing their estate in accordance with their wishes. To facilitate this, executors need access to all of the deceased’s assets, including their money and property. The law seeks to protect beneficiaries’ interests by imposing strict legal duties and rules on executors. One such rule is known as ‘the rule against self-dealing’, which applies when executors wish to buy estate property.

What is the rule against self-dealing?

The duties imposed on executors include acting in the beneficiaries’ best interests and not putting themselves in a position where their personal interests conflict with those of the beneficiaries. When an executor wishes to purchase estate property, a clear potential conflict arises. As executor, they must act in the beneficiaries’ best interests and maximise the estate’s value. As a purchaser, it is in their own interests to secure the best possible purchase price for the property. To address this potential issue, the rule against self-dealing prohibits an executor from buying estate property, even at a fair market value.

What are the implications of ignoring the rule against self-dealing?

The implications of ignoring the rule against self-dealing can be severe. The beneficiaries are at liberty to void the transaction at any point in the future, even if they suffered no loss and were initially amenable to the purchase.

How can you avoid the rule against self-dealing?

There are many reasons why an executor may wish to buy estate property. For example, if the executor is the deceased’s child, they might want to buy the family home. There are several ways in which executors can proceed with a purchase without falling foul of the rule against self-dealing. They include the following:

• Relying on wording in the deceased’s Will: If the Will includes a clause expressly excluding the rule against self-dealing, an executor may be able to purchase estate property. However, the wording must be exceptionally clear and unequivocal, and executors must exercise caution when seeking to rely on such a clause.

• Seeking the beneficiaries’ ‘informed consent’: If all beneficiaries agree to the purchase, they can approve it by giving their ‘informed consent’. This involves each beneficiary receiving proper legal advice and the parties following the relevant legal procedures.

• Asking for the Court’s approval: The Court can authorise a sale of estate property to an executor. However, this is not a mere ‘tick-box’ exercise; the Court will decide each case on its facts.

The rule against self-dealing is often overlooked by executors, but its effects can be potent and far-reaching. To ensure compliance, you should always seek expert legal advice before purchasing property belonging to an estate of which you are executor, even if there is a clause in the deceased’s Will purporting to exclude the rule.