It is not uncommon in divorce proceedings to find the assets or interests of an unconnected third party affected or threatened in some way. Children or parents may have contributed to assets of the marriage. Shareholders or partners may see their business capital threatened or at least open to scrutiny from a business associate’s spouse.
It is possible to limit the exposure of third parties at an early stage by taking some pre-emptive measures. If it is already too late and divorce proceedings are underway, steps can be taken to ensure that the rights of the third parties are not ignored.
Declarations of Trust
Relatives or friends can seek to formalise any contribution they have made to the assets of another through the execution of a Declaration of Trust. Such documents will provide absolute guidance to the Courts seeking to ascertain the extent of a third party’s interest in an asset. Provided the Declaration of Trust has been drafted and entered into correctly, that interest is very likely to be ring-fenced for the third party before any division of assets occurs between the divorcing couple.
It is now increasingly common to find assets being placed in trust. Provided it can be shown that the assets are not to be regarded as personal assets of the husband or wife and the arrangement is not a sham, it is quite possible the Court will take the view that such assets are beyond the reach of the matrimonial court.
In company situations shareholders’ agreements can be drafted to protect existing shareholders from unfavorable matrimonial orders. We frequently work with our corporate team in preparing such agreements tailored to clients’ needs. There are a good many scenarios that can be covered through this exercise, however probably the most common action that is prevented is the transfer of shares to the spouse of an existing shareholder. Even if it not conclusive, a shareholders agreement will carry much persuasive weight in the Court provided it was entered into well before the divorce.
Too late for pre-emptive measures?
If the interests of a third party are threatened through a divorce, it is important that they should be given the opportunity of intervening. This will entitle them to plead their claim and have it considered in the context of the existing divorce proceedings. The involvement of third parties in this way can benefit not only the third parties themselves but also the case of either one of the divorcing parties.
Consider for example the mother who has sold her house and paid a lump sum to her daughter and son in law to develop an annex on their property. The mother’s claims will be considered first and an amount will be earmarked for her from the matrimonial pot. Assuming that she still wishes to live with her daughter on their divorce, this will bolster the pot from which they can purchase a replacement property if required.
Clearly, third parties may be daunted by the prospect of taking legal advice about such matters, or perhaps by being seen to take sides in matrimonial disputes. They may be reluctant to incur the legal expenses involved, or take the view that their involvement would only serve to over-complicate matters. We often find that the involvement of an intervener can make matters very much more straightforward for all parties in a case and offer an obvious platform for negotiations. If successful, such negotiations can serve to stem the legal costs for all concerned rather than increase them.