Protecting from divorce post-budget

The Autumn budget on 30 October included significant changes to the tax treatment of business and agricultural reliefs for IHT purposes from 6 April 2026. The path was also laid for pensions to fall into estates for Inheritance Tax purposes over the coming years.

These changes will prompt many financial professionals to review and adapt their suite of wealth planning strategies.

One of the approaches they might look at is to encourage their clients to transfer assets to their beneficiaries early. All being well, the tax bearing assets will have been transferred over 7 years prior the death of the transferor and not fall foul of IHT at all.

Whether in any given situation this is a sensible thing to do will depend on many things, to include the receiving party’s personal situation, and particularly their marital situation. If the son or daughter receive the advance on inheritance only to later divorce, any tax saving may be dwarfed by the settlement the inheritance then has to fund.

The impact of divorce

The divorce laws in England and Wales require the court to take account of all assets a couple may have an interest in when considering finances on divorce. Only if there is a surplus of capital above the reasonable needs of the couple and their minor children should the court consider ringfencing or giving weight to assets received from outside sources – often inheritance or gifts.

Whether the court would approve the asset’s ringfencing will depend on a number of factors to include when the asset was received and in what circumstances, as well as the degree to which it has been mingled or mixed with the other spouse or joint assets.

The recent court of appeal decision in Standish v Standish ([2024] EWCA Civ 567) neatly distilled the situation, and affirmed the view that an outcome involving the sharing of mingled assets doesn’t necessarily mean equal sharing.

Nonetheless, it is impossible to forecast the degree to which these factors might in the future come into play in any situation, particularly if there is no divorce or separation on the cards at the time transfers are being considered. The divorce rate in the UK is still well above 40% and so statistically the risk is there.

A solution

The solution many couples are advised to consider to best preserve transfers they receive from relatives is to look at a postnuptial agreement (or prenuptial agreement if they are about to marry). Such agreements carry significant persuasive weight if they are drafted correctly with the necessary legal safeguards in place.

A concerned parent advised to take advantage of the 7-year rule will often be reassured when they learn how much weight nuptial agreements carry. On the back of yesterday’s budget, it is something I would strongly recommend is considered in the right circumstances.

Andrew Barton is a recognised expert in the division and protection of assets on divorce. He and the Stephens Scown family team are top rated in the Chambers and Partners and Legal500 industry guides.