A recent divorce case, reported by Today’s Family Lawyer, involved a large Bitcoin fortune – an initial £10,000 investment now worth more than £20 million. Further cryptocurrency holdings of £371,000 – previously undisclosed – complicated proceedings even more.
The case, known as Culligan v Culligan, helps to highlight the difficulties of uncovering and valuing relevant assets in a divorce. While digital currency undoubtedly adds a new layer of complication, “traditional” assets – such as those held within a defined benefit (DB) pension scheme – also require specialist knowledge and advice.
Keep reading for a look at the challenges of managing a high net worth (HNW) divorce and how hidden assets – if missed – could impact a settlement.
You’ll also discover how cashflow planning can help you – or someone you know going through a divorce – to successfully navigate to an equitable outcome. When emotions are high, making rational financial decisions can be difficult, and while not a formal requirement in court proceedings, a cashflow model can be very helpful.
Working with a divorce financial planner to create a cashflow model can be an invaluable tool in navigating the financial settlement process.
High net worth divorces and the rise of cryptocurrency
The recent Culligan v Culligan case provides a fascinating example of how HNW divorces can be complicated by complex financial arrangements.
While divorce courts require full and frank disclosure, assets can remain undeclared, whether intentionally or by accident, and identifying where this is the case isn’t easy. Liquid assets, offshore investments, and even pensions can all be forgotten. However, errors and non-disclosure can have significant legal and financial consequences.
What’s more, even when assets are known and disclosed, valuing them often requires specific expertise.
While cryptocurrency is a relatively new area, it has quickly become mainstream, and it will become increasingly common for digital wealth to play a role in HNW divorce cases. Regulation has yet to catch up, and not all areas of cryptocurrency are covered by the FCA, but all assets held in the digital space must be acknowledged and understood in the same way as any other asset.
High net worth divorces can include complex financial structures
Expert financial advice is required from the outset of divorce proceedings, and cryptocurrency isn’t the only area where this guidance can be vital. The right support can help ensure a fair settlement for both parties, which takes into account all relevant assets and considers often-complex financial regulations.
The benefits of cashflow modelling
Using a cashflow model can be key not only to getting a fair settlement, but to securing a practical settlement that allows you to create a post-divorce lifestyle that works for you.
A cashflow model is a financial projection tool that helps you understand how money moves over time. It considers income, expenses, assets, liabilities, and potential future changes. By visualising these elements, a cashflow model provides a clear picture of your financial situation both now and in the future. Cashflow models should be created by a financial planner who can ensure that the inputs and assumptions are accurate.
Here’s how a cashflow model can help:
1. Clarifying financial needs
A cashflow model helps determine how much money you need to maintain a reasonable standard of living after divorce. By analysing expenses and income, it provides an estimate of financial needs, ensuring that you are not left struggling.
2. Assessing asset division
Not all assets are created equal. While one party may want to keep the family home, it’s essential to consider ongoing costs such as mortgage payments, maintenance, and taxes. A cashflow model can project the long-term impact of keeping or selling assets, helping you make informed decisions.
We’ve already mentioned equitable settlements that take your lifestyle into account.
Imagine you are awarded a pension fund as the majority of your settlement at age 40 or 50 – valuable, but not accessible until later in life. Would that meet your needs now? It may be equitable in value, but not in application.
3. Determining spousal and child support
Support payments are a significant part of divorce settlements. A cashflow model can assess whether a proposed support amount is sustainable for both the payer and recipient. It can also model different scenarios, such as changes in employment or unexpected expenses.
4. Planning for the future
Divorce is not just about your immediate financial situation; it’s about long-term financial security. A cashflow model can project financial stability over time, taking into account retirement savings, inflation, and potential career changes. This helps ensure that your financial settlement is fair and sustainable.
5. Reducing Stress and Conflict
Divorce negotiations can become highly contentious when finances are unclear. A cashflow model provides an objective financial analysis, reducing uncertainty and allowing you to negotiate based on facts rather than emotions.
Divorce advice is crucial in other complex areas of your finances
Pensions
One financial area that is often overlooked in divorce settlements is pensions. Pension wealth can be significant, both in terms of accumulated funds and long-term planning.
Back in January, PensionsAge confirmed that a spouse could miss out on financial assets worth nearly £400,000 if a pension is excluded from a divorce settlement. This calculation was based on an initial pension value of just £200,000 at age 40, assumed annual growth at 5%, and retirement at age 68.
The potential loss would, of course, be higher where pension wealth was greater, and yet the same report explains that pensions are often overlooked during a divorce.
While couples consider the value of their family home in half (50%) of divorces, pensions are considered in just 13% of cases. Defined contribution plans hold a fund value based on contributions and are, generally, easy to value. However, Final Salary pensions (Defined Benefit) are more complex, so professional help might be required to ensure the accuracy of any disclosure and avoid potentially costly misrepresentation. Typically, a court-appointed professional – such as a qualified actuary – will work on the valuation of DB schemes and calculate possible splits of a DB pension.
Those looking for a division of pension assets between parties and a clean financial break, often look to pension sharing orders as a solution. HFMC Wealth can help with the implementation of any pension sharing orders awarded by the court.
Property
There are several ways to split property in a divorce. Retaining joint ownership of a main family residence can provide continuity and stability for children. Selling the property and dividing the proceeds according to each party’s stake, meanwhile, provides a clean break. Part buy-outs might prove more complicated but could suit individual circumstances.
In a HNW divorce, multiple properties might need to be considered, adding further layers of complexity.
Where mortgage debt remains, ongoing repayments – and their division between parties – will need to be factored into divorce settlements. Our expert team at HFMC can help you understand the long-term consequences of property decisions during divorce, ensuring you make the right choice based on all the necessary information.
Overseas assets
Assets held overseas must be disclosed as part of a divorce, but everything from exchange rates to non-UK regulations and complicated ownership structures can add to the complexity of accurate valuations. These are key to fulfilling disclosure obligations.
As a high net worth individual (HNWI), you might own an overseas holiday home, hold assets in a foreign bank account, or have an offshore pension plan or trust.
At HFMC, we have valuable experience in dealing with the international interests of our clients. We can use this knowledge to ensure all relevant assets are disclosed during a divorce, helping to provide you with a fair settlement.
Get in touch
Whatever aspect of your HNW divorce you need help with, advice from the outset alongside your lawyer is key to a fair settlement and full disclosure, so get in touch now. Contact us online or call 020 7400 4700.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Cryptoassets are not regulated financial products, so please be aware that trading them carries a considerable amount of risk for your capital. Cryptocurrencies are also not covered by existing consumer protection laws and are not suitable for the majority of investors.
