Articles

Have you considered the non-financial risks to your wealth?

By London & Capital | 14 Sep, 2022

Having stringent protocols and protections in place to safeguard wealth from non-financial factors that are in most cases, out of your control can help ensure the creation of a legacy.

Investors must be aware of non-financial risks to their assets, which often relate to family dynamics. Divorce and family disputes present real challenges to a steward of wealth, for example, and it is vital to plan for such occurrences, even if you think it’s highly unlikely.

Matrimonial property

Marriage gives rise to claims against each other’s capital, property, real estate, pensions, and income. Family courts can make extensive orders against your assets if they see fit.

If you bring pre-marital assets to your marriage, there is a chance that your ex-spouse will make a claim on them in your divorce, or years after it.

There is some indication that the longer the marriage, the more likely a family court is to rule that your pre-martial assets, whether they be property, investments, art and collectibles, or cash, are now matrimonial property.

This will be the case especially if those assets were used to purchase a family venture, such as a home.

Pre-nuptial agreements – though not yet legally binding in England and Wales – can have an impact on how your assets are allocated in the event you and your spouse decide to part ways. This kind of agreement is more likely to hold up in court if the overwhelming feeling is that the contract was signed without inflicted pressure, around 28 days before the marriage took place.

If it can be proven that both parties understood the nature and extent of the document at the time of signing, and the agreement is considered fair on both parties in the current day, it’s quite plausible such a contract would stand.

Despite this, a spouse could still make a claim on your assets years after your divorce has been settled. To prevent this from happening, you might consider obtaining a clean break order from the court. This essentially means each party’s financial affairs are severed at the point of separation. Without such an order, you leave yourself open to possible claims from your ex-spouse, with no time limit.

Family disputes

Divorce is not the only possible source of inter-familial tension. As a wealth steward, you should ensure that your will is formulated in a manner that minimises potential conflict after you are gone. An ambiguous will and an incomplete estate plan will increase the likelihood of family disputes over inherited assets.

Proper planning needs to take place with the help of a specialist wealth manager, but clear and regular communication with your family will also substantially reduce the possibility of confusion and ill-feeling after you’re gone. Letting your family know your wishes is a simple action that could eliminate lengthy arguments, legal fees, and broken relationships.

It is a good idea to establish a pattern of updating your will on a semi-regular basis, in accordance with changes to your assets, including your businesses.

Reputational risks

If a large chunk of your legacy is a business, there are other non-financial risks you should consider, such as legal problems.

While most high-net worth clients worry about a volatile market or a bad investment decision affecting their wealth, it’s important to also acknowledge that there can be legal consequences to bad business decisions.

There are insurance policies that can help protect your wealth against legal troubles but an important first step will be to acknowledge that reputational risks and legal risks are intrinsically linked.

Today, stakeholders demand corporate transparency. Owners and executives are frequently the ones targeted when business practices are called into question.

Business owners must ensure the decisions and actions made by their company are aligned with stringent guiding principles and values to protect what they have worked hard to build and be able to pass it on to future generations.

 

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