When high-net-worth couples like Fearne Cotton and Jesse Wood part ways, untangling their complex financial portfolios becomes a legal and emotional minefield. From prenups to international assets, in this article, Ciara Pugh, Senior Associate at Stowe Family Law (pictured), explores how a couple’s finances are divided in law and the unique challenges faced during HNW divorces.
The announcement of a celebrity or high-net-worth (HNW) couple’s separation is cause for great media speculation. Recent examples include Fearne Cotton and Jesse Wood’s split, and Brad Pitt and Angelina Jolie’s finalisation of a draft financial settlement, although notably these separations are being conducted under different jurisdictions.
What happens to the couple’s finances is often a primary topic.
In the last few decades, financial portfolios have become increasingly complex as individuals and couples seek to develop business ventures and investments. In the case of Cotton and Wood, there are several complicating factors such as Cotton’s TV and radio career, her clothing collaborations, podcast and its associated festival, and her writing career. Together with Wood’s own music career and the potential inheritance from his celebrity father, this may make for difficult financial arrangements.
How are finances split on divorce?
For HNW couples, financial division can be complex as there are usually extensive and multiple assets, and in some cases, shares or investments that are held overseas.
In the first instances, the needs of each spouse and any dependent children must be met. The needs principle is used in cases where there are insufficient assets to meet needs. The matrimonial pot can be shared unequally to cater for an individual party, particularly if they are the primary carer of children or have lower income capacity.
However, in HNW cases, the sharing principle is applied once needs are met. This means that excess assets are separated equally, the sharing principle will apply, separating remaining assets equally. This can be departed from in some cases.
Protecting individual financial portfolios is of great importance to HNWs, commonly now through the implementation of a prenuptial agreement (prenup). They detail the ownership of all the individual and combined assets of a couple ahead of their marriage and what will happen to them in the event of divorce. Unlike America, prenups, are not legally binding in England and Wales but providing the relevant criteria are fulfilled, prenups can hold weight in financial negotiations.
The presence of a prenups can alter the direction of dividing finances on divorce, but the court will always ensure that the agreement is fair and reasonable to each party and will depart from the agreement where necessary.
Navigating complicating factors
Where there is significant wealth, navigating financial negotiations can be prolonged and sometimes acrimonious. Dividing finances relies on full and frank financial disclosure which can be trickier where there are extensive assets. Disclosure is a technical process, and it is extremely important that all assets and liabilities are accounted for.
In the case of Cotton and Wood’s separation, for example, each partner will need to identify their various incomes, as well as whether there will be inheritance in the near future. This could be additionally problematic if Wood has a share in any of Cotton’s business ventures.
Where couples share businesses, there will need to be a valuation of the business conducted by an expert. Generally, the owner of the business is awarded it, where the other spouse is given compensation in the form of other assets. However, this is not always the case, and expert advice should be sought.
This can be further complicated if there are external interests in the business. Valuations can take longer, and there may be more dispute over how to divide the asset. If one partner is a sole trader, there can be debate over how much the business is worth, hence why an expert is necessary.
It is also common for HNW clients to hold assets overseas, whether this be property, investments, business interests etc. There are specific legal complexities where the English court can make orders regarding the foreign-held assets should the parties be under the English/Welsh jurisdiction, but the foreign country may not legally recognise or desire to enforce them. Hiding or disposing of foreign held assets is a risk, and there can be issues in valuing them.
Advising high-net-worth clients
Finance on divorce is usually more complicated for HNWs than for other clients. Advising clients in these situations needs to be approached carefully and with a robust and keen eye for details.
Advisers’ clients should always seek opinions from experts, including family lawyers and accountants when dealing with their matrimonial finances.
Ciara Pugh is a Senior Associate at Stowe Family Law