19 October 2022

What is ring-fencing?

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What is ring-fencing?

Ring-fencing is the term that often comes up when drafting a pre-nuptial or post-nuptial agreement. Financial negotiations upon dissolution of a marriage or civil partnership are exhausting and legally complex. Often, divorcing couples fail to decide on the division of assets or determine what assets should be in the matrimonial pot.

Simply put, ring-fencing is a method that protects certain assets or main businesses from division in the event of divorce. As the name suggests, it creates a protective ring around certain assets and business units from being included in the matrimonial pot.

As a general rule, assets acquired during a marriage or civil partnership are divided equally between the spouses. Either party with significant premarital assets, a successful business unit, or substantial inheritance may not want these assets to split upon the dissolution of marriage.

Under such circumstances, the concerned party can ring-fence specific assets for them to be excluded from the divorce settlement. Importantly, premarital wealth or inherited assets are not automatically ring-fenced.

How does ring-fencing work?

The division of matrimonial and non-matrimonial assets is quite complex and legally technical. If properly drafted and executed, prenuptial and postnuptial agreements are quite useful in protecting assets on divorce.

Enter into a prenup or postnup agreement to ring-fence non-matrimonial assets, funds received by close relatives, and inheritances. These agreements offer significant legal protection for either spouse who does not wish to split non-matrimonial assets.

To clarify, both agreements are not strictly legally enforceable; however, the courts of England and Wales consider the contents of the agreement before making a decision on what assets to split. The parties entering into the prenup or postnup agreement have to meet certain requirements for it to be upheld by the court.

These agreements are only legally binding when entered into freely by taking independent legal advice. Moreover, the terms of the agreement should not be unfair.

Protecting non-marital assets

Jointly owned property will be considered marital property and divided equally on separation. Even if one spouse owns a matrimonial home, it would still be split. If the spouse acquired an asset prior to marriage and is not a family home, it can be ring-fenced and retained by the person who owns it in their sole name.

Wrapping it Up

Although the division of non-matrimonial assets has been debated a lot over the years, the court will decide whether these assets will be shared or not depending on your particular circumstances. The non-marital assets will only be excluded from the financial settlement as long as the ex-spouse’s financial needs are met from the matrimonial assets alone.

Disclaimer:

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Connaught Law and authors accept no responsibility for loss that may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Connaught Law. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Connaught Law.

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