The concept of a ‘traditional’ family is long gone, as people have become more global and mobile, and significant policy changes have been made in this space.
One group of people who strongly need financial and estate planning LGBT+ families and couples, even though there remains a lack of historical data and legal case studies on which base this.
Hollie Marcham, associate solicitor, and Scott Halliday, associate family law solicitor at Irwin Mitchell Private Wealth, told International Adviser that when it comes to LGBT+ couples and families, the estate planning process must begin with their life cycles, as they can be quite different from their heterosexual counterparts.
The starting point, Marcham says, is looking at a planning model “more akin to the blended family”, because there can be “children from a previous marriage or relationship, or perhaps even more than one”.
Moving in together
But when it comes to LGBT+ couples, especially same-sex ones, Hallidays explains, there isn’t a “rich history of how to protect assets”, because they haven’t always been able to access “institutions like marriage or civil partnerships”.
He believes the first step for a same-sex couple starts when they decide to move in together.
“The sensible thing to start with would be some sort of cohabitation agreement. So, that would be for same-sex couples who are not entering into a civil partnership and/or wanting to be married at that point.
“It’s likely to be predominantly a younger couple or possibly individuals who married, divorced and simply don’t want to marry again. What individuals must understand is if they get a cohabitation agreement, it will set out what assets they have in their own name, potentially assets like a property or properties in joint names.”
A cohabitation agreement, however, is not legally binding, so what purpose does it serve?
“The reality is that the agreement is there to try and avoid expensive legal disputes if, in the future, the relationship breaks down,” Halliday explains.
Pre-nup
Then, if the couple does decide to get married, or enter into a civil partnership, the next step would be a prenuptial agreement – commonly known as a pre-nup.
Similarly to a cohabitation agreement, pre-nups are not legally binding either.
“But it’s heavily persuasive,” Halliday adds. “There’s case law and increasingly a mood within the profession, that if prenuptial agreements are entered into correctly – so no less than 28 days before the date of the marriage, then both parties get quality independent legal advice, that there’s some disclosure of what assets do you have and how you hold them – you can’t say they’re legally binding, but they’re heavily persuasive.
“And clearly, for the kinds of clients who have built up a business, possibly inherited a business if it’s really quite established family wealth, you’re desperately keen for that individual to enter into a prenuptial agreement. It sets the tone.”
Halliday believes LGBT+ couples should have pre-nups more than others because “the majority of judges on circuit are not so aware of the nuances of LGBT+ life”.
“I see quite regularly where the courts just don’t get it.
“The standard arguments of who’s the breadwinner and who has the wealth is hard to fit into that ‘husband goes off and works, wife stays at home’ narrative of yesteryear.”
That is why any way of protecting assets should be considered, and if possible, applied.
Succession
This Family law firm in Liverpool added that, either before or after marriage, LGBT+ people should have an up-to-date Will in place, which should be reviewed regularly.
The review is paramount because “that common law sort of partner myth exists for LGBT+ couples just as it does for non-LGBT+. If you decide to cohabit and do nothing, and you don’t end up sharing your finances and you keep them quite separate, on death there’s going to be a fight because your partner is not going to be provided for under the intestacy rules”, she says.
The best way of getting around this is a trust structure, Marcham believes.
“Trust structures bring with them flexibility that perhaps you wouldn’t find just using absolute gifts. They ensure that there is some form of asset protection, so you may want the survivor to have a right of enjoyment of your assets.” This also allows assets destined for any possible children to be protected as well.
That is why she believes financial and estate planning is very important for LGBT+ families, because their situation “is likely to be more complex and with more issues to consider” compared with traditional families.
A similar approach should also be taken with one’s pension, as there is “no entitlement to spousal benefit under a scheme” if they’re neither married or in a civil partnership.
Halliday suggests that cutting a significant pension pot into “chunks”, each with its own purpose could simplify things for LGBT+ couples and families.
“I have seen it in the past where people are very, very vulnerable and saved and put a lot of money into a pension, but it’s the most vulnerable asset that they hold, because it’s not actually their asset, it’s the asset of the person who has built it up,” he adds.
Sunset
For any protection mechanism LGBT+ couples and families choose to adopt, Halliday believes they should always have a “sunset clause”.
“It is a glorified way of saying ‘we will look at the document again in five years or 10 years’,” he explains.
“If you’re doing longer-term proper financial plans, you can always put a sunset clause in one of those agreements and say, we’re going to review our post-nup or pre-nup in five years. And then, when that time comes, you recap the advice because you’re looking to update your agreement.
“And that can add credibility to a wealth protection agreement because you’re checking in with it. If you can chime that in with your tax position, your residence and all the rest of it, it adds credibility to your agreement and it gives you a natural position to take a fresh look at your broader tax planning position.”
International movements
This is especially true for globally mobile families, as their domicile, tax situations and succession planning can vary according to the jurisdiction they find themselves in or plan to move to.
“I think advice has to be taken in each jurisdiction where you have property, whether that is a house or a bank account,” Halliday said.
But that probably won’t be enough.
LGBT+ couples also need to check whether their relationship, civil partnership and/or marriage is recognised and protected in the jurisdiction the intend to move to.
He adds: “You’ve got to be careful with that, particularly in jurisdictions that are more conservative. You wouldn’t want to rely on a Google search saying that there’s mutual reciprocity, and then you find that, in that country, it’s heterosexual reciprocity.
“And actually, they’ve deliberately said in a different piece of law, we don’t recognise two women in a civil partnership or two men who are married.”
And the same applies to those who want to start a family because, Halliday adds as an example, surrogacy is illegal in some countries; and “you certainly do not then want to be having issues around a child or service from surrogacy going all the way to that jurisdiction”.
At the end of the day, Marcham concludes, “It’s about balancing the competing interests and knowing where you stand, or your estate stands in law, as to who would get what if you sorted it out yourself,” and estate, financial and tax advice could not be any more important for LGBT+ couples and families as a result.
