When couples go through divorce proceedings in England & Wales, one of the most emotionally and legally complex areas of negotiation is the financial settlement. While many people are aware of how property, pensions, income and shared assets are commonly divided, far fewer understand what happens to inheritances, particularly those intended for children. The notion of protecting a child’s inheritance is not merely a financial concern—it involves sensitive legal, familial, and ethical dimensions. For families planning for their children’s future, it’s essential to understand how the family justice system approaches such matters and what practical steps can be taken to safeguard a legacy.
In England & Wales, the court’s focus in divorce is on achieving a fair outcome between the spouses, with consideration for the welfare of any children. However, ‘fair’ in the eyes of the legal system often extends to include all assets, including inherited ones, unless specific measures are taken to ringfence their status. Many parents and grandparents assume a child’s inheritance is sacrosanct and will remain untouched in any divorce-based asset division. In truth, unless proactive steps are taken from the outset, this assumption could lead to disappointing outcomes.
Why Children’s Inheritance Is at Risk During Divorce
At first glance, it may seem counterintuitive that a child’s inheritance could be at risk during a divorce between their parents. However, the legal system places great emphasis on needs-based fairness. During a financial dispute in divorce, the court has wide-ranging discretion under the Matrimonial Causes Act 1973 to decide how assets should be divided, with the primary objective being to meet the financial needs of both parties — and any dependent children — following the end of the marriage.
If a child has already received an inheritance or is due to receive one, and if those funds are accessible or expected to be within reach during the period of financial settlement, they may inadvertently be absorbed into negotiations. This is particularly the case if one parent is the legal custodian or trustee of the assets and is seen, at least technically, to have control. In such circumstances, the opposing spouse could argue that such assets are part of the family’s overall financial landscape and should therefore be considered when evaluating financial provision.
Ownership Versus Intention
Another key point to understand is the difference between legal ownership and intended benefit. It is not enough that money is intended for a child; what matters legally is how it is held. For example, if a parent receives an inheritance with the informal intention of passing it on to their children, and it is held in their own name, then legally that money is part of their personal assets and can be considered in the divorce. A court is unlikely to accept a verbal commitment or unrecorded plan to pass the money on to children at an unspecified point in the future.
In contrast, if money has been placed in a trust with the child as beneficiary, the situation becomes more complex and stronger protections may exist — but even then, the court may examine the terms of the trust and the level of access the parent has to those funds. Especially in the case of discretionary trusts, where the trustee has broad control over how and when funds are distributed, the court may still evaluate them in determining an equitable division of assets.
The Role of Trusts in Asset Protection
One of the most effective ways to safeguard a child’s inheritance is through the use of trust arrangements. Trusts can offer a legal separation between the person creating the trust (the settlor), the person managing the assets (the trustee), and the beneficiary (in this case, the child). Although complex and dependent on precise drafting and administration, they can provide a formidable layer of protection in divorce proceedings.
There are several different forms of trust, and each offers different levels of security, flexibility and exposure to financial claims. Fundamentally, for a trust to offer real protection during a divorce, it must be clearly structured in such a way that:
1. The child is the sole beneficiary or one of a limited class of beneficiaries;
2. The parent involved in the divorce has no legal control over the trust’s assets; and
3. The trust is not created in anticipation of divorce, which could render it vulnerable to challenge as a sham or transaction intended to defeat matrimonial claims.
A discretionary trust is often used where flexibility is desired, but it comes with the risk that the court, in evaluating financial settlements, may consider the trust as a resource if the parent has potential access. In contrast, an absolute (bare) trust, where the beneficiary has a fixed entitlement, may provide clearer protection, but at the cost of flexibility.
Timing of the Inheritance
When the inheritance is received — and by whom — also affects its vulnerability in divorce proceedings. If a child’s inheritance is bestowed directly to them before a divorce is initiated, and stored in a legally distinct structure, such as a children’s trust or a Junior ISA or investment account in the child’s name, then it is more clearly segregated from marital assets. The later the inheritance is made or the more entangled it becomes with family resources (for instance, if used towards a family home or paying for school fees), the harder it may be to argue that it is solely for the child’s benefit.
In cases where the inheritance is anticipated but not yet materialised — for example, where grandparents intend to leave assets to the child through future wills — it is usually more secure, as hypothetical inheritances are rarely included in settlement calculations unless the inheritance is seen as a certainty in very near terms.
Prenuptial and Postnuptial Agreements
For families proactively looking to protect intergenerational wealth, prenuptial and postnuptial agreements can be a key tool. Although not automatically binding in England & Wales, such agreements carry increasing weight in court, especially following the landmark Radmacher v Granatino decision. If drafted correctly, with proper legal advice and full disclosure on both sides, these agreements can inform the court of the parties’ mutual intentions and influence the division of assets.
For example, if a family intends to pass on an inheritance to a child who is about to marry, the use of a prenuptial agreement can specify that any future or existing inheritance received by the child is to be excluded from any financial settlement in the event of a divorce. While the court has ultimate discretion, especially where the needs of children or either spouse are not met otherwise, clear and reasonable terms in a prenuptial agreement are likely to be upheld.
Similarly, a postnuptial agreement — potentially signed years into a marriage — can serve the same purpose, although it may attract more scrutiny regarding the circumstances in which it was signed. Courts prefer these agreements to follow a process of fairness, including independent legal advice and the opportunity for negotiation.
Gifts from Grandparents and Third Parties
Many parents and grandparents contribute to children’s welfare and financial futures by way of lifetime gifts rather than inheritance. Whether it is contributing to a property deposit, paying school fees, or directly transferring wealth during their lifetime, such generosity is commendable but not immune to legal risk in divorce.
If grandparents gift money or property to a child’s parents — either outright or through joint purchases such as contributing to a couple’s marital home — they risk that the value becomes considered a marital asset, especially if there is no documentation showing the non-marital intent of the sum. The court may assume such contributions were intended for the benefit of the family and, unless a clear paper trail or declaration exists, it becomes difficult to extricate this money later.
For this reason, when generosity is extended by third parties, it is advisable that either a trust structure is used or a formal letter of intention or loan agreement is prepared, stipulating that the money is to benefit only the child, or is loaned – not gifted – to the couple or one party. Courts tend to respect such documentation if it has been properly drafted and executed, thereby preventing the unintended absorption of assets into divorce proceedings.
Appointing Guardians and Trustees
Another key strategic step is for families to ensure that suitable guardians or trustees are chosen to oversee inheritance assets on behalf of a minor child. If one or both divorcing parents are trustees of assets intended for their child, it raises issues of control, influence and financial temptation. Appointing neutral or professional trustees can ensure that funds are more securely managed, and that one parent cannot unilaterally access funds or make changes to the trust arrangements during or after the divorce.
Trustees must act in the best interests of the beneficiary. However, choosing close family members who may be emotionally involved in the divorce, or giving powers to a parent with competing financial pressures, may defeat the protective role a trust is meant to provide. Many professional trust companies offer services in this area, adding an additional layer of security and internal governance.
Protecting Future Inheritances Through Testamentary Planning
Parents and grandparents should also consider the effect of their own wills and estate planning on safeguarding a child’s inheritance in the event of divorce. Rather than leaving assets outright to a child who may later enter into marital difficulties, it is often better to establish a testamentary trust which captures the legacy for the benefit of the child and their descendants, while keeping control out of reach of spouses or potential claimants in marital breakdowns.
Such trusts can be designed to include protective features, such as restrictions on withdrawal, specific purposes (e.g. education or housing), or staged release at certain ages. This can both preserve the long-term value of a gift and prevent the premature or pressured use of funds by a child experiencing the stress of divorce.
The Importance of Legal and Financial Advice
As family structures evolve and financial portfolios become more complex, so too does the need for expert planning to safeguard children’s interests. Solicitors specialising in family and trusts law, along with independent financial advisers, are invaluable in helping families set up effective protective structures. Waiting until a divorce appears imminent is often too late — a proactive and comprehensive approach to wealth planning is vital.
Moreover, each family’s circumstances are different. Some children are minors; others are already adults. Some families own businesses or farms that have been in the family for generations. Others may be dealing with complicated international assets, blended families or vulnerable dependents. Tailored advice, rather than template solutions, ensures that the family’s intentions are more likely to be respected if the unforeseen happens.
Conclusion: Planning for Stability Amidst Uncertainty
Divorce can destabilise the clearest of intentions. While no financial safeguarding can ever offer absolute certainty in family courts, the law in England & Wales does respect carefully thought-out planning, where the goal is to ensure fair treatment for all parties while protecting the legitimate interests of children.
Families who value the long-term financial security of their children should consider inheritance planning not as a future luxury but as a contemporary necessity. By making use of legal tools like trusts, agreements, testamentary planning and legal advice, it becomes entirely possible to create a framework where children’s inheritance is treated as distinct from marital property. In this way, the challenging process of divorce need not erode the lasting legacy intended to support and equip the next generation.