Divorce and the impact on philanthropy

Posted by Rachel Buckley on 7th June 2024

When high net worth families go through a divorce, one of the complex issues they face is how to handle their charitable giving. Philanthropy often plays a significant role in their estate planning, so it’s crucial to consider how to separate these charitable activities. It can also play a part in how they see their future needs. Specialist divorce and finance lawyer Rachel Buckley scrutinises the points that need careful consideration.

Splitting the Philanthropic Program

The starting point during financial proceedings in divorce is to consider who owns what and to take into account all the circumstances of the case such as income; financial resources; needs; standard of living; length of marriage and age. If there is a family-owned business or charity that forms part of the couple’s assets, the court will particularly look at whether it was formed prior or during the marriage, and the contributions made by both parties. The process of dividing a family’s charitable program can depend on its structure. At its most intricate, it involves a thorough review of UK charity and trust law. Here are the main factors to consider:

Funds Earmarked vs. Donated

If the couple has set aside funds for charity but still controls them, these can be divided like any other asset during a divorce. Once money has been given to a charity, it’s no longer under the couple’s control. These funds are now public and must be used for the charity’s purposes.

Continuing as Co-Trustees

Some couples may choose to remain co-trustees of their family charity, much like Bill Gates and Melinda French Gates chose to do with their foundation when they first divorced. This requires them to:

• Act in the Charity’s Best Interests: Trustees have a fiduciary duty to prioritize the charity’s beneficiaries.
• Set Aside Personal Differences: They must work together harmoniously for the charity’s mission.
• Consider Adding New Trustees: New trustees can offer fresh perspectives but might also bring potential conflicts of interest, especially if they are family members.

To maintain an organisations value, it is important that both parties are able to rise above their emotions and focus on the shared goal. If this does not appear possible, or fails after an initial attempt, further consideration should be given to the other options available to a divorcing couple.

Pursuing Separate Philanthropy and Charitable Paths

If the couple prefers to manage their charitable efforts independently post-divorce, reallocating funds can be challenging especially if their interests diverge, such as one wanting to support animal welfare and the other the arts, they can’t simply split the funds without potentially altering the charity’s mission, which would require approval from the Charity Commission.

Public Disclosure

It’s important to remember that the activities of registered UK charities are public records. Changes like the retirement of a trustee will eventually become public knowledge. Charities must inform the Charity Commission of any changes in trustees, and if the charity is also a company, they must notify Companies House within 14 days of a director stepping down.

To manage public disclosure couples should plan for how and when this information is released to maintain privacy.

Handling charitable giving during a divorce involves careful planning and consideration of both legal and practical aspects. Whether continuing as co-trustees or going separate ways, it’s essential to approach this process with a clear understanding of the rules and implications. Consulting with legal experts can help navigate this complex terrain and ensure the couple’s philanthropic goals are met while respecting the charity’s mission. At the Family Law Company we work with some of the leading wealth management and philanthropy advisors to support clients with what is right for their situation.

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