Saturday, May 27, 2023

How can I prove my husband is downplaying his investments?

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I am filing for divorce from my husband of 10 years, who owns a hedge fund. He claims his fund has no capital value and that the sole financial consideration should be the profits distributed on an annual basis. What can I do to prove he is trying to downplay his assets?

Emily Brand, partner at law firm Boodle Hatfield

Emily Brand, partner and head of family at law firm Boodle Hatfield, says that when a court in England considers the financial arrangements of a divorce it first tries to establish where the assets, income and liabilities of the couple come from. If an asset has been generated during the marriage by the parties’ own efforts, it will be considered a marital asset and as such may be subject to the “sharing” principle.

This generally means that the asset will be shared equally unless one party has a greater need or if any “value” can be found to originate from before the couple got married. Your husband’s interest in the hedge fund appears to be a marital asset, which means it is capable of being shared.

A business asset such as a hedge fund is a complex financial animal, however, often relying on the skills of the owner, who usually — with a team — manages the fund. If the fund performs well it could receive substantial performance fees. These fees will be distributed as profit to the owners of the hedge fund, including your husband.

Hedge fund investors have traditionally been able to redeem their investments automatically if the fund manager (which I assume your husband will be) retires or leaves the business. This is on the basis that the individual fund manager is seen as necessary to the fund’s successful performance. It may be on these grounds that your husband is arguing that the business has no capital value.

Regardless of your husband’s arguments, you can apply to the court for an expert to carry out a valuation of your husband’s interest in the fund. In calculating that value, the expert may examine whether any comparable hedge funds have been sold recently and for what price, and the anticipated future profits (as well as past profits) of the fund.

If the court is persuaded there is a capital value, you may be entitled to a share in that and any direct investment your husband may have made during the marriage into the fund.

The income your husband generates after the divorce is not generally considered a marital asset. Therefore, your claims against your husband’s remuneration from the hedge fund could be limited to your needs only. This means that even if your husband’s income is substantial, your maintenance needs are likely to be assessed in line with the lifestyle you enjoyed during the marriage, regardless of whether this might leave your husband with a considerable surplus.

What is the best investment for inflationary times?

Inflation is at record highs and is expected to remain high. My husband and I are both in full-time jobs and we have two young children. I want to invest some of our disposable income into stocks and shares with a long-term investment horizon. What are the most effective types of shares in a high inflationary environment?

William Marsters, senior sales trader at investment platform Saxo UK, says inflation has proved very sticky. Central banks and governments alike are having a hard time bringing it back to target levels while balancing economic growth.

When it comes to managing investments in this environment it is important to maintain a balanced portfolio across asset classes and geographies. For example, as well as shares, you might want to consider bonds as they offer yield returns that are elevated in a high inflation environment. Diversification is always prudent portfolio protection.

With inflation expected to remain high in the near future, this makes some sectors and asset classes more attractive than others. As higher interest rates are the main tool used to combat inflation, this adversely pressures investments like property and gold. Growth stocks, often characterised by “above average” growth rates, are also in the cross hairs of inflation as higher rates decrease their future valuation relative to other opportunities.

On the other hand, we expect resilient performance from sectors that can pass on inflated prices to their consumers without affecting demand too much. Value sectors like materials, financials, industrials and utilities are examples where demand is price inelastic.

Aside from stocks and shares, commodities are also seen as a good inflation hedge. This is because the increased demand for goods and services which is driving inflation means prices of the commodities used to produce those goods will rise.

It is worth remembering that inflation is not the only macro event driving markets. The global economy is also managing a war in Europe, growing geopolitical tensions and a post-pandemic recovery in China. Along with high inflation, we believe these conditions may support the case for outperformance in European equities versus their US counterparts this year.

For example, Europe is better positioned to enjoy the tailwinds of China reopening due to closer trade relations. Also, the pandemic and the war have spurred investment in the tangible economy, in areas such as infrastructure and defence, which should provide a boost for European companies.

In this high inflation environment, value stocks, which are priced well below what their advocates consider to be their real worth, should outperform growth stocks. European indices cover more value sectors compared with the growth or tech-heavy US, which means European stocks are currently cheaper than their US peers on a price-to-earnings measure.

With this in mind, a broad exposure to European indices looks attractive. And as more investors consider diversifying away from US exposure, the valuation gap between European equities and their US peers could close.

You also mention your investment horizon — your most valuable weapon. As a long-term investor, you are able to smooth out the peaks and troughs of volatile markets. History shows that maintaining a balanced, diversified portfolio over time brings exceptional returns.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to yourquestions@ft.com.

Our next question

My husband sold his marketing company a few years ago and I am a solicitor. We have three teenage children aged 13, 16 and 19. There will be a significant amount of wealth passed down to them. How should we approach our children about money? Should we tell them how much they are set to inherit or keep the whole thing secret? How do we keep them grounded?

Numisteamone

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