Gifting Shares to Your Children? How to Protect Them from Divorce Risks (2025 Guide)

Gifting shares to your children is one of the most effective ways to pass on family wealth, support succession planning and reduce future inheritance tax. But many parents overlook a major risk:

What happens to those shares if your child gets divorced?

Without the right structure, shares gifted outright can become marital assets, meaning part of your family business could be lost in a settlement.

The good news is that you can gift shares to your children while still protecting them from divorce, creditors, and long‑term financial risk  by using the correct trust structure.

This guide explains how it works.

Why Gifting Shares Outright Can Be Risky

When you transfer shares directly to your child:

• They become the legal owner
• The shares form part of their personal estate
• They may be included in divorce proceedings
• You lose control over how the shares are used, voted, or sold

Even the strongest marriages can face challenges. With divorce rates sitting around one in three, protecting family business assets is simply good planning.

The Most Effective Solution: A Discretionary Trust

A discretionary trust allows you to gift shares without giving your child full ownership, creating a protective layer around family assets.

How it works

• The trust owns the shares
• Your child is a beneficiary, not the legal owner
• You (or trusted individuals) act as trustees, maintaining control

Because the beneficiary does not own the shares outright, they are far harder for courts to treat as marital property in a divorce.

This is one of the most reliable ways to protect business shares, inheritance, and wealth across generations.

Why a Trust Protects Against Divorce

Courts may consider the trust as a future resource, but cannot divide or transfer assets that the beneficiary does not legally own.

This means:

• Your child’s spouse has no automatic claim to the shares
• Business control stays with trustees
• Dividends, voting rights, and access can be managed as you choose

A discretionary trust gives you control, flexibility, and protection that you lose with an outright gift.

Real Example: A Family Business Saved £800,000

A family business plans to gift 25% of the company to their son, who recently joined the firm. Instead of transferring shares directly, they:

1. Created a discretionary trust
2. Named their son as a beneficiary
3. Retained trustee control

Years later, their son divorced. Because he never legally owned the shares, they were protected from claims, safeguarding more than £800,000 in business value.

Additional Benefits of Gifting Shares via Trust

1️⃣

Inheritance Tax (IHT) Planning

• Shares transferred into trust may qualify for Business Relief, reducing IHT exposure.
• Holdover relief may allow you to defer capital gains tax (CGT) on the transfer.

2️⃣

Control Over Business Decisions

• Trustees retain voting power and control over share use.
• Distributions can be altered for tax efficiency or personal circumstances.

3️⃣

Long‑Term Succession Planning

• Protects the business across generations.
• Prevents premature ownership or misuse of shares.

4️⃣

Protection from Creditors

• Trust assets are typically shielded from personal debts, disputes, or bankruptcy.

What Happens If You Don’t Use a Trust?

If you gift shares directly:

• They can be assessed as marital assets in divorce
• You risk an ex‑spouse becoming a shareholder
• The business may face forced buyouts, voting disputes, or reputation damage
• Family wealth becomes vulnerable to future partners or creditors

A discretionary trust removes these risks.

How to Gift Shares Safely Using a Trust: Step‑by‑Step

1. Get Professional Legal & Tax Advice

Trusts must be drafted correctly to maximise protection and reliefs.

2. Value the Shares Properly

A formal business valuation supports the transaction.

3. Transfer Shares Into the Trust

Where eligible, use holdover relief to avoid immediate CGT.

4. Prepare a Letter of Wishes

Sets guidance for trustees on how your child should benefit.

5. Maintain Proper Trust Records

Trusts require annual reporting and careful compliance.

Key Questions to Consider Before Gifting Shares

• Should your child’s spouse be excluded as a beneficiary?
• Who will act as neutral trustees?
• Will your child need income from the shares?
• Do you need separate trusts for multiple children?
• Will Business Property Relief apply?

These decisions shape how effectively your trust protects the family business.

Talk to Our Family Business & Tax Planning Specialists

We help families:

• Protect business shares from divorce and disputes
• Reduce inheritance tax exposure
• Use trusts and reliefs effectively
• Build long‑term, multi‑generational wealth plans

If you’re considering gifting shares — or want to review your current structure — we can help you do it safely and tax‑efficiently.

👉 Book a free consultation with Nuvo’s tax and estate planning experts.