How to Protect Assets From Divorce
Marriage is a legally or formally recognized union of two people as partners in a personal relationship, it grants a couple a set of rights and responsibilities determined by law with regards to each other. Divorce, also known as dissolution of marriage, involves an often-complicated process of canceling or reorganizing the legal duties and responsibilities that sprung out of the marriage. Issues such as child custody, distribution of property, and alimony can often be a source of stark disagreement.
Divorce continues to be quite prevalent in the United States, and it represents the most frequent source of lawsuits. While facing a potential divorce can be very unsettling, fortunately there are steps you can take ahead of time to prevent a divorce from becoming a catastrophe for you and your wealth. In this article, we will discuss important asset protection strategies that can prevent many of the important challenges and difficulties that can be caused by a divorce.
Be Aware of Your State Laws
Generally, the couple going through a divorce will have to distribute property and debts between them. The family courts will supervise the division of the marital property, meaning any property acquired during the marriage and set any child support obligations, if necessary. This includes assets such as real estate, funds held in bank accounts, cryptocurrency, personal property, etc. How a court will carry out this distribution depends on where you live, and whether it is an “equitable distribution” or a “community property” state.
In a community property state all property acquired by either spouse during the marriage is considered to be jointly owned. The rationale behind this is that while one spouse might be the main or even sole breadwinner, the other spouse provides necessary support in other aspects of the relationship. Any property owned by the individuals before the marriage is considered their own separate property, however there are ways to turn separate property into community property either by commingling assets in a joint account or by using separate property funds to improve a community property asset, such as the family home.
Unless you live in one of the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, then your marriage falls in the equitable distribution regime. In this case, assets and earnings accumulated during marriage are divided equitably, but not necessarily in an equal 50-50 separation. That does not mean assets are actually divided, only the percentage of ownership is split between the spouses during the divorce.
No matter which state you live in, it is illegal to hide assets in order to prevent any property division. Doing this could cause the family court to punish the guilty spouse with sanctions or by granting a percentage of the value of the hidden assets to the innocent spouse. When considering asset protection solutions, it is important to keep in mind that these are designed to protect, not conceal wealth.
Is There Specific Asset Protection for Divorce?
The most common form of divorce specific asset protection solution is a prenuptial agreement. Demand for prenuptial agreements in the United States has increased in recent years, mainly driven by wealthier and more sophisticated millennial couples getting married. Naturally, a premarital agreement is only an option if you are not yet married. If you are already married, but not contemplating a divorce, and would like to have a plan in place just in case it does happen, discussing a post-nuptial agreement with your spouse could be an important first step.
A post-nup is best suited for situation when you intend to stay married to your spouse but would like to clarify what would happen to your assets in case a divorce was to occur. If you do not have a valid prenuptial or post-nuptial agreement in place, the default laws of the state would apply in the event of divorce, such as the rules regarding the division of property, retirement benefits, savings, and alimony.
While a pre-nup or post-nup can help establish guidelines regarding the division of marital assets in case of separation, most attorneys working in family law will tell you about the numerous flaws and loopholes used by divorcing spouses to get out from under these types of agreements. There are other more effective asset protection strategies that can provide a higher level of protection in case of divorce. Those looking for a higher degree of asset protection in case of divorce might want to consider a more robust asset protection planning strategy.
Ways To Protect Your Assets From Divorce
Simply stated, a divorce, particularly a contested divorce, is a legal proceeding not unlike other types of civil lawsuits. While prenuptial and postnuptial agreements may provide a degree of clarity and protection in case of divorce, they can hardly be relied on to provide effective and reliable asset protection. It is no surprise then that the best way to protect assets from divorce is no different than what works best for other legal threats: an asset protection trust.
Asset protections trusts are designed to protect against lawsuits by providing a legal separation between you and any assets held in trust. An asset protection trust is an irrevocable trust, which means for legal purposes, any assets placed in the trust have already been gifted to a third party, or at least placed under the management and control of a third party. These trusts can hold and help protect a variety of different assets, such as cash, investment accounts, real estate, cryptocurrency, other digital assets, and more. An asset protection trust can be used to give your assets to your children, other family members, or even keep yourself as a beneficiary.
What Kind of Trust Should You Build?
Asset protection trusts can be formed in several states of the U.S., such as Wyoming, Nevada, and South Dakota, among others. While domestic asset protection trusts can provide a degree of asset protection against certain legal threats, the case law regarding these types of trusts is not especially encouraging, particularly in the case of divorce. Due to the nature of the protected interests in a divorce case, judges can be more proactive in their attempts to invalidate or otherwise defeat trusts based in the U.S.
In order to prevent this, consider an asset protection strategy based around an offshore trust. When an asset protection trust incorporates offshore elements such as an international trustee, it can make the trust assets inaccessible to a court in the United States. That means U.S. courts are unable to invalidate or intervene with a trust that is based in a different sovereign nation outside their scope of authority. This gives an offshore trust an incredible advantage in its ability to protect assets. In order to reach assets held by an offshore trust, a person would have to file their legal claim in the trust’s offshore jurisdiction.
Naturally, bringing a legal claim in a distant foreign country carries significant challenges, such as added costs, difficulties finding legal counsel, and navigating an unknown legal system that is much more favorable to defendants. The asset protection solutions which provide the highest levels of legal security available in the world, include defendant-friendly jurisdictions such as the Cook Islands and Saint Kitts and Nevis. These nations offer unparalleled levels of protections from legal threats, including divorce proceedings.
Does Creating a Trust Before Marriage Help?
As is the general case with asset protection, these strategies work best when implemented well in advance of any legal proceeding. Creating and fully funding an asset protection trust before marriage can make it clear that only separate property was used in funding the trust, as there can be no marital property before a person gets married. In addition, legal entities such as asset protection trusts gain credibility the longer they are established.
Generally, a period of one to two years before a legal threat arises is sufficient to protect the trust assets from voidable transfers concerns. However, even if a divorce summons seems imminent, it might not be too late to consider these powerful asset protection solutions.
Consulting An Attorney?
The team at Blake Harris Law has extensive experience when it comes to protecting assets from a variety of legal disputes. Blake Harris Law has years of experience setting up asset protection trusts for clients all over the U.S. We are proud to offer a variety of legal solutions that can help safeguard your assets in case of divorce or other legal issues. If you would like to discuss whether divorce protection planning is right for you, please contact Blake Harris Law to schedule a free, no-obligation consultation.
