Asset Protection and Divorce

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Many individuals, particularly those with significant wealth, want to limit the access a current or future spouse would have to their wealth in the event of a divorce. Here we discuss some common forms of protection.

First, any individual contemplating marriage and wanting to protect wealth should seriously consider a prenuptial agreement. The purpose of a prenuptial agreement is to set aside to each party in advance certain property as separate property, and also to describe how the parties wish to handle issues of spousal support and marital property. Prenuptial agreements that comply with Missouri statutory requirements of disclosure, access to counsel and lack of unconscionability will normally be enforced in family court.

In a prenuptial agreement, a person with significant assets could state those assets would remain the separate property of that person, as well as any income generated by those assets during the marriage, or any new assets purchased by those assets during the marriage. It could also prohibit access to inheritance and other gifts intended for that person alone.

Because prenuptial agreements are not perfect, and because some people either do not believe in them in contemplation of marriage or the future spouse might not agree to sign, other methods exist to protect wealth coming into marriage.

The strongest tool available to safeguard property is an irrevocable trust. Many people use irrevocable trusts as estate planning tools to avoid probate upon death, to avoid estate taxes, and to assure that children and grandchildren have funds as intended by the grantors of the trust. Irrevocable trusts administered by an uninterested party have the greatest legal protection under the law, whereas revocable trusts administered by an interested party have less protection in that they could be subject to attacks for fraudulent conveyances and to provide spousal or child support.

If a family of significant wealth wants to keep the money in the family and away from the spouses of any children or grandchildren, creating an irrevocable trust is a valuable tool. Also, an individual of independent wealth can utilize the trust format to protect wealth in the same way, not just from creditors but also from future spouses if drafted carefully. Provisions could also include creation of trusts for children and grandchildren that assure a spouse upon divorce would not have access to funds intended for the children or grandchildren.

Some important caveats. Income generated during the marriage is considered marital property. Absent a prenuptial agreement, money earned during the marriage and transferred to the trust is still marital property. Also, money distributed from the trust and used for the benefit of the spouse during the marriage could make those funds marital property. Finally, any commingling of trust assets with marital assets during the marriage could convert those funds into marital property. Keeping separate accounts, separate titling and other similar protections is key to preserving trust intentions.

As you can see, the estate planning tool of a trust can also insulate wealth from any future spouse if drafted well.

If you have questions about protecting assets from a spouse during divorce, contact us – we can help.