Asset Protection Planning Steps in Contemplation of Divorce

Asset Protection Planning Steps in Contemplation of Divorce

  1. Enter into a prenuptial agreement meeting your state’s legal requirements well before the marriage. A prenuptial agreement (often called a “prenup”) is a written contract created by a couple before they are married. It lists each partner’s assets and liabilities and lays out what each person’s property rights will be if the marriage dissolves. Without a prenuptial agreement, the laws of the couple’s state of residence will determine who owns property acquired during the marriage, as well as what happens to that property at divorce or death. Depending on the state, property acquired during marriage will be either marital or community property.A few of the potential advantages of prenuptial agreements include: (1) passing separate property to children from prior marriages, (2) clarifying financial rights and responsibilities during marriage, (3) avoiding disputes in case of divorce, (4) obtaining protection from debts, and (5) providing in advance how property will be divided in a divorce and whether a spouse will receive alimony.
  2. Avoid commingling separate assets.
  3. Try to receive gifts and inheritances in spendthrift and discretionary trusts, rather than outright.
  4. If sufficient assets are involved, consider the use of self-settled spendthrift trusts (DAPTs). Although these trusts are only effective in a few states, they are available to  individuals with residence in other states.
  5. For small and closely-held businesses owned in LLCs, have the member operating agreement restrict member interest transfers or, better, have the members enter into a buy-sell agreement specifying how member interests in the LLC can be transferred.
  6. In some states, be aware that alimony may be awarded to either spouse in accordance with the needs of the spouse and the ability to pay. To the extent that each spouse leaves the marriage financially sufficient, rather than dependent, alimony will be less.
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