Like prenuptial agreements, trust can be beneficial in event of divorce

Prenuptial agreements are one very flexible tool engaged couples can use to protect themselves in the event of divorce. Another tool, sometimes overlooked, is a trust. Trusts have a variety of uses, including asset management, creditor protection, and gifting, but they can also be used for protection in the event of divorce.

For one thing, trusts can protect post-divorce assets from lawsuits and creditors. Pre-marriage assets can also be protected when placed in a trust. This is especially important for individuals who bring business ownership into the marriage. Domestic or foreign assets protection trusts are one beneficial tool that can be used for this purpose. These allow one to transfer ownership of separate property, including the business, into a separate trust. One particularly beneficial result of this is that business assts and associated appreciation will not be subject to property division.

Another thing to point out is that assets placed in a discretionary trust are not considered, in some states, as belonging to the beneficiary for the purpose of calculating alimony. A discretionary trust is one in which the beneficiaries and/or their entitlement to trust assets are not fixed, but determined by criteria established by the trust. So, a claim for alimony cannot be enforced against a trust created prior to marriage, at least in some states. The states in which this is the case, however, don't necessarily prevent the income of the trust from being considered in determining an alimony award.

In establishing any trust for the purpose of protecting assets in the event of divorce, it is important to carefully designed the terms and conditions of the trust. While most couples don't expect to eventually get divorced, it is important to plan for the possibility. The main question to ask is, will the trust assets be protected from one's spouse in the event of divorce, and what is the best way to ensure this is so?

Working with an attorney who understands these issues is important for couples planning for marriage. Like prenuptial agreements, carefully planned trusts can make divorce a much less painful experience.

Source: Forbes, "Can a Trust Protect My Assets in Divorce?," Jeff Landers, July 18, 2012

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