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Divorce trusts may shield assets from the marital estate

In our prior posts, we have highlighted prenuptial agreements from a number of different angles. We have discussed how to broach the topic with your significant other, what prenuptial agreements can protect, and even what types of people should consider them. 

Sometimes, it is best for the sake of the relationship (and the couples' egos) not to create a prenuptial agreement. In these situations, how can one protect assets from the marital estate, so that they are not subject to division in the event of a divorce?

Divorce trusts (also known as self-settled trusts) may be able to accomplish this. They are irrevocable trusts where the same person who is establishing the trust is also a beneficiary to it. The benefit is that a person can gift assets to the trust and still be able to use (and benefit) from them. All the while, the assets are protected crom creditors.

Suffice it say, a divorce trust accomplishes much of the same things as a prenup without the suspicion and heartache.

However, divorce trusts are complicated estate planning measures. There are substantial risks and complexities that may steer people away from them. For example, the trust may be have to be set up in a separate state, and there may be tax implications that the settlor (the person establishing the trust) may not be ready for. 

Nevertheless, divorce trusts may be an ideal method of protecting separate property when a prenup is not an option. If you have questions, a family law attorney with estate planning experience can help.

Source: Barrons.com, Divorce trusts, May 18, 2013

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