Advisors who read my December, 2021 newsletter are authorized to use the following newsletter without violating my copyright (I am giving permission). Advisors or others are NOT authorized to use the following content in whole or in part to publish the content in any other publication (online or in print). The authorization I’m providing is for limited use.

Also, since you are here, you should spend some time surfing this site. It’s one for the IMO I started and it will be like a breath of fresh air to advisors who are getting poor service/product recommendations from the IMO(s) they currently work with. Also, we have some of the most unique marketing tools in the industry. You should check them out!

Roccy DeFrancesco, JD, CAPP, CMP

Protecting Assets in a Divorce

I’ve received several calls over the years by people who are thinking of getting a divorce and who want help protecting assets from their soon-to-be ex-spouse.

Unfortunately, there is very little someone getting divorced can do to protect assets in the divorce. The planning needs to come from the parents.

Inherited Assets

Many times parents will leave a fairly liquid estate to their heirs. Real estate and personal belongings are typically given, but many times the estate is made up of a nice sized life insurance policy. Once these assets are passed to a loved one who is married and the funds get co-mingled in the marital accounts, the chances of the assets becoming subject to division in their divorce is significant.

So, when thinking about protecting assets from divorce, what you need to think about are inherited assets.

What do I mean? Let’s look at an example.

Mrs. Smith (widow), age 80, has a $2,000,000 estate.  She has one son who is married and has two children. When she dies, she plans on leaving her money to her only son.

Assume Mrs. Smith dies and leaves the money outright to her son. Now assume the son gets divorced 1-, 2-, 3-years later.

What happens to the inherited money?

In most fact patterns that money will get co-mingled into the marital bank account and when the divorce goes through, guess who is getting 50% of the inherited assets?

The son’s soon-to-be ex-spouse!

How can this be prevented? The easiest way to prevent this is for the mom to have a good estate plan that takes into account the potential that her heirs will get divorced someday.

Using a trust to protect mom’s assets from the son’s divorce

What mom should NOT do in the example is leave assets outright to her son after death.

Instead, mom should pass the assets to a trust for the benefit of her son. Typical trust language has a schedule such as 25% of the assets shall pass to heirs at age 55,  60, 65, and, finally, at 70. The thinking behind this is that, if you are still married at those ages, the chances of getting divorced (assuming you have been married for a while) are much less likely.

However, as everyone has seen, today people are getting divorced at all ages (including after 60, 65, or even age 70).

This is why it might NOT be prudent to just give assets outright at a certain age and instead keep money in the trust. but have liberal trust language as to how money can come out of the trust for an heir’s needs.

Then, when and if an heir has marital problems or is going through a divorce, the trust needs to have a protective spendthrift provision stating:

If my heirs have known marital problems and certainly if one is going through a divorce, no distributions shall be allowed from the trust, until the divorce is final. The only exception to this is to help the heir pay for legal fees for an attorney and life-sustaining expenses such as food, rent/mortgage, electric, etc.

Again, the language needs to be such that the trustee who controls the money has the flexibility to give an heir funds or not depending on the marital problems at hand.

Once the assets are in a trust, a judge will not be able to issue an order forcing a distribution from the trust. And, as such, the money in the trust will be protected from division in divorce.

IF you have parents who you will inherit money from, you’ll want to forward this newsletter to them.

If you are a parent or grandparent, if you do not have your estate plan properly in order to protect assets from an heir’s divorce after you pass, please contact me and I’d be happy to discuss your situation in detail and recommend a good estate planning attorney you can use to get your estate plan in order.