Florida Asset Protection Trusts and Domestic Asset Protection Trusts Can Be Effective Prenuptial Agreements
Planning for a divorce is never easy or fun, but divorce is an unfortunate reality in today’s world where almost half of all marriages end in divorce. Without legal planning, a spouse seeking a divorce is likely entitled to an equitable portion of the marital property. The traditional way to protect property from a divorce was through a prenuptial agreement or postnuptial agreement; now there may be a better alternative by using a Florida asset protection trust.
So what happens if there is no legal planning? If the married couple fails to plan for the dissolution of marriage adequately, then the division of marital property will be left to the discretion of a judge during the process of an expensive and time-consuming divorce process.
Traditionally, couples that wished to protect assets before the marriage used prenuptial agreements. Prenuptial agreements can be effective but are not often used for a variety of reasons. The first reason is that prenuptial agreements carry a social stigma. To some, this agreement signifies that a potential spouse does not see a long-term future, or doesn’t want to share their wealth.
Prenuptial agreements can also be defeated by a legal challenge. The law imposes stringent requirements on these types of agreements. For a prenuptial agreement to be valid: 1) each party must be represented by an attorney, 2) both parties must disclose all of his or her assets and liabilities, 3) the agreement must be fair at the time of execution, and 4) the agreement cannot be the product of fraud or duress.
One common way that a prenuptial agreement is defeated is when the couple waits too long before creating a prenuptial agreement. An extreme example would be a wife that demands a prenuptial agreement hours before the marriage ceremony. While this is an extreme scenario, these agreements are often invalidated if it is executed close in time to the wedding.
So what is the alternative to the prenuptial agreement?
A Florida asset protection trust is a great alternative to the prenuptial agreement due to the social stigma and legal complications. Many states have generous trust laws, which allow people to create self-settled trusts to protect assets. One type of trust is a domestic asset protection trust. This trust is an irrevocable spendthrift trust, which means your creditors cannot force a trustee to pay the beneficiary’s debts. The trust protects assets against unknown creditors that include a future-divorcing spouse.
Assets in the domestic asset protection trust are protected from the claims of future creditors (except in the case of bankruptcy). Further, the grantor of the trust is allowed to keep a beneficial interest in the trust. Therefore a potential spouse can use this trust to protect the assets by letting a trustee distribute the assets to the settlor at the trustee’s discretion. The settlor can receive this benefit during his or her lifetime and protect the assets from a bad marriage.
The domestic asset protection trust is a safe and effective way to protect assets from a divorce. Further, this provides a manner of protecting assets that don’t carry the same social stigma of a prenuptial agreement.
Florida does not have domestic asset protection trusts, but one can create a Florida Asset Protection Trust. A Florida Asset Protection Trust can be designed to be a grantor trust, but not self-settled. This type of trust can even protect assets in the case of bankruptcy unlike the “domestic asset protection trust” created by statutes in some states.
For more information contact a Jacksonville asset protection lawyer at the Law Office of David M. Goldman today.
You may also want to attend one of our Estate Planning and Asset Protection workshops designed to teach you how to Protect Your “Stuff” in 3 Easy Steps.