Planning for passing on wealth to future generations can be a difficult and emotional task, especially when considering how to protect the inheritance from a descendant’s divorce. Clients want to make sure their children and grandchildren are taken care of, but they also want to keep the inheritance within the family and out of the hands of their descendants’ creditors or ex-spouses. This may require sacrificing straightforward transfers in order to implement a plan that provides the desired level of protection. Common planning strategies, such as outright gifts, can impact the division of assets and alimony in a divorce. It’s important for clients to be specific about their goals and be open to modifying their plans based on the available options. In Florida, assets passed down through gifts or inheritance to someone in a marriage are usually considered separate from the couple’s shared assets. However, there’s a risk that these separate assets could be considered shared if they’re given as a gift between spouses during the marriage. This means that even if someone intended to keep their inherited property separate, it could still be divided in a divorce. So, it’s important for married couples to be careful about how they handle inherited assets to avoid this risk. Even if you inherit something and it’s supposed to be just yours, it could still be considered when dividing assets during a divorce. This means you might end up with less money or property than you thought because the court can take your inheritance into account. This can also affect the amount of alimony you have to pay to your ex-spouse. Overall, getting an inheritance might not protect you as much in a divorce as you think. Divorce can risk your family’s financial privacy, especially if you have a family business. Some families make agreements before or after marriage to protect inherited money, but these agreements have their own risks and may not always work. Some families don’t like the idea of making their kids sign legal agreements before they get married. An irrevocable discretionary spendthrift trust can protect a person’s inheritance from being considered marital assets in a divorce. However, a spouse’s interest in the trust could still be considered when dividing marital assets or determining alimony. Trust assets may also be used to pay alimony, and trust records may have to be shared in a divorce. It’s important to consider these risks when setting up a trust. If someone wants to protect their inherited assets in case of a divorce, they can use a combination of a trust and a marital agreement. The trust can make sure that the assets are protected, and the marital agreement can add an extra layer of protection. The trustee of the trust needs to make sure that the marital agreement is still in place and effective, even if no distributions are being made from the trust. If the beneficiary changes the marital agreement, the trustee can’t do anything about it. So, the combination can provide good protection, but the trustee needs to keep an eye on things. To protect an inheritance in case of divorce, a trust provision can require the spouse of the beneficiary to waive any rights to the trust assets in order to receive distributions from the trust. This waiver can help avoid the risks associated with marital agreements and trust assets without the need for invasive oversight or concerns about termination of the agreement. It is also less expensive and burdensome for the spouses. Additionally, when drafting trust documents, it’s important to avoid including provisions that could be seen as enforceable rights for the beneficiary and to avoid naming the beneficiary as the sole trustee. These steps can provide additional protection against an inheritance affecting a divorce. It’s important to protect a family inheritance from being used in a divorce. This can be complicated, but there are ways to do it. For example, when creating a trust, it’s best not to make the beneficiary also a trustee, and if they already are, they should probably step down. If a beneficiary is in a rocky marriage, the trustee can limit or stop giving them money from the trust to reduce the risk of it being used in a divorce. It can also help to create the trust in a place that has extra protections for this situation. It’s important to work with a team of advisors to come up with the best plan. Note: This does not cover giving assets to a spouse after a person dies and it’s important to consider laws in other states or countries where the descendant might live. This article explains that in a divorce, marital assets like property, retirement accounts, and gifts are divided between the spouses. The default is to split everything equally, but a judge can decide to divide things unfairly if there’s a good reason. Alimony, which is money one spouse pays to the other after the divorce, is also determined based on each person’s financial situation. Child support and other issues are not covered here. Just remember, what you own before the marriage usually stays yours, unless it gets mixed up with marital assets or there’s a legal reason for it to change. When a married couple gives each other gifts during the marriage, those gifts can be considered as part of the assets to be divided in a divorce. A gift is considered to be given when the person making the gift intends to give it, delivers it to the recipient, and gives up all control of it. The court will consider various factors when deciding how to divide the assets, and even if one spouse has inherited assets, it’s up to the judge to decide whether to divide the assets differently because of that. In a divorce case, a wife wanted to see her husband’s financial records from the company where he worked as a lawyer. The company didn’t want to share the records. The court decided that the company’s financial information is private and doesn’t have to be shared. In another case, a wife wanted to see her husband’s business records. The court said she should first ask for documents that show his interest in the business, and then ask for financial records related to the divorce. A house transferred to an irrevocable trust in Florida cannot be divided in a divorce because it belongs to the trust, not the husband or wife. Trusts are considered a source of income and can be used to determine alimony. In Massachusetts, a court ruled that a wife’s interest in a trust could be divided in a divorce, but another court overturned that decision. This is an article about trusts and estates. It talks about how a trustee should handle requests for information from beneficiaries and how to protect trust assets from divorce proceedings. The article is written by lawyers who specialize in this area of law.
Source: https://www.floridabar.org/the-florida-bar-journal/protecting-an-inheritance-in-the-event-of-divorce/
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