Most people believe that 50% of all marriages end in divorce. This is misleading. Actually, the U.S. divorce rate has dropped to its lowest point in nearly 40 years, according to an article in Time magazine based on a study conducted by Bowling Green State University's National Center for Family and Marriage Research. In fact, their data indicates that from 1980 to 2015 the divorce rate has decreased by 25%.
The trend is encouraging, but divorce is still a reality that cannot be ignored. Just as you would prepare for risks associated with health care costs or investments, you can prepare for the emotional and financial risks found in marriage.
Planning for the Possibility of Divorce
A holistic and strategic wealth plan can provide valuable advice even before an individual is married, sometimes even before wealth is created.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Divorce is not inevitable, but it is a risk every marriage faces. Before a potential life partner is found, it is advisable to consider asset protection for your own sake, and that of your children and future generations.
The best financial protection a parent with significant wealth can provide to their heirs is to consider leaving such wealth in an asset protection trust or as part of a dynasty trust, or through other multi-generational wealth planning. This protection can keep your wealth out of the hands of not only future ex-spouses but future creditors, lawsuit decisions or even inappropriate beneficiaries.
In addition, this protection planning may help couples avoid starting a marriage with an uncomfortable discussion regarding prenuptial agreements.
Asset protection is not only a topic for parents to consider but also those considering marriage or couples wanting to protect their assets from unintended consequences. Asset planning needs to take place before there is an actual claim against one’s assets. Courts will look at assets transferred solely to avoid a settlement claim during a lawsuit or divorce as a fraudulent conveyance.
Protecting Assets
No one gets married anticipating a divorce, but there are steps you can take before and during the marriage that are beneficial in the long run.
Here are just a few types of assets you can protect:
- Financial gifts/inheritance. If you receive a financial gift or inheritance from your family, do not commingle it with your partner’s assets. Keeping it in a separate account or creating a living trust means it will not be considered a joint part of your assets in the event of a divorce.
- Real estate. If you have real estate that you are bringing into the marriage, you do not have to put your partner’s name on the deed; a court may decide that 50% of its value belongs to your ex-spouse if you divorce. Instead, leave the real estate to your spouse via a trust; this ensures they not only appropriately receive use of the real estate but also that its value will pass based on your desired estate plan.
Having assets protected in an irrevocable trust or a Domestic Asset Protection Trust (DAPT) means your individual property becomes the trust’s property rather than your own. This usually requires than an “uninterested” third party must act as the independent trustee. A DAPT was used originally to shield wealthy individuals’ and families’ assets from creditors but can also be used to protect assets during a divorce.
Inevitable End
If a marriage is ending there are different strategies to implement in order to make a more fair and equitable outcome. On top of personal protection, thinking about children and how the separation of assets affects them needs to be considered as well.
Charlene Reardon, a Senior Financial Life Advisor for Telemus, offers some advice to make the divorce process a little easier and more manageable:
- “Build a team around you that can provide emotional, financial and legal support for the day-to-day challenges as well as the ‘new life’ adjustments.” On top of having support in place, try to have sufficient resources set aside for initial legal and operating costs, if possible. If you are in a hostile environment, consider keeping your intentions confidential.
- “Being organized and having a strong awareness of your family’s financial situation can immensely expedite divorce proceedings and reduce costs. It is also important to have recent statements and legal documents associated with those assets available.” This is crucial when dividing assets because not only does current value play a role but so does future value and net after-tax value. Take advantage while you are living in your marital home to acquire the appropriate documents, such as three years of tax returns, business records and investment information.
- “Short-term needs and goals may be at odds with long-term needs and goals; it is important to think in multiple time frames to guide decision making throughout the divorce process.” In an era where multiple marriages and blended families are the norm, thinking about asset protection and growth through multiple time frames is important.
If you are a business owner, there are many additional considerations needed to not only protect the business asset value but to ensure its continued smooth operation. Make sure to discuss the risks and issues the business faces with your financial and legal team. Be honest and realistic when considering risks, including the potential operating issues and other costs with running a business.
It is important to never try to manipulate or keep requested information from the court, no matter how stressful the situation becomes. However, that doesn’t mean that strategic asset and liability planning well in advance of a divorce should not be considered so one can start the process from the most advantageous position possible.
Divorce is like any risk one faces and, just like those risks, knowing which risk-management strategies and goals to have in place will help ensure your wealth and your children and grandchildren’s wealth are properly protected.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This commentary is a matter of opinion and is for informational purposes only. It is not intended as investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. The statements contained herein are based solely upon the opinions of Telemus Capital, LLC. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.
-
Ten Cheapest Places to Live in TexasProperty Tax Looking for a cheap place to live in Texas? Look no further. These counties have the lowest property tax bills in the Lone Star State.
-
AI Is Missing the Wisdom of Older Adults: What It Means for YouAI will increasingly affect your healthcare and finances, but young workers are primarily designing the systems and getting most of the jobs.
-
The Three C's to Financial Success: A Financial Planner's Guide to Build WealthConsistency, commitment and confidence in your chosen strategy are more critical to your financial success than finding the 'perfect' financial plan.
-
A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key PiecesIf retirement's a puzzle you're struggling with, try answering these five questions. The answers will guide you toward a solution.
-
You're Close to Retirement and Cashed Out: How Do You Get Back In?If you've been scared into an all-cash position, it's wise to consider reinvesting your money in the markets. Here's how a financial planner recommends you can get back in the saddle.
-
After the Disaster: An Expert's Guide to Deciding Whether to Rebuild or RelocateHomeowners hit by disaster must weigh the emotional desire to rebuild against the financial realities of insurance coverage, unexpected costs and future risk.
-
A Financial Expert's Tips for Lending Money to Family and FriendsWhat starts as a lifeline can turn into a minefield if the borrower ghosts the lender. Following these three steps can help you avoid family feuds over funds.
-
What the HECM? Combine It With a QLAC and See What HappensCombining a reverse mortgage known as a HECM with a QLAC (qualifying longevity annuity contract) can provide longevity protection, tax savings and liquidity for unplanned expenses.
-
721 UPREIT DSTs: Real Estate Investing Expert Explores the Hidden RisksPotential investors need to understand the crucial distinction between a REIT's option to buy a Delaware statutory trust's property and its obligation.
-
I'm an Insurance Expert: Yes, You Need Life Insurance Even if the Kids Are Grown and the House Is Paid OffLife insurance isn't about you. It's about providing for loved ones and covering expenses after you're gone. Here are five key reasons to have it.
