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.
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.
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.
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.
As the chief wealth officer, Andrew Bass is responsible for all strategic financial and life management services of Telemus. He works with high-net-worth members to ensure their financial life plans are designed to achieve realistic goals in both the short and long term.
Six Steps to Take if You've Recently Inherited Money From a Loved One
It’s important to deal with the emotional aspect first before tackling the financial one.
By Kiplinger Advisor Collective Published
Alaska Airlines to Buy Hawaiian: Get Bonus Miles Now
How to use the Alaska Airlines credit card and frequent flyer program to save on trips to Hawaii, Alaska and beyond.
By Ellen Kennedy Published
11 Reasons to Consider a 1031 Exchange
Deferring capital gains taxes might be at the top of the list, but growing your portfolio and your wealth and helping with estate planning are also compelling reasons.
By Daniel Goodwin Published
Why It’s Time to Give Bonds Another Look
Yields are much more attractive now, but you should use discretion to find the bond allocation that’s best for you.
By Bill Aldrich, CLU® Published
Estate Planning and the Legal Quirks of Retiree Cohabitation
Creating an estate plan for an unmarried couple is already challenging, but when the cohabitating couple are in their golden years, it’s especially tricky.
By David Handler, J.D. Published
Seven Financial Planning Stops to Put on Your Map to Financial Security
Creating a comprehensive plan is just the start, though. Checking in regularly to make sure you’re still on track is imperative.
By Michael E. Lewis II, CFP®, CLU®, ChFC® Published
How to Measure the Health of Your Retirement Plan
These five key indicators can help you make decisions based on the overall performance of your retirement plan rather than individual variables.
By Brian Skrobonja, Chartered Financial Consultant (ChFC®) Published
Four Easy Ways to Get Yourself Fired
Being a standout on the job can sometimes be as simple as showing up to meetings on time, responding promptly to requests, doing your homework and not being a jerk.
By H. Dennis Beaver, Esq. Published
How Might the Great Wealth Transfer Change Society?
As $84 trillion in assets move from Baby Boomers to younger generations, we could see a greater emphasis on financial technology and investing based on values.
By Jennifer Wines, JD, CPWA® Published
Why More Retirees Might Come Out of Retirement
It’s often not solely because of financial reasons, but because of a lack of purpose in retirement. This financial expert can relate.
By Chris Blunt Published