Divorce

A Creative Way to Divorce-Proof Your Premarital Assets

If the full-disclosure aspect of a prenup agreement is a sticking point for you, an irrevocable trust could be an interesting way around the issue.

Whoever said “money can’t buy happiness” has never paid for a divorce. Paul Tommins should know … he’s paid for two of them. This is an area we are regularly contacted about.

His divorces – expensive as they were – came with silver linings.  Free of the daily push and pull of domestic life, Paul — a fictional example whose story is a compilation of several clients I’ve encountered over the years — was able to focus on building his business, diving headfirst into creating a corporation that was ultimately acquired by a large tech company for many millions.

A New Relationship, But Old Fears

Golden parachute in hand, Paul doesn’t have to work for the first time in his life. But without the driving motivation of building his company, Paul becomes lonely. Then, he meets Julianne. She’s perfect. A Midwestern girl whose beauty and warm personality can light up a room, he can’t wait to see her every day. Soon, he starts thinking about their future together. But he’s gun-shy – the burn of his previous divorces still stings – and his biggest fear is that he may be falling in love with the next future ex-Mrs. Tommins.

Paul believes in the old adage, “Fool me once, shame on you, fool me twice, shame on me.” His previous relationships were defined by money. This created a sense of entitlement in his ex-wives that he found intensely distasteful as a self-made man. The mix of his intense work ethic and his exes’ spendthrift ways was a recipe for unhappiness, and he is not going to let himself be fooled a third time.

He asks his family law attorney how he can protect his current assets prior to proposing to his new girlfriend. She recommends that he negotiate a prenuptial agreement.

An Interesting Solution to a Prenup Problem

Unfortunately, for a prenup to be valid, he must reveal all personal assets that will be covered by the agreement. This is exactly what he wants to avoid: He’s not ready to disclose his entire financial universe to Julianne. Money was the cause of his first two divorces; he wants to do everything he can to prevent money from being the cause of a third. But his lawyer warns that most states require parties to a prenup to disclose the assets they own and are planning to bring to the marriage. Without full disclosure, a prenup will not be enforceable, meaning money would definitely be at issue in a divorce.

While a financial planner or a marriage counselor might look at this situation and advise Paul that he should think carefully about whether he should consider getting married if he can’t be open with his partner, the lawyer he chooses has a very different viewpoint. The lawyer offers a simple solution: Don’t own such assets at the time the prenup is signed. 

To accomplish this, Paul can form an irrevocable trust for his assets for the benefit of his children or other designated beneficiaries in one of the favorable states that have “no exception creditors,” such as Nevada, Alaska or South Dakota. Paul can even use an offshore jurisdiction to get “suspenders and belt” protection, where the trust can be drafted to provide the trustee with the power to add future beneficiaries, including – but not limited to – Paul.

A Divorce-Proof Proposition

When Paul signs his prenup, he would literally not own the assets previously given to his irrevocable trust, and thus, does not need to disclose them.  Should Paul later need or want some or all of the assets held by the trust, the trustee may add him as a beneficiary. This simple “divorce-proof” solution to a tricky problem gives Paul peace of mind as he plans to embark on his new life with beautiful Julianne.

We all hope for the best in any relationship, but hoping for the best and gaining peace of mind are not mutually exclusive. If you or someone you know may benefit from “divorce-proofing” hard-earned assets, contact us before it is too late to take action, and learn how you can achieve peace of mind for years to come.

About the Author

Jeffrey M. Verdon, Esq.

Managing Partner, Jeffrey M. Verdon Law Group, LLP

Jeffrey M. Verdon, Esq. is the managing partner of the Jeffrey M. Verdon Law Group, LLP, a Trusts & Estates boutique law firm located in Newport Beach, Calif. With more than 30 years of experience in designing and implementing comprehensive estate planning and asset protection structures, the law firm serves affluent families and successful business owners in solving their most complex and vexing estate tax, income tax, and asset protection goals and objectives.

Most Popular

When Could We Get a Third Stimulus Check?
Coronavirus and Your Money

When Could We Get a Third Stimulus Check?

President Biden and others in Congress are pushing for a third-round of stimulus checks, but it might be a while before we get them.
January 20, 2021
Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your second stimulus check.
January 18, 2021
20 Best Stocks to Buy for the Joe Biden Presidency
stocks to buy

20 Best Stocks to Buy for the Joe Biden Presidency

Joe Biden has been sworn in as America's 46th president. These are 20 of the best stocks to own under the new administration.
January 20, 2021

Recommended

What Could 2021 Hold for Your Finances?
retirement planning

What Could 2021 Hold for Your Finances?

After a wild 2020, many of us are ready for a fresh start in the new year.
January 22, 2021
Don’t Have a Pension? The SECURE Act Could Help
retirement planning

Don’t Have a Pension? The SECURE Act Could Help

If you’re worried about retirement, the SECURE Act has a lot to offer. It has several provisions to allow people to save more, for more years — and it…
January 22, 2021
4 Reasons Retirees Should Care About the New Coronavirus Stimulus Package
Coronavirus and Your Money

4 Reasons Retirees Should Care About the New Coronavirus Stimulus Package

Yes, the possibility that you’ll get a stimulus check is definitely something to care about, but there are other aspects of this act involving taxes a…
January 21, 2021
Unhappy with Low CD Rates? A Structured Note May Be the Answer
retirement planning

Unhappy with Low CD Rates? A Structured Note May Be the Answer

What are structured notes? How do they limit risk while allowing for gains? Considering their pros and cons, could a structured note be right for you?…
January 20, 2021