Documents in a "Divorce Firewall" Strategy by The Law Offices of Jeffrey G. Marsocci

Divorce disadvantageous outcomes are avoidable.

Learn the documents needed for self-protection planning before marriage.

Over the last few months, I have mentioned an upcoming book in a few places. As with my other books, this one will be about planning ahead to avoid problems before they ever come up. In this case, the book will show a much more effective way to avoid the downsides of divorce than a prenuptial agreement alone. There are strategies to prevent an inheritance from being lost in a divorce, but what if it is you doing the planning and not planning in case a child of yours gets divorced? (If you have a concern about your legacy being lost in a child’s divorce, contact the office at 919-844-7993 and we can set up a time to discuss it.)

While the book will cover not just documents but also strategies, maintenance, and interdependency of trusts, there are some specific documents that should be included in the overall plan:

The Domestic Asset Protection Trust 

A self-settled irrevocable trust can be the most powerful legal protection vehicle available against not only divorce, but also lawsuits, creditors, bankruptcy, and loss of disability and other public benefits should the need arise. Commonly called a Domestic Asset Protection Trust, it is created by the person who wants protection. They place the assets they want to protect into the trust, and they are the first-level beneficiary. This trust is not available in all states, but there are techniques available to have your trust and assets come under the jurisdiction of one of those states even if you live elsewhere.

Other than a lot of formalities to make the trust work, the biggest drawback is that you can’t be the trustee of the trust, nor can you distribute assets or money to yourself, so choosing the right trustee becomes a critical decision.

This is where a person would put most of their assets before and during the course of the marriage, and it is partly what can protect wealth from the divorce court. By not having any ownership or control over distributions from these assets and accounts, they weren’t even eligible to be on the table for a divorce.

Cohabitation Agreement

Before living with someone you are in a romantic relationship with, it is vital to have a cohabitation agreement in case things do not work out, or even if the relationship does work out that the agreement is a defense against claims that the cohabitation was actually a common law marriage.

The terms are very similar to a premarital agreement in that the document covers basic life and financial topics such as how expenses are shared, which assets are separate property, and which assets are clearly defined as jointly owned while everything else remains separate. Without a solid cohabitation agreement in place before moving in together, you are putting your assets at risk. This agreement in combination with other techniques can make your life and financial future far more secure.

Premarital Agreement

If you do get legally married, then a solid premarital agreement should be in place to ensure that if the marriage dissolves you don’t lose everything. Unfortunately, most people often only find out just how much they can lose in a divorce after it happens to them, and then they shake their heads at their naivety and what they wish they knew before getting married. If they had a solid, well-crafted, and comprehensive premarital agreement (a prenup) which contained the right provisions and was periodically updated, then a lot of the different ways they lost out in a divorce could have been avoided or at least mitigated. But the premarital agreement is only one component of the overall protective marriage strategy.

Limited Liability Companies and Corporations

Having a corporation or limited liability company own real estate, cash, and other valuable investments can ensure that some high-value assets gain additional legal protection. More importantly, it solidifies the argument that the Domestic Asset Protection Trust comes under the chosen state laws if the entities are owned by the trust and are also incorporated/formed under the same state laws. Of course, the business entities actually have to actually act like a business in order to have corporate protection from lawsuits. For example, just titling a house in the name of a limited liability company but not having the trust rent it to you under a proper lease agreement where you are paying rent is just begging a court to let someone get through the protective shields you are trying to build.

Contracts, Waivers, and Other Agreements

What a wonderful world it would be if people kept their word and remembered things perfectly. But we know that is not reality. That’s why there are contracts, leases, waivers, and other written agreements to avoid the pitfalls of faulty memory and outright lies if someone turns vindictive. However, depending on the phase of the relationship, the agreements don’t necessarily have to be complex.

If you are going to get into a romantic relationship to the point of spending the night at one another’s places, it is also time to make absolutely sure there is documentation that clearly defines the relationship and living arrangements, even if it is as simple as stating you are not living together. While not quite as comprehensive as a cohabitation or premarital agreement, they can nonetheless be invaluable if there is a dispute.

Trusts and Other Estate Planning Documents

Many times, people look at trusts only as a way of planning for where your assets go after you die. These and the usual complementary documents can be critical in the event of a health crisis as well as protecting your assets from being confiscated by a court in a domestic or legal proceeding and given to someone else. In particular, the Domestic Asset Protection Trust can be the keystone to an entire protective strategy that will also work in tandem with more traditional estate planning documents and techniques, even to the point of providing generational protection for your own children during their lifetimes so what you leave them will likewise not be lost to divorces or failed relationships. Having the right estate planning documents can make sure your wealth continues on to the people you want… and exclude people you don’t, such as a spouse.

These are just the main documents being explored in the new book, and I’ll keep you updated as it progresses. In the meantime, stay safe, plan ahead, and enjoy life.

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