According to the American Psychological Association, approximately 40 to 50 percent of first marriages, and 60 to 67 percent of second marriages, end in divorce. It is no wonder that many people involved in planning their estates worry about protecting the inheritance they leave their loved ones from being ravaged by a marital split. At Surprenant & Beneski, we are well aware of this concern and routinely help our Massachusetts clients avoid such pitfalls.
Because marriage is not only an emotional commitment, but also a legal and financial one, it is important to consider its potential consequences on the future security of your heirs. As experienced estate planning attorneys, we know several ways to protect your hard-earned and carefully accumulated assets from being divided in the event of a divorce. Below are several strategies that have proven successful in preserving a loved one’s legacy from the financial complications of a marital breakup.
The Importance of Keeping Inherited Assets as Separate Property
When a couple severs ties, a distinction is made between separate and marital assets. Although an inheritance assigned to one party is considered separate property that cannot be subject to division during divorce proceedings, in many cases the inheritance is commingled with marital assets, losing its status as a separate property for one member of the couple.
The easiest way to prevent such commingling is to discuss this situation with your child or grandchild (diplomatically, of course), and to persuade them of the wisdom and practicality
of maintaining private resources in case the marriage goes awry. The future is always unpredictable and there is no downside to being able to count on having separate funds in case your life takes an unexpected turn.
How to Keep Assets Separated and Protected in Case of Divorce
There are many different ways for your loved one to protect their legacy, including:
1. Avoid joint accounts since once the inheritance is deposited in a joint account it becomes a marital asset. Instead, keep the inherited funds in a separate, individual account.
2. Avoid investments in inherited funds in marital property. Though it may be tempting to pay off the mortgage on a jointly owned home or to purchase a summer cottage with inherited funds, it should be remembered that once such a step is taken, commingling has occurred. Consulting with a skilled estate planning attorney before making financial decisions regarding an inheritance is essential.
3. Prenuptial and postnuptial agreements are invaluable in mapping out how inheritances will be treated in the event of divorce. These agreements can be crafted to state definitively that the inheritance you leave to your heir is that individual’s personal property.
4. Establishing certain trusts can also be a good way to safeguard an inheritance in case of divorce since once assets are placed in a trust, they are no longer owned by the beneficiary. This means that the funds are shielded from division in a divorce. The trusts typically used for this purpose are discretionary trusts and dynasty trusts. The latter is specifically designed to ensure that wealth continues to pass through the family bloodline for generations, avoiding any potential claims from divorcing spouses.
5. Using a Limited Liability Company (LLC) or Family Limited Partnership (FLP) is a helpful tool if your inheritance includes real estate or a business. Either entity can offer protection from personal liabilities, including demanding ex-spouses.
6. Gifting as an alternative to inheritance can protect the funds given if you document them as gifts solely to your individual loved one.
Contact an Experienced Estate Planning Attorney Now
Though it may be unromantic to consider the possible divorce of your children or grandchildren as you think of smoothing their path with inherited resources, it is certainly realistic. Thinking ahead to protect the futures of those you love is a significant part of the estate planning process.
Let our knowledgeable lawyers guide you. You can count on us to keep your documents current with any changes in state or federal law and to always make your interests, and the interests of your loved ones our top priority.