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Taking out divorce insurance

Like calamities such as fire, a spouse should hope and work for the best in relationships but make plans if the worst occurs and a marriage ends through divorce. Asset protection should be considered for the spouse's and their children's protection before a potential mate is found.

This planning should occur before there is a claim against actual assets. Courts may rule against assets that are transferred as a ploy to avoid a lawsuit settlement claim or as fraudulent conveyance during a divorce. Early planning may help avoid uncomfortable conversations over prenuptial agreements before marriage.

The best method for parents with substantial wealth is to consider leaving their assets to their heirs in an asset protection trust, a dynasty trust or through other multi-generational planning. This provides protections against future ex-spouses along with any creditors, lawsuit judgments or inappropriate beneficiaries.

Any financial gift or inheritance received from family should not be commingled with a spouse's assets. These should be placed in a separate account or in a living trust so they do not become marital assets during divorce.

Any real estate brought into the marriage does not have to be placed in the other spouse's name. When this occurs, a court could rule that the ex-spouse is entitled to half of its value. However, a spouse can leave their real estate to the other spouse through a trust which helps ensure they can use the property appropriately and that it is transferred through a valid estate plan.

If divorce occurs, organization and awareness of the financial situation can help expedite proceedings and lower costs. Having legal and financial documents, such as tax returns and retirement plans, assessible is also helpful for property division for determining the value of the family's assets and potential tax liability.

Information may ultimately have to be disclosed during the divorce. This may pose even more issues in a high asset divorce. However, an attorney can help prepare for these proceedings when the end of the marriage may be imminent.

Source: Kiplinger, "Strategically thinking about divorce," By Andrew Bass, CPA, April 2017

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