Protecting Assets in Divorce: Strategies

Safeguarding assets during divorce is essential. Discover strategies like putting in place prenuptial agreements, identifying whether property constitutes marital vs. separate assets, and utilizing trusts for asset protection.

  • In divorce proceedings, property is classified as either marital or separate.
  • Community property states evenly split marital assets; equitable distribution states consider various factors.
  • Prenuptial agreements may outline asset division and terms of spousal support in the event of a divorce.
  • Listing the couple’s joint assets and consulting a divorce lawyer are crucial steps for protecting one’s assets in the dissolution of a marriage.
  • Be cautious about withdrawing or hiding joint account funds. Doing so can complicate divorce proceedings and may even violate divorce laws in some states. 
  • Retirement assets, like other assets, may require division. Following the divorce, the estranged individuals should update their retirement account beneficiaries. 
  • Trusts, specifically irrevocable trusts, can protect assets for beneficiaries.
  • Consult a family law attorney for expert guidance in divorce proceedings.
Aspect Importance
Property classification in divorce Marital vs. separate property
Community property vs. equitable distribution Asset division laws by state
Prenuptial agreements Defining asset division and support terms
Protecting joint assets Listing, managing, and protecting shared assets
Retirement assets Potential division and beneficiary updates
Trusts for asset protection Irrevocable trusts for safeguarding assets
Legal consultation Family law attorney for expert guidance in divorce

What’s the difference between community property and equitable distribution in divorce?

Community property states evenly divide marital assets, while equitable distribution states consider various factors to divide assets fairly based on circumstances.

How can I protect assets in divorce without a prenuptial agreement?

When divorcing without a prenuptial agreement, safeguard assets by listing joint assets, consulting a divorce lawyer, and being cautious with account withdrawals. Consider irrevocable trusts for added protection.

How Assets Are Treated in Divorce

A big part of divorce proceedings is determining which spouse receives what property and assets.  

To safeguard assets from a divorce, the spouses splitting up must first determine who is entitled to what and what state laws govern property allocation. When deciding who gets what, divorce courts consider two classifications of property: separate property and marital property.

Any property that the divorcing spouses acquired after marriage is considered marital property. That might, for instance, involve items like:

  • The contents of bank accounts
  • Vacation homes or rental properties
  • Vehicles
  • College savings accounts, like 529 plans, established on behalf of their children
  • Retirement accounts, including 401k plans And IRAs
  • Taxable investment accounts
  • A property that serves as the family’s primary residence
  • Business assets
  • Pensions or annuities
  • Antiques or collectibles

Property that either spouse owned before marriage is considered separate property. 

Depending on state rules, the court could also recognize certain assets acquired after marriage as separate property. 

For instance, if one spouse receives a $1 million inheritance from a deceased relative during the marriage, the court may treat those assets as separate property.

Community Property vs. Equitable Distribution

Community Property vs. Equitable Distribution

State law determines how assets should be shared between separating couples. Each state in the U.S. follows either equitable distribution or community property laws.

In a state that follows equitable distribution law, as most states do, property must be divided fairly in light of the circumstances. A court may consider the following factors when allocating assets: 

  • If one or both spouses work
  • Each spouse’s income
  • Anticipated financial responsibilities of each spouse following the divorce
  • The circumstances underlying the marriage’s dissolution

States that follow community property law treat marital property, or property acquired during the marriage, as community property. They generally subject marital property to a 50-50 split between the spouses. However, each spouse retains their own separate property. 

Community property states include: 

  • Arizona 
  • California 
  • Idaho 
  • Louisiana 
  • Nevada 
  • New Mexico 
  • Texas 
  • Washington 
  • Wisconsin

How to Protect Assets From Divorce

Being proactive before a marriage even starts can make dividing assets in the event of a divorce easier. When spouses enter the marriage with a desire to safeguard their assets, a prenuptial agreement may be the best option.

This agreement outlines details like which assets each spouse is entitled to in the event of a divorce and the terms of possible spousal support or child support responsibilities. 

As the name suggests, a prenuptial agreement is established before the marriage begins. If couples still need to establish such an agreement, it’s too late once they decide to divorce (although it is possible to write a postnuptial agreement during the marriage). 

Divorcing couples who do not have a prenuptial agreement can still safeguard their assets, but they must do so through other strategies. 

Firstly, couples seeking to end their marriage should list their assets jointly. This list should include where bank, retirement, and investment accounts are kept, who may access them, and their current balances. 

If one or both spouses don’t have their own individual bank accounts, they should consider creating one solely in their name. 

It may be tempting to withdraw money from joint bank accounts, especially for individuals who fear their soon-to-be ex-spouse will spend all of the couple’s shared finances. However, withdrawing money from such accounts, liquidating assets, or retitling them in one spouse’s name might complicate the divorce process and break state divorce laws. The same is true of any attempt to conceal marital assets to avoid sharing them with the spouse. 

Instead of withdrawing these assets and risking further divorce complications or legal trouble, an individual pursuing a divorce should speak with an experienced divorce lawyer. Suppose the attorney recommends that the spouses remove money from their joint accounts to finance their new separate accounts. In that case, both parties involved in the divorce should speak openly about these plans and ensure that all such transactions from joint bank accounts are recorded.

How Divorce Affects Retirement Accounts

Why are retirement accounts included in the list of what will potentially be deemed marital property, even if the couple is still working and only one spouse is named on the account? Often, retirement assets accumulated during the marriage are considered the couple’s marital property. 

Suppose one spouse had already amassed some retirement savings before the marriage. In that case, their soon-to-be ex-spouse might be entitled to the portion of retirement savings accumulated during the marriage but not the money that predated the marriage. 

If retirement assets are deemed marital property, they could be divided according to the divorce settlement terms. The individual’s former spouse whose name is on the account may receive half (or whatever percentage stipulated in the divorce settlement terms) of the IRA or 401(k) assets amassed during the marriage. 

Dividing these assets may be done in different ways. For example, if both former spouses are entitled to pensions, they may split their annuity payments when they eventually retire. Otherwise, one spouse may “buy out” the other spouse’s portion of the pension by making a lump sum payment based on the present value. 

However, if the divorcing couple decides to split retirement assets that are deemed marital property, both parties should revisit their retirement accounts after the divorce is final. It’s important to update the beneficiaries on one’s retirement accounts in the future to avoid the money going to the former spouse in the future.

How Divorce Affects Retirement Accounts

Consider a Trust for Divorce Planning

Another option for safeguarding assets in the event of a divorce is a legal arrangement known as a trust. Trusts hold assets under the trustee’s management to benefit one or more designated beneficiaries. 

When considering trusts to protect assets in a divorce, one precious tool is an irrevocable trust. An irrevocable trust allows for the permanent transfer of assets to a trustee’s management. The trust will then pay out money in disbursements as outlined in the terms of the trust. However, since transferring these assets into an irrevocable trust is permanent, the individual funding the trust must be certain that they won’t eventually need any of these assets. 

Trusts can’t be used to hide marital assets from one’s soon-to-be ex-spouse, which could result in severe penalties. There are, however, valid reasons divorcing spouses might put funds in a trust. For example, trusts can be an excellent tool for safeguarding assets intended for the children if the person who sets up the trust fears their ex-spouse might spend that money irresponsibly or otherwise fail to use it as intended. 

When parents divorce, one spouse might choose to place assets obtained before the marriage (but not marital assets) in an irrevocable trust called a domestic asset protection trust (DAPT) that provides for the children. The trustee would act on behalf of the children and distribute assets to the children according to the terms of the trust. 

Whether or not establishing an irrevocable trust makes sense for an individual’s situation depends on their unique circumstances and state law. Individuals interested in exploring trusts and other options for protecting their assets in a divorce should speak with a financial advisor or an estate planning lawyer.

Consult With a Family Law Attorney

A divorce is a legal matter, not just a financial one. Getting professional legal advice is essential in divorce to navigate complex asset divisions, protect each party’s interests, and ensure a fair settlement. A family law attorney in Louisiana can provide expert guidance that helps individuals seeking a divorce preserve their financial future.

In Summary

Divorce brings about several challenges in protecting one’s financial assets. Understanding property classification, state laws, prenuptial agreements, and trusts can help couples who are preparing to divorce safeguard their individual assets and divide marital property as smoothly as possible. 

An experienced family law attorney can provide comprehensive support, guiding clients through divorce proceedings and helping them understand the best asset protection strategies available to them under the law.

Contact Us at Stephenson, Chávarri & Dawson

For expert legal guidance in divorce matters, contact Stephenson, Chávarri & Dawson. Our experienced family law attorneys can provide tailored advice, protect your assets, and guide you through divorce proceedings.

Call Now: 504-523-6496