Trusts are becoming increasingly popular among people in the higher income brackets. These financial shelters can be used for estate planning, asset management and protection from creditors. Now, some experts are promoting the use of trusts as protective strategies during a high net worth divorce.
Trusts play an important role in property division. This is primarily because trust assets that are established before a marriage are generally considered separate property. Before women get married, they should consider locking away property and other large investments in a trust. This way, in the event of divorce, those holdings will be protected from the designs of the other person's divorce attorney.
For example, business owners would be well-served to establish trusts to protect their company assets. If this is not done, divorce proceedings may compromise the financial stability of your business. Entrepreneurs can protect their ventures by establishing businesses as separate holdings from the beginning.
In addition, some states prohibit trust holdings to be included in available assets when distributing alimony or child support. That is, trusts do not count as liquid assets that can be distributed as part of a court-ordered payment system. That has important implications because people who are beneficiaries of their parents' trust fund, for instance, cannot be penalized during court proceedings. The trust does not count as a holding for the recipient, so they can still receive the full amount of alimony from their ex-spouse.
Trusts are also beneficial because they prevent funds from being allocated to unintended beneficiaries. Putting the proper safeguards in place can protect the assets from your ex-spouse, creditors, post-divorce asset lawsuits and other nasty legal processes. What happens if you are sued because of your involvement in a car crash after divorce, for example? Many of your assets would be protected from predatory litigators if you secured them away in a trust.
Every high-asset divorce is different, but attorneys acknowledge that trusts can make the split easier by clearly defining which property belongs to each person.
Source: Forbes, "Can a trust protect my assets in divorce?" Jeff Landers, July 18, 2012