Nancy L. Sponseller

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Using trusts to protect assets before marriage

On behalf of Law Office of Nancy L. Sponseller posted on Friday, May 23, 2014.

Ohio residents planning a wedding may have some legal tasks ahead of them if they are bringing multiple high-value assets into the marriage. Some couples opt to sign a prenuptial agreement in order to protect those assets. However, there is another option that can also be used to protect assets in case of a divorce. The domestic asset protection trust can be a powerful tool for shielding some assets from property division.

As an irrevocable trust, a DAPT cannot be accessed by creditors, and in some states, a spouse is also refused access. However, typical irrevocable trusts force the original owner of the trust’s asset to give up control as well. The DAPT is able to avoid this drawback by naming the trust’s creator as a discretionary beneficiary.

These unique trusts can only be formed in 15 states, but an individual is not required to be resident in the state where the DAPT is established. Of the 15 states, some make spouses exceptions for certain creditors. Therefore, it is important to know how a state governs the formation of the trust before choosing a jurisdiction. For example, Nevada does not allow former spouses to access the trust’s assets, so a Nevada asset protection trust often used to shield assets during a divorce. However, there are certain drawbacks that affect how useful these trusts can be. A DAPT or NAPT cannot protect certain assets that are held in another state, but it can protect transferable assets including cash, stocks and bonds.

Like a prenuptial agreement, the DAPT may need to be established prior to marriage. If established during marriage, it could still be considered subject to property division. An attorney may be able to discuss the best options for shielding various types of assets in the event of divorce to ensure that anything acquired prior to marriage remains safe from the claims of others.

Source: Forbes, “How To Protect Yourself In A Divorce Using A Domestic Asset Protection Trust“, Robert Pagliarini , May 15, 2014