Divorce Proofing Your Wealth: Beyond the Basic Prenuptial Agreement

When going through a divorce, the division of assets can become a complex and emotional process. Fortunately, there are ways to protect your individual assets, especially those you acquired before marriage or received through inheritance. Here’s what you need to know:

Prenuptial Agreements Offer the Strongest Protection

The most straightforward way to protect your assets is with a prenuptial agreement. This legal document clearly outlines what belongs to whom and how assets should be treated if the marriage ends. However, many people enter marriage without one.

What Assets Can Be Protected

Assets you had prior to the marriage and any inheritance received during the marriage can typically be protected, but only if they remain separate. In general, anything acquired during the marriage, especially if it’s shared, is considered marital property and may be subject to division depending on your state’s laws.

Keep Property Truly Separate

To maintain the protection of pre-marital or inherited assets:

• Keep bank accounts separate.
• Hold real estate solely in your name.
• Do not co-mingle funds (e.g., using separate funds to pay off a jointly titled property).

Once assets are mixed with marital property, they often lose their separate status and can be divided in divorce proceedings.

Inheritances: Best Practices

If you inherit assets, it’s best to receive them through a trust, especially one set up by the person giving the inheritance. If that’s not possible, you can still protect it by keeping the inheritance in a separate account and avoiding any mixing with joint or marital finances.

Use of Trusts to Maintain Separation

Setting up a revocable or irrevocable trust can help maintain the separation of assets. For example, you can place an inheritance into a trust that names your children (not your spouse) as beneficiaries, helping keep the assets in your family, even if you pass away or go through a divorce.

Considerations for Second Marriages

These strategies are especially common in second marriages, where each spouse may want to keep their financial lives separate. Joint accounts can still be used for shared expenses, but individual assets and estate planning should be handled with care to avoid unintentional co-mingling.

Talk to a Professional

Every situation is different. If you’re inheriting money, planning to marry, or entering a second marriage, it’s wise to speak with a financial advisor or estate planning attorney to make sure your assets are structured properly and protected for the long term. Schedule a complimentary consultation and discover how we can help you navigate divorce-proofing your wealth.