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How to Protect Your Assets from the Possibility of Divorce

January 9, 2023 by Morris Hall, PLLC

If you are planning to marry soon, now is the time to think about protecting your assets from the possibility of that marriage ending in divorce. Hopefully, your marriage will be one that endures the test of time; however, the reality is that one out of every two first marriages end in divorce in the United States. Your odds are even less optimistic if you are entering into a second or subsequent marriage. With those odds in mind, the Phoenix asset protection planning attorneys at Morris Hall PLLC urge you to protect your assets from the possibility of divorce.

How Could a Divorce Threaten My Assets?

Couples often go into marriage with an attitude of “what’s mine is yours and what’s yours is mine.” While that attitude is understandable during the honeymoon phase of a marriage, the time may come when you start to reconsider parting with your hard-earned assets. If your marriage does end in divorce, part of the divorce process includes dividing the marital debts and assets. If you brought considerably more assets into the marriage you may not want to divide those assets equally. Conversely, you may not have monetarily valuable assets, but you may own things that have great sentimental value to you or that you planned to give to children from a previous relationship. Because the State of Arizona is a community property state, many of those assets could be subject to division in a divorce.

If your assets are subject to division in a community property state, such as Arizona, all marital assets are potentially subject to equal division. Separate property, however, remains the property of the original owner. Separate property usually refers to assets owned by a party prior to the marriage or inherited by a party during the marriage as long as the asset was not converted into a marital asset by co-mingling the asset.  This is where people often run into problems. If you unintentionally co-mingle your separate assets, you could lose them in a divorce – and it is easier to do that than you may realize. Using the equity in a home that is your separate property as a down payment for a marital home or paying bills at that home from a separate account could turn separate property into marital property.

Protecting Your Assets

Clearly, you would not enter a marriage assuming it would end in divorce. Nevertheless, there is nothing wrong with planning for that possibility. Specifically, there is nothing wrong with including asset protection strategies that will protect your assets in the event of a divorce in your estate plan. Entering into a prenuptial agreement is one way to ensure that your assets are protected should your marriage end in divorce; however, your future spouse would need to agree to the terms of that agreement for it to achieve the desired results.

Another option is to transfer your assets into a trust to ensure that they are kept separate and not unintentionally co-mingled. A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries, also named by the Settlor. Keeping your separate property in a trust helps to clearly delineate what property is yours and what property is part of the marital estate; however, for true asset protection you need to have that property in an irrevocable living trust. Neither a testamentary trust nor a revocable living trust will work as an asset protection tool because assets held in either trust remain accessible to the Settlor and, therefore, continue to be considered part of the Settlor’s estate. The law, therefore, considers those assets to be fair game for spouses in a divorce.  Along with making sure the assets you owned before the marriage are transferred into the trust prior to the marriage, you should also be sure to transfer any assets you inherit during the marriage into the trust as well to ensure that those assets remain your own separate property.

Contact Phoenix Asset Protection Planning Attorneys

For more information, please join us for an upcoming live webinar. If you have additional questions or concerns about how to protect your assets, contact the experienced Phoenix asset protection planning attorneys at Morris Hall PLLC by calling 888-222-1328 to schedule your free consultation today.

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