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Guarding separate property in a high-asset divorce using trusts

Texas residents who are going to be married may be interested in one way to protect non-marital property in the case of a future divorce. This method, currently available in 15 states, avoids the need for an awkward conversation about a prenuptial agreement.

A domestic asset protection trust is a type of irrevocable trust that makes the owner of the trust's assets a discretionary beneficiary. This allows the owner to get the protections that an irrevocable trust provides while still retaining some access to the assets. Creditors, including a former spouse, are not able to dismantle a DAPT in an effort to gain access to the assets, which would be possible if the trust was revocable.

A recent article notes that DAPTs are becoming a normal part of many prospective people's premarital financial planning strategies. However, there are dangers to setting up a DAPT during the marriage. There may be accusations that the spouse is trying to transfer marital property out of the marriage, especially in a community property state like Texas where each spouse is legally entitled to 50 percent of the marital property. If a person goes outside of the state to create the DAPT, it may not be possible to include real property held outside of the state in the trust. The article recommends keeping only non-real property like cash, stocks and bonds in the devices.

Divorce matters like asset protection and division can be very complicated, particularly in a high-asset divorce. An attorney could help create a plan to protect the spouse's separate property or to craft a prenuptial agreement that can avoid many of the common pitfalls that spouses face at the end of a marriage.

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

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Bruce Turner

In addition to his law degree, Bruce Turner has a master's degree in tax law and is Board Certified in Commercial Real Estate Law by the Texas Board of Legal Specialization.

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