A Prenup Alternative that Doesn’t Require Your Spouse’s Consent
By Josh Bennett on December 20, 2017 - Category: Relationships
Protecting Your Assets without a Prenup is as Easy as APT
Let’s face it: it’s not easy to ask for a prenuptial agreement when you are about to get married. In fact, ask asking for one can even lead to an engagement being broken off. Future spouses wrongly assume that if their partner asks for a prenuptial agreement, it’s a statement of distrust. However, avoiding a fight is not the only reason future spouses forgo a prenuptial agreement. First, a prenuptial agreement requires full financial disclosure. Even couples ready to completely share their lives with each other are uncomfortable sharing every aspect of their finances with each other or anyone. Second, when filed incorrectly – and even when filed correctly – prenuptial agreements can be challenged and deemed invalid by a judge come the event of divorce. Although courts tend to enforce prenuptial agreements, there are never any guarantees. The “fairness” of the prenuptial agreement can be contested, and it can also be claimed that the document was signed under duress, under the influence, or signed with lack of disclosure or representation. At this point, it is the decision of the judge whether or not your prenup is actually valid. For this reason many prenuptial agreements can be rendered invalid at the time they are needed most.
So what’s the alternative? With over half of all marriages today ending in divorce, future spouses would be foolish to not take measures to protect their assets from before the marriage.
Asset protection trusts (APTs) offer an alternative for future spouses looking to protect their assets in the event of a future divorce. You can establish an APT without your future spouse even knowing about it. APTs allow individuals a safe and minimally invasive method of asset protection without harming their relationships.
What an APT does is transfer control of your assets to the trustees of your trust. While in most cases this means that you no longer have control over your assets, in a handful of states, you can appoint your own trustees, and can actually appoint yourself as a beneficiary of your trust. However, you must appoint a trustee to have control of your assets transferred to, and this person must be a resident of the state in which your trust is established. You can also appoint an investment advisor, and a distribution adviser. Again, none of these people can be you personally, but you have control over who gets the final say in your assets, and you can be a beneficiary of your assets that are entrusted to those you appoint.
States like Nevada, South Dakota, and Delaware offer irrevocable trust options for those wishing to protect their wealth from creditors, from lawsuit, and from possible future ex-spouses. Consult your own state’s laws regarding trusts before deciding which state’s asset protection laws work best for your assets, your situation, and your goals in protecting your wealth.
Nevada ranks as one of the best state in which to set up an APT. This is because according to Nevada law there is no state income tax, no obligation to child support (as long as you don’t establish trust during divorce proceedings), spouses (as long as you don’t establish trust during divorce proceedings), or exception creditors when it comes to your untrusted wealth, no affidavit of solvency required, and a low statute of limitations for future or preexisting creditors to come after you.
Wealthy families have been using domestic APTs for years to protect their money and their assets from those wishing to go after them. This same vehicle works as an alternative to a prenup. Prenups are often contested. While APTs can be challenged, they very likely hold up to the challenge so long as they are set up correctly in accordance with the laws of the state they are established in, and so long as the fraudulent conveyance period has passed. This means you must establish your APT early, before the engagement. There is also the option of establishing an offshore APT in a different country. That way, creditors, ex-spouses, and anyone looking to come after your money and assets must hire a lawyer in the country in which the trust is established.
In this case, it would be illegal for said lawyer to work on a contingency fee, which serves as the second roadblock to anyone looking to come after your assets. The third hindrance occurs when they must then convince the courts in the country in which your trust is established that the court has the authority to hear this case. This is a costly and time-consuming process that very few people – including your possible future ex-spouse – will be willing to even try.“If you bring up prenuptial planning, you may upset or scare your future spouse,” explains attorney Josh Bennett, who specializes in asset protection. “An APT may be a good alternative for you. The two most important things to remember in drafting an APT is you must have a spendthrift clause, and you must establish your trust long before you are engaged or married.”
What is a spendthrift clause? This is a clause that ensures you will remain the beneficiary of your own trust. Having this clause in place restricts the ability to transfer your interest in the trust. You will have control over who remains the beneficiary of your trust so trustees you appoint beyond yourself cannot take advantage of your APT. The Nevada APT has a component in which the settler – you – appoints a protector who oversees the trustee to make sure he or she is not abusing the position. The protector can remove the trustee and appoint a new one to administer your assets. Going a step further, the protector is prohibited from appointing him or herself as the new trustee, and from appointing someone close to the protector. These additional clauses make the Nevada APT an especially attractive option. The second important aspect of establishing an APT that protects your assets from your future spouse in case of divorce is that this must be done BEFORE you tie the knot. If you wait until marriage, it can be seen as being established in anticipation of a divorce. If you wait until you are in the process of separating, you will certainly run into trouble. In the event of divorce, trusts are looked at carefully to make sure that the trust was not established as a means of divorce planning. Your APT must be money. Otherwise, your attempt to secure your assets from creditors, your spouse, or anyone looking to sue you will be seen as fraudulent conveyance.
An APT must be drafted carefully and precisely by a lawyer who specializes in asset protection law. Otherwise, you will run into the same problems you would with a prenup, and many, many more. Seeking legal advice to successfully protect your assets without sealing them off from yourself is essential to drafting the right APT for you. The trust agreement you need is very specific, and a skilled attorney can consult you on whether an offshore or domestic APT would work best for your situation and your comfort level, and also on which state would be best for you to establish your trust in. You should also consult with a family law/domestic relations attorney in your state to make sure that prenuptial laws in your state comply with the terms of APT statutes in the state your trust may be established in. This is a very nuanced document that takes many facets of law into consideration, and it must be drafted very carefully to successfully function to protect your assets in the event of divorce.