Ensuring that your assets are passed down to your loved ones according to your wishes is likely a primary estate planning goal for you. Having enough assets left to pass down, however, requires your estate plan to also protect and grow your assets while you are alive. One important way to do that is to make sure that you recognize potential threats to your assets and counter those threats immediately. Divorce is almost always a threat to your assets. A Minot estate planning attorney at German Law Group helps you understand how divorce can impact your estate plan.
No one goes into a marriage planning for it to end in divorce; however, the reality is that the divorce rate for first marriages in the United States has hovered at around 50 percent for several years now – and it is even higher for second and subsequent marriages. With that in mind, it is imperative to consider the possibility that you will one day go through a divorce. 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.
North Dakota is an “equitable division” state when it comes to the division of marital assets. This means that if a court must divide the marital assets, it will do so fairly, not necessarily equally. Only assets that are considered marital assets are divided when a couple divorces. Property that is considered separate property 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 if 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. If you are not careful, the division of marital property could negatively impact your estate plan.
Protecting Your Assets in a Divorce
The key to protecting your separate property is to include it in your asset protection strategies within your estate plan. Often, this means transferring the 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. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts.
Keep 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, part of the Settlor’s estate in the eyes of the law. Consequently, the law considers those assets to potentially be fair game for creditors or spouses. If you receive an inheritance during your marriage, be sure to transfer that into your trust immediately to ensure that it does not end up converted to a marital asset. Above all else, be sure to consult with your estate planning attorney before you marry and in the event of a divorce.
Contact a Minot Estate Planning Attorney
Please join us for an upcoming FREE seminar. If you have additional questions about how divorce impacts your estate plan, contact a Minot estate planning attorney at German Law Group by calling 701-738-0060 to schedule an appointment.