Divorce can create substantial emotional turmoil but may also pose significant financial risks, especially when it comes to the division of assets. If you are contemplating divorce or are already in the midst of one, understanding how to safeguard your financial interests can save you a great deal of trouble down the road. Many individuals fear the potential loss of assets acquired during happier times, raising the question: How can I protect my assets during a divorce?

How Assets Are Treated in Divorce

When facing a divorce, the first step in protecting your assets is to understand how they are categorized and treated under the law. During divorce proceedings, assets are generally divided into two main categories: marital property and separate property.

• Marital property: Includes all assets acquired by either spouse during the course of the marriage. Common examples include the family home, vehicles, bank accounts, and retirement accounts. Regardless of whose name is on the asset, if it was acquired during the marriage, it is typically considered marital property and is subject to division.
• Separate property: Refers to assets owned by one spouse prior to the marriage or those acquired through inheritance or as a gift, to name two examples, to one individual spouse during the marriage. Separate property also includes items purchased with or exchanged for separate property. It is crucial to maintain clear records and proof of the origins of separate assets to ensure they are not mistakenly categorized as marital property during the divorce process.

The distinction between these two types of property can become blurred when separate property is commingled with marital assets. For instance, if you inherit money and deposit it into a joint bank account, or if your separate property increases in value during the marriage due to the efforts or financial contributions of your spouse, these assets or a portion thereof, may be treated as marital property. Debts such as mortgages and credit card debt will also be considered during asset division.

Community Property vs. Equitable Distribution

Most states follow the equitable distribution model, which divides assets in a way that is fair but not necessarily equal. Courts consider several factors, including but not limited to, domestic violence, each spouse’s economic circumstances, duration of the marriage, and each spouse’s contribution to the marital property (including contributions as a homemaker). The goal is to reach a fair division that may not always result in an even 50/50 split but can consider the needs and contributions of both parties.

In community property states, the law considers all assets acquired during the marriage as jointly owned by both spouses, regardless of who earned the money or whose name is on the deed or account. Assets are typically split equally (50/50) between the spouses upon divorce. Only nine states follow this rule: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Under both systems, understanding how specific assets can be protected requires strategic planning and often proactive measures before divorce proceedings begin. For those in community property states, keeping clear records of any assets brought into the marriage as separate property can make all the difference. In equitable distribution states, demonstrating the distinct nature of personal assets or the disproportionate contribution to the marriage’s financial health can influence outcomes.

Never attempt to hide assets during the divorce process; if they are uncovered, it may end up costing you far more than if you had simply declared them up front.

How to Protect Assets From Divorce

Protecting your assets, such as real estate, business investments, and your bank account, in the event of a divorce involves strategic planning and actions that can vary widely depending on your situation. Here are some key strategies you can employ to safeguard your financial interests:

1. Prenuptial and postnuptial agreements: One of the most straightforward ways to protect your assets is through a prenuptial agreement before marriage or a postnuptial agreement if you are already married. These legal documents clearly define what happens to each spouse’s assets in the event of a divorce, including distinctions between what is marital and what is separate property.
2. Keeping separate accounts: Maintaining separate bank accounts for any pre-marriage assets or inheritances can help keep them classified as separate property. Commingling funds, such as depositing inheritance money into a joint account, can turn separate property into marital property.
3. Document everything: Keep thorough records of asset acquisition dates, especially for items owned before the marriage or received as gifts or inheritances during the marriage. Accurate documentation is critical in disputes over whether assets are marital or separate.
4. Establish an asset inventory: Before the tension of divorce proceedings begins, create a comprehensive list of all assets, both joint and separate, if separate assets have been used to purchase property during the marriage and retirement accounts as of the date of marriage. This inventory will be invaluable during divorce negotiations and can help ensure a fair distribution.
5. Use a trust: Assets placed in a trust can sometimes be shielded from divorce proceedings, especially if they are inherited or meant for children from a previous relationship. However, the timing of when assets are placed into trust and the type of trust used can affect their protection.
6. Legal consultation: Engage with a family law attorney who can provide tailored advice and strategies based on your specific circumstances and local laws. Legal knowledge is indispensable in navigating the complex waters of divorce and asset protection.

Consider a Trust for Divorce Planning

Incorporating a trust into your financial strategy can be a prudent way to protect your assets in the event of a divorce. Trusts, especially irrevocable ones, create a legal entity that holds assets outside of your direct control, which can be beneficial in the divorce process. The key to their effectiveness lies in their setup and timing. An irrevocable trust, established before marriage or without any intent to defraud a spouse, can effectively shield assets since these assets are no longer considered personal property but belong to the trust. This can make them inaccessible for division during divorce settlements unless you place marital assets into said trust.

However, the proactive creation of a trust solely to protect assets in a divorce can be contested in court, especially if it appears to circumvent fair asset distribution. For this reason, it’s important to establish trusts under the guidance of a legal professional well-versed in both estate planning and family law. Their experience ensures that the trust complies with state laws and genuinely serves its purpose to protect assets without the risk of being invalidated during a divorce.

Trusts such as a domestic asset protection trust or an irrevocable life insurance trust offer routes to safeguard personal wealth, including life insurance payouts, which can be scrutinized during divorce. These instruments must be structured carefully to serve as effective barriers against asset division, providing security and peace of mind that assets designated for specific purposes, such as children’s inheritance or personal investment accounts, remain protected.

Seek Professional Support

In the complex and often emotionally charged process of divorce, professional support is invaluable. Experienced professionals can help navigate the legal and financial pitfalls involved in protecting your assets. A divorce attorney is vital for understanding and advocating for your legal rights, handling negotiations, and ensuring compliance with family law practices.

Financial advisors also play a key role in assessing the impacts of divorce settlements and planning for your future financial stability. Estate planners are equally important, helping to adjust your estate plan to reflect your new circumstances, including revising wills and trusts. Together, these experts form a supportive team that helps maintain your financial health and legal rights during and after the divorce.

Speak With a Family Lawyer Today!

Getting through a divorce with your assets intact requires not only emotional resilience but also strategic foresight. Taking proactive steps early can make a significant difference in the outcome of your divorce proceedings, so make sure to equip yourself with the right support and guidance tailored to your unique situation.

Don’t wait until it’s too late to start protecting what you’ve worked so hard to build. If you’re considering a divorce or already in the midst of one, consult with a family law attorney to discuss your case and explore your options for asset protection. Contact us today to ensure a secure financial future.

For years, Michael Belsky, Esq., has been relentlessly fighting for the rights of spouses, parents, and grandparents in virtually every aspect of family and matrimonial law. As a Partner at Tully Rinckey PLLC, Michael provides representation in matters relating to divorce, parental alienation, separation agreements, annulments, child custody, child support, modifications to child support and child custody, enforcement of divorce decrees, spousal maintenance, pre-and post-nuptial agreements, orders of protection and family offenses. He can be reached at info@tullylegal.com or at (888) 970-1760