No one enters into a marriage thinking that it will end in divorce, but the reality is that many marriages do. Whether the marriage is your own or an heir’s, you may want to know how to protect your assets from divorce loss. In this blog post, we will discuss some steps you can take to safeguard your property in case of divorce.

Equitable Distribution Laws in North Carolina

In North Carolina, spouses must divide property equitably during divorce. Equitable is not equal, however. The amount each spouse receives depends on many factors that a court might consider. These factors include income, child support, alimony, health insurance, and more.

There are three types of marital property in North Carolina.

• Marital Property: Property you earned during your marriage. During divorce, this property is generally separated equitably between the two spouses.
• Separate Property: Assets acquired before marriage or after separation; your own personal assets or accounts that remain 100% yours after divorce
• Mixed property: Assets containing both marital and separate property. For example, a home that you owned before marriage but you both paid into. Or your own personal retirement account that you both contributed to during the marriage. Even though the house was only yours, you both added contributions during your marriage, so it is now marital property. In these cases, you’ll need to negotiate with your spouse or through attorneys to determine the percentage of your personal property. 

Asset Protection In The Case of Your Own Divorce

During your marriage, you may not want to think about who owns what property. However, some common-sense guidelines can help you and your spouse make a divorce’s distribution of assets easier in case of divorce. There are some things you can do to stay vigilant before, during, and after separation and marriage.

Before Marriage or After Separation

• Prenuptial agreement: these contracts work well for some assets, but for claims of alimony and child support, a court may see continued payments as a spousal duty, regardless of the reasons for divorce
• Do an inventory of everything you own or share: all of your finances, including bank accounts, real property, and investments. Print out your records and file them.
• Consider keeping your separate property separate. For example, if you own a home in your name, consider keeping it in your name only to prevent it from becoming joint property.
• Open a card, account, business, or trust in your name only to establish separate credit and assets.
• Consult an asset protection attorney if you’re already separated to understand the legalities of taking drastic actions, such as selling a jointly owned home and pocketing the assets. During separation, everything you do will likely come out in negotiations between spousal attorneys or in court. Some actions could bring court fines or charges or be considered bad faith during a separation.

During a Marriage And Before a Separation

• Do an inventory of everything owned in your name only: all of your finances, including bank accounts, real property, and investments. Print out your records and file them.
• Protect assets from your spouse by moving any inherited money into your own personal accounts or investments.
• Consider opening a business or drawing up a trust that limits liability or look at opening international accounts and offshore trusts. Ensure compliance with laws in NC by consulting an asset protection attorney before going in this direction.
• Open an irrevocable trust early on in your marriage to benefit both you and your spouse that has a divorce clause (1)

Asset Protection In the Case of An Heir’s Divorce

It is possible to protect an heir’s inheritance, even after you are long gone. If you have assets to pass down that you want to protect, work with an attorney to open a trust in their name only.

With a trust fund, you can give money to your heir at specific times or dates and in exact amounts. For example, if your grandchild is in a married relationship that you believe will end in divorce, you can set up a trust that will start giving monthly amounts to your grandchild on a date you choose.

When you give monthly amounts, there is never a lump sum inheritance that your grandchild can put into a joint asset. Their inheritance loss is limited to the amounts they receive each month from their inheritance. 

For even more security from divorce, your grandchild can open their own account for the inheritance to go to each month. By putting inheritance into a joint checking account, home, or retirement account, the assets become marital property or combined marital property. However, with a separate account, none of their inheritance goes to their spouse. Because the inheritance amounts go into a separately owned account, they belong to your grandchild even in the event of divorce.

You can set up a trust to start distributing monthly amounts to your heirs now or after you pass away.

Asset Protection Trusts to Protect Heirs’ Inheritance in NC

There are many types of trusts available in NC to protect assets in the case of heirs’ divorce. Some of these types of trusts include:

• Spendthrift Trust: A spendthrift trust often protects assets from an heir’s creditors, including a divorcing spouse.
• Discretionary Trust:  A discretionary trust gives the trustee discretion over how much and how often to distribute assets to the beneficiaries. In many cases, you can use this type of trust to protect an inheritance from a divorcing spouse.
• Irrevocable Trust: An irrevocable trust is one that, once created, cannot be changed by the grantor. This type of trust is often used to protect assets from creditors, including divorcing spouses.
• Self-Settled Asset Protection Trust: This type of trust allows you to put your own assets into the trust to protect them from your creditors, including your own divorcing spouse, if there is a divorce clause and the trust meets other criteria. (1)
• Domestic Asset Protection Trust: A domestic asset protection trust is created under state law and can only be used to protect assets from creditors who live in that state. In NC, you must work with an attorney to set up this type of trust in another state since NC does not offer DAPTs.

You can use spendthrift and discretionary trusts to protect a beneficiary against claims of creditors, including a spouse. A discretionary trust may give more protection in case of claims for alimony. However, a spendthrift trust may protect an heir from paying alimony, but not child support.

Types of trusts and laws in North Carolina can be complicated and hard to sift through without help. Because divorce and the relationships surrounding the process are complex, it’s best to consult with an experienced asset protection attorney about your unique situation.

We Can Help

To learn more about protecting your assets in the case of divorce, contact our Vail Gardner Law estate planning and asset protection team today. We can help you see the next steps and start protecting your assets from where you are right now. Contact us today to get started keeping your bottom line safe.

Sources:

1. Ward v. Fogel