Aside from my bad attempt at humor in the title to this blog post, the subject of how spouses structure and protect their assets is very important. I think a lot of people will consider whether or not their soon to be spouse is in debt and how much income he or she earns but rarely how their property is allocated.
Quite honestly many people are not in a position where this is an issue. Certainly though, you don’t have to earn a million dollars a year or anything close to it for you to have accumulated assets worth protecting.
If you or your spouse have a trust among your assets then you are in an envious situation. You’ve obvious done something right in your life and have set yourself up for future successes as well. Nobody decides to get married with the assumption that their marriage will end in divorce but unfortunately many marriages do not last.
When you were planning for your financial future it’s possible that you met with a financial advisor, attorney or other “expert” who told you that if you put your assets in a trust that they would be protected against anyone trying to get their grubby hands on whatever it is you are trying to keep safe. This includes the income that you put into the trust as well as any distributions that result from that income. Unfortunately, this is not always the case. Let’s discuss this issue in greater detail.
Premarital agreements may still be a smart decision to enter into even if you have a trust in place
A premarital agreement is not overkill even if you are the beneficiary under a previously created trust. A prenuptial agreement does not mean that you are betting on your marriage failing or that you are suspicious of your soon to be spouse. On the contrary, a prenuptial agreement can help you and your bride/groom to be on the same page as far as money, finances and your marital estate are concerned.
A part of what a prenuptial agreement offers couples is the ability to make sure that no matter what your trust spells out in terms of income protection or beneficiaries that all distributions from the trust and all interest from the trust is the separate property of you as the beneficiary. In this way there is no confusion, hurt feelings or apprehension about what will happen if your marriage were to end- either by death or divorce.
This protection will go into place now and applies into the future as well. Prenuptial agreements allow you to keep the contents of your trust private and saves you time and money in defending against its contents and purpose in a future divorce lawsuit.
What you assume to be true vs. what in actuality is true
Many people who are named as beneficiaries under a trust believe that if he or she divorce their spouse that their trust’s contents will be viewed as separate property by a divorce court. The key to this understanding is that separate property is not considered divisible in a divorce but would go one hundred percent to either you or your spouse- whichever of you holds that separate property right. This assumption is just that- an assumption, and is not always the case.
On the other hand, a prenuptial agreement is held as an agreement made by the parties to a divorce that is typically honored by a divorce court without question. I cannot speak in absolutes here (nor would I on any subject that we blog about) but from my experience prenuptial agreements are more “ironclad” than a trust would be in this situation.
Look to the intent of the trust to determine whether or not its contents are separate or community property
Trust agreements give the trustee written instructions on how to distribute the income from the trust. Whether it be for educational, health or basic needs of the beneficiary, the trustee cannot act at their own discretion in distributing its contents. The distributions made within the trust are based on what the trustee believes to be in line with the intent of the trust agreement and considered to be separate property.
Ultimately the source of when the income or interest is distributed will decide whether or not the distributions are treated as separate or community property. If the distributions are considered to be income then you may find yourself dealing with community property as you would income from a job.
A judge in your divorce may also consider whether you are acting as your own trustee under the trust or if you’ve hired an outside person to act in that capacity. Regardless, if you and your spouse agree to a premarital agreement then this whole discussion is rendered moot due to your spouse having previously agreed to not take an interest in your trust.
Prenuptial agreements smooth many rough edges of divorce
If nothing else, prenuptial agreements can help you and your spouse get through a divorce with minimal headaches. Think about it this way- would you rather negotiate with your spouse when you are still happy with one another, or wait until you can’t stand the sight of one another.
Even if you are divorcing on “good” terms it still cannot compare to the objective and clear-mindedness that you and your spouse have prior to the marriage. A faster, easier and less expensive divorce is the most likely result.
The Law Office of Bryan Fagan, PLLC: Effective advocates for southeast Texas Families
If you have any additional questions on premarital agreements, or any other subject in family law, please do not hesitate to contact the Law Office of Bryan Fagan, PLLC today. Our licensed family law attorneys will assist you in walking through this issue and can answer any questions you have. A free of charge consultation is a phone call away and available to you six days a week.
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Law Office of Bryan Fagan, PLLC | Pre-nuptial Agreement Lawyer
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding Pre-nuptial Agreements, it's important to speak with a Kingwood, TX Pre-nuptial Agreement Lawyer right away to protect your rights.
A Pre-nuptial Agreement Lawyerin Kingwood TX is skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC handles Divorce cases in Spring, Texas, Cypress, Spring, Klein, Humble, Kingwood, Tomball, The Woodlands, Houston, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County and Waller County.
