Do I need a Prenup: Have you considered a Trust, instead?
You may be able to achieve the goals of a Prenup without dealing with the headaches of a Prenup. This can be done by the creation of a Trust instead, and funding the Trust prior to the actual marriage.
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A Prenuptial Agreement
When the issue of a Prenup comes into play, couples - and even their respective families - are talking about a "Prenuptial Agreement". Namely, this is an agreement, or a contract, a couple enters into prior to the marriage that memorializes the agreement between the parties (the couple) as to what is (and what is not) marital property and thus subject to divorce proceedings and settlement should the marriage end in divorce. One of the overall goals of a Prenup is to limit, and ideally preclude, the potential for a disagreement on what is or is not personal property of each spouse and therefore subject to division by a divorce court down the road.
While a Prenuptial Agreement can be a suitable vehicle for asset protection for either or both spouses, a couple's discussion of such a contract is not always a convenient topic to raise prior to the wedding. It can be a source of conflict for an otherwise happily engaged couple. Prenups can also be heavily litigated in a divorce proceeding through which one spouse, for a number of reasons, may argue that it should be rendered void. It is for these reasons, among many others, that couples who likely should consider the protections idealized and many times afforded by a Prenup end up without one. The headaches and potential conflicts in hammering out such an agreement can hover like a dark cloud on a special and exciting time in a couple's life.
The Trust
There is often another alternative, however, that is not always given due consideration. It is to address these same concerns of what is and is not "marital property" through the use of a Trust rather than through a negotiated Prenup.
A Trust is a legal entity through which property placed in the Trust is held by the Trust for the benefit of yourself or for others. The property held by the Trust passes to the Trust beneficiary or beneficiaries upon death. A Trust can include a variety of assets, including real and personal property, as well as bank accounts, just to name a few. With a Trust, the ownership of the property placed into the Trust is, in fact, owned by the Trust rather than by the individual who placed it in the Trust. Thus, the Trust now owns the assets in it rather than the soon-to-be-wed spouse who desires to keep those assets outside of the marital estate.
The Benefits of a Trust over a Prenuptial Agreement
With a Trust, the assets to be protected from the marital estate are no longer owned by the "soon-to-be-married" individual, but, rather, are owned by the Trust. When the couple marries, the assets moved into the Trust prior to the marriage are just that - in the Trust and held by the Trust. These assets are held in the name of the Trust rather than in the individual's name.
Placing individual assets into a properly set-up and funded Trust prior to marriage can prove to offer more protections than a Prenup, as the assets are owned by the Trust and no longer by the individual.
With a Prenup, the assets at issue remain in the individual's name, which many experts agree that such a factor, alone, places the assets more at risk of becoming marital property should the Prenup be voided or otherwise limited by a court in a divorce proceeding. Practically speaking, assets in a Trust may not be as hotly pursued by a former spouse's attorney due to the extent of work it would take to challenge the Trust and that the assets in the Trust are not in any one individual's name, at all.
Additionally, a soon-to-be spouse does not need the agreement from his or her fiancé to set up and fund this Trust. The Trust can be created unilaterally by one person for that person's individual property prior to the marriage, which, generally speaking, should protect that property from being part of the marital estate that would be up for division in the event of divorce. Such a Trust also does not prevent you and your spouse from creating other trusts for your marital property in the future, should you choose to do so.
Am I a Candidate for a Trust?
Individuals who may benefit most from the peace of mind offered by creating a Trust for their separate property prior to marriage are those who own their own business(es) prior to marriage; those with children from prior relationships or marriages; those who have received a significant inheritance or legal settlement prior to marriage; and/or own a home and other substantial assets prior to marriage.
Next Steps
Discuss your personal and specific circumstances with a trusted attorney who specializes in Trusts and who routinely deals with these types of unique circumstances.
While a Trust can be a suitable tool to address these types of issues and one to be considered along with advice from a trusted attorney on your specific circumstances, please remain mindful that, generally, courts in divorce actions have significant discretion in the divisions of assets. There are also specific state or jurisdictional laws that can impact the court's approach and overall divorce ruling - whether the alleged non-marital property is in a Trust or identified as such in a Prenup. Depending on the particular circumstances of your case, it may be recommended that the most risk adverse option would be a Prenup and also a Trust, both that coincide with each other and act toward the same purpose. Some would say a "belt and suspenders" approach.
Equally as important, there are different types of Trusts, including but not limited to revocable and irrevocable trusts. Generally speaking, a revocable trust can be changed over time; can be controlled by the soon-to-be-wed individual in the scenario above; and he or she would be known as the grantor or trustor of their own revocable trust.
In contrast, an irrevocable trust cannot be changed (under most circumstances and but for a few exceptions); and many states prohibit you from naming yourself as the trustor or beneficiary. As a result, you would be required to name another individual to manage the Trust and you would also be required to designate a beneficiary or beneficiaries of the Trust.
John P. Farrell, Esq., of The Farrell Law Firm, P.C., solely focuses his practice on working with clients to create a Trust that meets their specific needs - whether that be asset protection trusts, special needs trusts, Medicaid trusts, pet trusts, gun trusts, as well as to address a myriad of other issues that individuals and families are faced with as they continue in their efforts to protect their assets, their family, and ultimately their legacy. John is licensed in Georgia, Tennessee, and Texas. He also regularly works with a highly qualified network of Trust and Estate planning attorneys throughout the U.S. who are also licensed to practice in multiple other States.
Mr. Farrell is the author of Estate Planning for the Modern Family: A Georgian's Guide to Wills, Trusts, and Powers of Attorney. You can learn about his book here and learn more about John here. Join the more than 1,300 people who subscribe to his Newsletter here. Feel free to send John a message here.
