With the divorce rate for 2023 in the U.S. predicted to be more than 40%, it is fiscally responsible to develop an understanding of how to protect family assets in case of an adult child’s divorce. While the idea may not seem like a possibility today, it is important to safeguard your financial legacy in the event that the unthinkable happens.
Every parent hopes their children find someone who loves them for who they are and that the couple builds a solid relationship based on trust, respect, and shared values. However, even the most idyllic marriages sometimes dissolve. That’s why it is important to have an honest, fact-based conversation with your child long before the wedding day about how best to protect your family’s finances. This discussion should acknowledge the sensitivity of the topic, but remain non-judgemental.
Whether the couple enters into a prenuptial agreement or you establish a trust, the solution should be fair and reasonable and should keep the best interests of everyone in mind.
Helping an adult child understand a Prenuptial Agreement
A Prenuptial Agreement is specifically created in anticipation of a marriage. People who are engaged may hesitate to ask their future spouse to enter into a prenuptial agreement for fear it will signal that they’re having doubts about their forthcoming marriage. As a parent, you can assure your child that a Prenuptial Agreement has no reflection on the couple’s commitment to one another. Rather, it is a legal document that serves as a way to protect their savings including family assets and at times generational wealth– it is not personal in any way. Terms within the agreement will differ depending upon circumstances and assets brought into the marriage. However, some common items include disclosure of separate pre-marital assets (real property, business interests, personal property, investments, retirement plans, interest in trusts whether it be parents or grandparents), income and liabilities. A prenuptial agreement will also deal with issues such as alimony and the marital residence upon termination of the marriage.
While Prenuptial Agreements are more common for high-net-worth couples who have more family assets to protect as they enter into a union, they are available to any couple, regardless of their current or future assets. In fact, no matter how wealthy a couple is, a Prenuptial Agreement may be a good idea for everyone. In the event of a divorce, it can reduce complications involving finances, ensure both spouses are financially secure, and protect children’s access to family assets.
Recent changes to the general law in Massachusetts have introduced broader “Domestic Partnership” agreements (living together without getting married and same-sex Prenuptial Agreements). Despite those changes, the purpose remains the same; laying out the rights and responsibilities of two people in a wedded relationship and protecting assets from their divorce or separation.
For the Prenuptial Agreement to be enforceable, both parties must enter into it voluntarily. They also must provide complete and full disclosure of pre-marital income and liabilities, including individual pre-marital assets and family assets. It is essential that both parties have sufficient time to review, understand, and complete the document and it’s generally a good idea for each person to retain their own counsel in this process. The drafting of a Prenuptial Agreement can take as long as 12 months, so planning well in advance of procuring the marriage license is recommended.
While a Prenuptial Agreement is a binding legal document, the document must be deemed fair and reasonable at the time of the divorce. There may be cases when a so-called “second look” is granted, particularly if the court believes that one party will be unduly maltreated. In Kelcourse vs. Kelcourse, 87 Mass. App. Ct. 33 (2015), the Appeals Court of the Commonwealth of Massachusetts opined that enforcement of the Prenuptial Agreement would be unconscionable, where enforcement would leave the wife without sufficient property and appropriate employment to support herself.
Protecting family assets through a Trust
A Trust is a fiduciary agreement established to provide legal protection, management, and security for the Grantor’s (your) assets. They are created to distribute your property to your beneficiaries according to your wishes. A trustee handles the Trust and manages it on behalf of the beneficiaries.
Typically, parents leave their estate in trust for their children as a way to address issues of maintenance, welfare, and education costs, taxes, divorce, a child’s death, and the child’s potential general creditor issues. Without a trust, your child’s inheritance could be at risk to a spouse in a divorce action or passed to your child’s surviving spouse, who would have full control over those funds, even if they remarry and have other children (including stepchildren). As a result, some of your assets may never reach your grandchildren.
Trusts are usually part of an overall estate plan and can be encompassing, long-term, and often multi-generational arrangements. Trusts should be reviewed periodically, especially after significant life events such as the birth of a child, a real estate purchase, or the death of a loved one.
Although trusts are often affiliated with high-net-worth individuals or business owners, everyone should consider estate planning of some sort. Whether you establish a trust or other mechanism, a solid plan can help protect family assets and wealth and ensure that your estate is directed to where you want it to go.
The distribution of a trust’s assets is often triggered by beneficiaries reaching a specific age or amassing an estate worth a particular amount. However, M.G.L. Chapter 208, Section 34 contains certain factors the Court must take into consideration in dividing property during the marriage. The Court will look at the facts of each case and determine which factors may be weighted more heavily than others in deciding how to divide marital property.
Trusts can be used to define property or assets brought into the marriage by one party and, as such, may not be considered “family net property” in a divorce action. Advice from an estate planning attorney to discover more about how you can benefit from an estate plan which includes a trust, is highly recommended.
Preparation today saves anguish tomorrow
Life is uncertain, and while no one can predict the future, you can take steps to protect your loved ones and the assets you and your family have worked hard to accumulate and grow.
As a parent, it’s worth taking time to make sure you understand the nuances of both Prenuptial Agreements and Trusts, and how each applies to your specific situation. Whatever you choose, you should ensure that arrangement is agreed to well before your child’s marriage to ensure your wishes are fulfilled.
At Sassoon Cymrot Law, our skilled attorneys have supported families through the divorce process. Our Family Law and Estate Planning attorneys assure that your health, finances, and other assets are taken care of so your legacy goes where you wish and to whom. Contact us today.