Following a divorce, things can get ugly. In certain situations, a divorcing spouse will attempt to pierce a third party spendthrift trust – a trust established by someone else for the benefit of that spouse – to make a claim against those assets held in the trust. To make matters worse, several states have public policy and laws in place that allow a divorcing spouse to do exactly that. Other states permit this behavior through what is known as “exception creditor” laws. If it is your goal to protect assets in a potential divorce, you have two general courses of action:
- Create a discretionary trust where distributions are completely at the discretion of an independent Trustee that is not required by the trust instrument to provide distributions for the beneficiary’s support and maintenance.
- Site the trust in a state where a divorcing spouse is not considered an exception creditor.
There are currently seven states that have laws in place that provide protection against creditors and divorcing spouses. These states include:
- South Dakota – Protected
- Alaska – Protected
- Nevada – Protected
- Tennessee – Protected
- Wyoming – Protected
- Ohio – Protected
- Illinois – Protected
The following three states have strong laws that provide protection against creditors, but not a divorcing spouse.
- Delaware – Not Protected (Garretson v. Garretson (1973))
- New Hampshire – Not Protected (N.H. Rev. Stat. Ann. §564-B:5-503(b)(1)-(2))
- Florida – Not Protected (Fla. Stat. Ann. §736.0503(2)(a) codifying Bacardi v. White (1985))
If you have any questions about Estate Planning, Asset Protection, or Spendthrift Trusts, please contact Offit Kurman estate planning attorney Steven Shane at 301.575.0313 or firstname.lastname@example.org. Mr. Shane offers legal guidance on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable and revocable trusts, life insurance planning, lifetime gifts, and charitable trusts. Offit Kurman Attorneys at Law: Estates, Trusts and Elder Law Practice Group Estate planning and asset protection are two of the most fundamental and important legal services we provide at Offit Kurman Attorneys at Law. Over the years, we have established ourselves as one of the region’s leading asset planning protection law firms. Our trusts and estates attorneys have designed and implemented a substantial number of customized asset protection plans for a wide variety of individuals, all of which have preserved our clients’ assets as designed. If you have any questions about Estate Planning and Asset Protection, please fill out the contact form found on OffitKurman.com to access the knowledgeable legal guidance that our experienced estate planning team of attorneys has to offer. You can also connect with Offit Kurman via Facebook, Twitter, Google+, YouTube, and LinkedIn. Source: Asset Protection in a Divorce