When in the midst of a divorce, things can get rather ugly. In some cases, a divorcing spouse will even try to pierce a third party Spendthrift Trust. To make matters worse, several states, such as Delaware, have public policy and laws in place that allow a divorcing spouse to do exactly that. The rights of the divorcing spouse to access the assets of a spendthrift trust override the rights of a settlor to establish a spendthrift trust for the benefit of the settlor’s intended beneficiaries such as the divorcing spouse.
Other states permit this behavior through what is known as “exception creditor” laws.
What is a Spendthrift Trust?
A spendthrift trust is a trust that limits a beneficiary’s access to trust assets and therefore protects trust property from the beneficiary’s own creditors.
Asset Protection in a Divorce
Two ways to protect assets in a divorce include:
- Site the trust in a state where a divorcing spouse is not considered an exception creditor.
- Create a discretionary trust.
What is a Discretionary Trust?
A discretionary trust puts the distributions at the complete discretion of an independent Trustee that is not required by the trust instrument to provide distributions for the beneficiary’s support and maintenance.
Of course, a discretionary trust is not always fool proof either. To find out your best course of action, it is best to enlist the aid of an experience estate planning attorney, like the ones at Offit Kurman Attorneys at Law.
If you have any questions about Spendthrift Trusts or Asset Protection in a Divorce, please contact Offit Kurman estate planning Steven Shane at 301.575.0313 or firstname.lastname@example.org. Mr. Shane offers legal guidance to clients 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 Estates, Trusts and Elder Law Practice Group
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