While there is no one way to measure the divorce rate, most believe that around 45% of marriages will be dissolved. Unfortunately, this statistic ought to be kept in mind when planning for transfers of generational wealth if keeping family assets in the family is a priority. This is a common concern among families.
Family wealth could be investments, businesses, or real property that has been passed down for generations. The concern lies when the current generation is estate planning and there is potential for an heir to divorce. Without proper precautions, a substantial portion of the wealth could be awarded to an ex-spouse.
First, it is important to understand the difference between marital property and non-marital property. In Georgia, an inheritance or bequest acquired during the marriage by either spouse generally remains the separate property of the spouse who acquired it; therefore, not making the property subject to equitable division in a divorce. However, there are exceptions. If the property appreciates in value, the appreciation may be considered a marital asset. Also, if at any time the inherited property is co-mingled with other marital assets, they may also be viewed as marital assets by the court.
When one spouse is concerned about keeping the family assets he or she is bringing into the marriage, prenuptial agreements can be crucial. These are binding contracts between future spouses that define the rights for either party in the event of an annulment or divorce. Financial advisers often recommend that clients with substantial assets or future inheritances consider a prenuptial agreement. The caveat to prenuptial agreements is that as a marriage progresses through the years, what may have been fair 10 or 20 years ago may not be fair today. These contracts should be reviewed and modified to fit a family’s needs, especially as children are born or there is a considerable change in financial circumstances.
Unfortunately, the discussion of a premarital agreement can cause contention and introduce distrust between future spouses. Often the desire for the separation of assets comes from a prior generation—not the heirs entering the marriage. In this case, families should consider the use of a trust with an independent trustee. To further protect the assets from a divorce, trust distributions should not be made in conjunction with family events, such as buying a marital home or the birth of a child. These trusts can be made during the benefactor’s life or created at death. The important aspect is that the trust is considered a perpetual trust and not one that ends at a certain age or time period. It is also vital that distributions from the trust are kept in separate accounts that do not contain any other marital assets. When assets from a trust are swept into an heir’s joint account with a spouse, the assets are co-mingled and may very likely be considered marital property at that point.
Trusts can be used in conjunction with prenuptial agreements to help ensure assets placed in the trust are owned by the trust and are not considered marital property during the marriage, even in community property states.
When it comes to keeping family assets in a family, it is essential to not only pass the assets to the heirs in a specific way, but to also educate the heirs on how to protect their inheritance moving forward. If you have questions on protecting your family assets, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
