While undergoing divorce, spouses are apprehensive about their assets, investments and retirement benefits. These are important issues because, when two individuals marry, their separate estates become a jointly-owned community estate. Texas is known as a community property state, implying that all property is owned by the community estate, unless otherwise proven. Determining the estate of an asset is the crucial factor in protecting it.
For a spouse to prove that an asset is separate during a divorce requires a high burden of proof. The easiest way is to show that it was a gift or bequest. An individual can safeguard her/his separate property by keeping transparent records of it during the marriage, and keeping it separate from any community property. If a spouse is unable to prove an asset as separate, it will be regarded as a community asset and be divided by the court during a high asset divorce. Assets resulting from partnerships or corporations formed by spouses are quite intricate. Community estate can be avoided altogether by signing a prenuptial agreement or a postnuptial agreement. These agreements address issues such as alimony, and division of community property post-divorce.
A viable alternative can be an irrevocable trust that does not require any of the parties to mutually sign a contract specifying joint ownership but permits them to keep their assets separate. During the proceedings, personal assets are separated from marital assets and therefore, excluded from the purview of the divorce. Also, while prenups deter child support beyond a limit, irrevocable trusts allow predetermining the share of assets to be conferred to one’s children without the former spouse objecting to the same during the divorce. Finally, irrevocable trusts, unlike prenups, can survive death and be used exactly as the person making the trust wishes.
Thus, while prenups ostensibly reflect both parties’ will, they may, in reality, prove to be an impediment to the smooth conclusion of a divorce. When a relationship crumbles, each party begins to work towards the gratification of her/his own self interest and thus, anything that seems unpleasant in the agreement can be challenged. An irrevocable trust on the other hand is a much simpler mechanism that can protect individual rights.
Source: Lantana Living, “Protecting Your Assets In Divorce,” Charla H. Bradshaw, Feb. 25, 2014