New York residents who desire to have more protection than a prenuptial agreement would allow may consider utilizing a domestic asset protection trust. This financial vehicle can assist individuals with the division of assets and segregate certain assets and income during their marriage.
This type of trust is sometimes used in the premarital planning process. They may be used alone or in addition to a prenuptial agreement. It helps to segregate certain income and assets as separate property so that they never become part of the marital estate. The trust provides protection to spouses by not allowing a divorcing spouse or other creditor reach the assets that are held in it. Establishing a domestic asset protection trust immediately prior to a divorce is usually not a good idea because it can raise the presumption that a spouse is attempting to make a fraudulent transfer.
The rules regarding the trust are dictated by the state where the trust is created. Some states have a seasoning period. This means that a spouse might have a claim to the assets in the trust if the seasoning period has not expired. However, the person making this claim must show that there has been a violation of a contract or court order or that the other spouse made a fraudulent transfer. Making this claim requires the spouse to show that the other spouse committed fraud with clear and convincing evidence, a higher standard than is required in a normal civil case. If the trust was established prior to the marriage, this can be difficult to show because a person would not typically establish a trust in contemplation of divorce if he or she had not yet gotten married.
Individuals who have not yet gotten married may explore ways to protect their assets after their wedding day. A domestic asset protection trust may be able to accomplish this goal.
Source: Forbes, “How To Protect Yourself In A Divorce Using A Domestic Asset Protection Trust“, Robert Pagliarini , May 15, 2014