How Can A Trust Protect My Adult Child’s Inheritance During Divorce?

On Monday we talked about the importance of discussing prenups with your adult children as they prepare for a wedding, especially for high-asset families. Prenups are not always the most comfortable thing to bring up with a fiancée, but they are very important tools for protecting one’s property in case of divorce. But parents with high-assets who wish to ensure that their estates transfers to the desired party (in this case, an adult child) without any hang-ups related to divorce or the lack of a prenup can rely on another tool to preserve their estates: creating a trust.

Benefits Of A Trust To Protect Inheritance In Divorce

A trust gives you much more control over your adult child’s inheritance. You decide the terms of the trust and can order the trustee to only pay out to your son or daughter in certain circumstances. Here are just a few terms you can throw into a trust to ensure that the assets go where you desire:

  • You can name a trustee other than your adult child. This makes it so that a future ex-spouse of your adult child has no claim whatsoever over the assets. You can then declare that the trustee only distribute funds to the beneficiary in a separate account that is strictly used for their inheritance and to monitor all transactions the account is used for; this helps prevent commingling of assets in joint accounts held by your adult child and their spouse (commingling can give the spouse a claim, as joint assets are generally considered marital property)
  • You can tell the trustee that assets are for specific uses in the future, such as your grandchildren’s educations or other expenses.
  • You can tell the trustee that assets are not to be distributed to your adult child without the existence of a comprehensive prenuptial agreement or postnuptial agreement that ensures that assets remain with your adult child and not their spouse.
  • You can even declare that certain assets are not to be distributed contingent upon expectations that you set forth.

If you do decide to create a trust, you must make sure that the terms of the trust leave no room for loopholes or leeway. An estate attorney can help you do just that.

Protecting Your Assets From Your Adult Child’s Ex-Spouse

If you have an adult child who is set to inherit your collected assets in the future, and that adult child is in a serious relationship and may be planning marriage soon, you may be so ecstatic about the upcoming nuptials that you fail to consider that your adult child’s spouse stands to inherit your assets as well.

There are a few ways you can ensure that your life’s work does not fall into the hands of a vengeful ex in-law if the upcoming marriage ends in divorce. The first is something we talk about a lot ”“ the prenuptial agreement.

Convincing Your Adult Child To Get A Prenup

There are a few circumstances where prenups are highly important to consider (although we recommend that every couple thinks about a prenup before tying the knot). Those circumstances are the following:

  • When you have a substantially wealthy family
  • When your adult child is employed in a family business that you own
  • When your adult child has children from a previous marriage or relationship
  • When you have gifted significant assets to your adult child in the past

If any of the above is true, be sure to convey to your son or daughter the importance of a prenup to protect any current and future assets, including those that the adult child would inherit from you in the future.

If your son or daughter says no to the prenup (we get it ”“ it’s an awkward conversation to have with a spouse-to-be), you have another option to ensure that your assets are divided the way you want: creating a trust. We’ll go in depth on that subject this Wednesday.

Minimizing The Tax Impact Of Divorce

Property division, child custody, annoying phone calls with the soon-to-be-ex and his or her attorney, house hunting, car shopping ”“ in divorce, there is a lot of work to be done. So much work that you may not be thinking about next April when your taxes will be due once more. And unless you tackle the problem early, you may end up finding that your newly divorced status comes with some unplanned tax ramifications.

Here are a few considerations to make to ensure that you minimize the tax impact of your divorce.

  1. Know your deductions. Depending on how your divorce plays out, you may be eligible for some tax deductions that you would not have qualified for otherwise. If you have fees related to collecting maintenance (alimony), tax advice or the maintenance and management of property held for producing income (rental properties, for example), you can apply for deductions on those. You cannot, however, deduct legal fees from your divorce or for any child support.
  2. Know your filing status. Your status will depend on when your divorce is finalized; if you are still married come January 1, you will have to file as married filing jointly, married filing separately or as single/head of household. Depending on your income as well as your spouse’s, the tax implications are different. Find out which tax bracket you belong to as an individual as well as a couple, because your combined income may put you in a higher tax bracket than you need to be. You may be able to pay less in taxes if you ensure that your divorce goes through before the end of the year.
  3. Know how changes in your property holdings will affect your taxes. If you sell your principal residence, you qualify for something called a sale of principal residence exclusion. As long as the home has been your principal residence for two of the last five years, you can qualify for this exclusion, but how much you are allowed to claim as tax-free depends on your filing status. For single filings, the gain on your principal residence is tax-free up to $250,000. For married couples, it is $500,000. However, if you transferred your marital home or your share of it to your spouse as part of the divorce settlement, the IRS considers you to have no gain or loss. Because many divorcing couples do decide to sell the marital home, it is wise to think about how a home sale would affect your taxes before you commit to a divorce settlement.

Contempt Is The #1 Predictor Of Divorce ”“ And You’re Probably Showing It In These Ways

The number one predictor of divorce, according to researcher John Gottman, is not money problems or infidelity. It’s contempt for your spouse, or, to be more clear, it is contemptuous behavior toward your spouse. Even if you truly love your spouse and hold no contempt for him or her, you are probably guilty of some of the big behaviors that indicate contempt.

Signs Of Contempt That You Might Not Recognize (But Your Spouse Will)

Communication is the key to any relationship, but not all communication is verbal. Sure, it is easy to say something out loud that displays contempt for your spouse (“I HATE YOU,” for a rather on-the-nose example), but there are certain nonverbal cues that can display the type of animosity and contempt that can poison the well of your marriage and lead to a slow spiral into divorce.

  • Nonverbal Contempt Cues: Eye-rolling. Heavy sighs. Smirking when your spouse tries to bring up an issue that you find trivial, but your spouse does not. Walking away. Ignoring your spouse. Condescending looks when you are speaking.
  • Verbal Contempt Cues: Name-calling. Excessive and biting sarcasm (sarcasm can be healthy ”“ but not when it is used to belittle someone). The word “whatever” in response to a point your spouse makes. “You’re overreacting” when he or she is bothered by something you did. Insults (body-shaming, gender-shaming, insert-type-of-shaming-here)

Contempt is something that builds over time, especially when couples do not communicate to one another effectively. Little things that may not bother you at the time begin to build up, day by day, and keeping that sort of thing bottled up can certainly tear a marriage apart.

Does Divorce Affect Your Diet? Research May Surprise You

Divorce is stressful, and stress can have a big impact on your diet and nutrition. But did you know that women are much more immune to divorce’s effect on diet than men are?

Men vs. Women: Diet After Divorce

According to a study in Social Science & Medicine, men are more likely to suffer from bad dietary practices that could have “clinical significance” than women are following divorce. Women’s diets, oddly enough, tend to stay the same.

The study involved over 11,000 subjects between the ages of 40 and 80. Over a period of eight years, separated by a one-year gap, the subjects went through health testing and reported their consumption of a variety of fruits and vegetables. During the first four-year period, 89 percent of the male subjects and 78 percent of the females were married. Over the course of 3.6 years, a small percentage of both men and women became separated, divorced or widowed.

What researchers discovered was that men who became separated from their spouses consumed 25 percent less produce and also had more monotonous diets than they did when they were married. Women? No statistically significant change in their diets. The study also looked at alcohol use, finding that men drank alcohol at about the same rate regardless of marital status, while women had a slight increase in alcohol intake upon separation.

One theory put forth by the lead researcher said that the reason women may be overall more consistent in their dietary habits following divorce may not be a gender thing, but a cultural thing ”“ because the subjects were born between the 1920s and the 1960s, they lived in a society where culinary tasks were largely relegated to women.

You don’t have to let your divorce lead to negative changes in your diet and health. In fact, divorce can be a wake-up call that inspires you to be more health-conscious. Maybe enroll with some friends in a healthy cooking class, or visit some farmers markets for fresh produce for new recipes and to support local business.

Did You Change Your Insurance Policies After Divorce? Are You Sure You Didn’t Forget Anything?

If you are in the process of getting a divorce, one consideration you might not think of immediately is how it will affect your insurance policies. In many cases, you will need to have your name taken off of an insurance policy when the divorce is finalized ”“ here’s a primer on some types of insurance you’ll need to change.

Filing for divorce starts an automatic, temporary injunction regarding financial matters and insurance. This means that neither spouse can modify an insurance policy, remove the spouse from the policy or stop paying premiums. However, after the divorce, spouses will likely need to have separate insurance policies, so plan ahead for these changes.

Health Insurance

If you are a dependent on your soon-to-be-ex spouse’s health insurance, you will no longer be able to be on it once the divorce is final. So, you should prepare ”“ you can buy health insurance from the health insurance marketplace, or seek it through your place of employment if it is offered. Don’t let a divorce lead to a lapse in your health insurance history, or you may regret it come tax time next year.

Car Insurance

Are both of you named on an auto insurance policy? That’s no bueno. One of the problems here is that you are both going to have to speak to your insurance provider because they are not allowed to remove one person from a joint insurance policy without the consent of the other. Taking care of this prior to divorce will make it so that you and your ex can have a clean ”“ or at least, cleaner ”“ break than having to take care of it after a potentially contentious divorce proceeding.

Home Insurance

If you’re not living in the marital home, then you probably don’t want to be on the insurance. Whoever leaves the home should remove his or herself from the insurance policy. If you are the one leaving and you’re planning on finding a small apartment to live in until you get back on your feet, look into renter’s insurance. There are a lot of people in apartment complexes, and you want to ensure your belongings are protected from those little things like theft or fire. Basic renters insurance can be very reasonably priced.

Speaking to a Denver divorce attorney about your case is the first step in ensuring that your finances are in order after your separation.

Financial Infidelity Can Lead To Divorce

It goes without saying that marital infidelity can lead to the breakdown of a marriage. But adultery is not the only type of infidelity you have to worry about ”“ there is also the notion of financial infidelity.

Financial infidelity basically means to lie to your partner about finances. And it’s a growing trend, according to a Harris Poll for the National Endowment for Financial Education. Two out of five Americans admitted to lying to their spouse about financial matters.

Financial infidelity can be anything from a little white lie to full-blown hiding of a significant amount of assets or debt. Sometimes it can be for a good reason, like saving up for a surprise family vacation. But often, the reasons for lying about money are more malicious, and this type of deception, when discovered (when ”“ not if), can lead to enormous trust issues that may culminate in divorce.

What Are Common Types Of Financial Infidelity?

  • The most common type of financial infidelity is the act of hiding something. This includes hidden purchases, hidden bank accounts, hidden cash stashes, that type of thing.
  • A less common, but still contentious form of financial infidelity ”“ lying about your debts or income.

In the age of cashless transactions, it is easier than ever to engage in financial infidelity. The practice is widespread throughout all demographics, though more common with younger couples. Usually, the moment of discovery is when a major event happens, such as a big purchase (home, car) or even things like medical emergencies. And when the truth comes out, it can destroy your trust and foster contempt ”“ the leading predictor of divorce.

So what should people do to avoid these problems? Maintain open and honest forms of communications about income, assets and debt. Have a weekly or monthly meeting with your spouse to review finances and pay bills. Couples who argue about money and finances should work with a marital counsellor or a financial advisor (or both) to guide them into a better way of handling their household budget, accounts and debt.

Dealing With Intangible Assets In Divorce: Intellectual Property

Dealing with property division in divorce is a complicated process. Some parts can be relatively straightforward ”“ tangible assets like bank accounts and property, for example. But what about intangible assets, things that are difficult to value? For couples who own intellectual property, such as patents and trademarks, an equitable division can be incredibly complex. How do you figure out the value of an idea?

The vast majority of divorcing couples will probably not have to worry about intellectual property in divorce, but for authors, musicians, actors, artists, business owners and startup founders, etc., serious consideration must be given to the value of trademarks, patents and copyrights.

Who Owns A Patent, & How Is It Split In Divorce?

Generally, someone with an interest in an intellectual property has two choices in divorce. The first of those is to have the value of the assets appraised to determine if the assets are subject to valuation. While this can be expensive, it can help the IP holder fight for a final division of the property, eliminating any potential entanglements involving the ex-spouse in the future.

The second option is for the couple to come to an agreement on a proportional split of some type of the proceeds from the intellectual property holdings. For example, the property holder could offer a percentage of the royalties to the spouse on a continuing basis. Depending on the relationship between the two, however, these sorts of entanglements may be undesirable, or there may be problems determining exactly how much of the future royalties should go to the other spouse.

At any rate, intellectual property is very complex and you should discuss any reservations with your financial advisors, IP experts and your family law attorney to scope out the best path moving forward.

Don’t Follow These Terrible Divorce Tips

We dedicate a lot of our blog posts to divorce tips ”“ ways to plan for your finances, the benefits of prenups, things like that. This week, we’d like to take the opposite angle. These tips are terrible. You will regret it if you listen to the tips in this post. Seriously, don’t do it.

Really Though…These Are Bad Tips & We’ll Explain Why

  1. Your spouse is taking his or her sweet time getting out of the house. It’s making you crazy and the kids are not benefiting from it, either. Simple! Are you going to be home when your spouse goes to work? Change the locks when he or she leaves! Why you should not change the locks: Until a divorce decree is finalized and property is divided, your spouse still has a right to the marital home. You need court permission to have your spouse removed from the home. You don’t want the courts thinking you are unreasonable ”“ it will only hurt you in the end. And your spouse will probably be pretty angry too, so that definitely won’t help the divorce.
  2. Stay together for the sake of the children. You and your spouse can handle a little animosity as long as the kids get to stay at home and keep their school and friends. Why you should not stick it out until the kids leave the nest: While it is true that for some couples, staying together for the sake of the children can work out, it sets a bad example for the children. It teaches them to be okay with toxic relationships. It exposes them to future fighting which can be detrimental to their self-esteem. If you can make it work, then we can’t tell you not to do it. But often, separating is smarter.
  3. Your spouse will go after your money, so you should find a place to stash some of it to make sure you are financially stable after divorce. Why hiding marital assets is bad: We’ve only talked about it time and time again. Hiding assets is fraud. Most of the time, the truth will come out. When it comes out, it looks bad on you. Very bad. Just be up front, and plan ahead.
  4. When your spouse files for divorce, act quick ”“ get in those joint bank accounts and take the money before he or she can. Why emptying accounts is terrible: Same reason as hiding assets. It’s not yours ”“ it belongs to your spouse too. Even if you suspect your spouse is planning to do the same thing to you, don’t do it. If your spouse does, you can use that against him or her in court.

There’s plenty more where this came from, but that’ll do for this week.

These 5 Life Events Can Lead To Divorce If You Are Unprepared

You might be surprised how these five basic life events can easily go awry, and when they do, you may find a divorce on the horizon.

  1. A new baby. How can it be, though? Aren’t babies supposed to bring a family together, not tear it apart? Yes, they are. Childbirth is one of the most beautiful moments of a parent’s life. But beyond the joy of bringing new life into the world, there are other considerations to make. Financial, emotional and physical responsibilities introduced by a new baby can lead to stress and impatience, especially in the event of an unplanned pregnancy. You and your spouse may have different expectations of how to raise the child. You may find that the person you fell in love with is not the same person after the birth of a child.
  2. Unemployment. If your spouse loses his or her job, that shifts the burden of finances onto you. All of the bills ”“ rent, mortgage, car payment, car insurance, health insurance, Internet, cable ”“ we’re getting stressed just listing them. And then if your spouse has trouble finding a new job, you might start thinking that it’s something they’re doing wrong ”“ maybe they’re just lazy, for example. Unemployment can rapidly create a divide between spouses that can end in divorce.
  3. Moving. Perhaps you just got a new job that pays incredibly well, but to take it, you and your spouse have to move somewhere else. Let’s say New York City. Suddenly, your spouse has to make the decision to uproot his or her entire life to come with you. Changing schools for the kids. Finding a new job in a highly competitive market with a higher cost of living. Losing friends. It’s a lot to take in, and it can be hard to see the greater good beyond the immediate losses.
  4. Meeting Family. Maybe your spouse’s parents are too involved in his or her life, and you do not get along with the in-laws. This can lead to the uncomfortable moment where someone is forced to take a side ”“ leading to an immediate rift that can cause feelings of broken trust and even contempt (the leading predictor of divorce).
  5. This one might come as a surprise ”“ Social Media. Those pages upon pages of your spouse’s history, that flowing list of friends that may or may not include old flames. Maybe your wife’s ex-boyfriend comments on a picture of her enjoying a beach vacation, or maybe your husband’s ex-girlfriend shares an old memory of them on a mutual friend’s page. Did you feel a little fire flare up in your chest just now? It’s easy to see how suspicion and friction can come into a relationship through social media posts.