Is a Prenup or a Trust Better Advance Preparation for Divorce?

Prenup or a Trust? – Divorce-Proofing Your Assets

When people in New Jersey decide to marry, they may not want to think about divorce. However, with more people marrying later in life, with established careers, as business owners or as parents of children from prior relationships, there are many good reasons to engage in financial planning for the future. Prenups and trusts are two options that can help you protect your assets, but the best time to think about them is before you tie the knot.

Why Consider a Prenup or a Trust?

If you are planning to marry, you may have complete faith in your partner. You also want to show your partner that you are truly committed to the relationship. However, prenups and trusts are not an advance plan to divorce, and they do not mean that you are planning to get out of the marriage quickly or call a divorce lawyer. In fact, if you are a business owner, future investors may expect to see plans that protect the business in case of any marital issues, and if you have children of your own, you may wish to see your assets protected.

Both prenups and trusts can also be part of your estate plan as well as a premarital financial choice. They can help ensure your assets are properly distributed according to your wishes after death, not only in the case of divorce. However, there are some differences between these tools, and the most suitable option for you may depend on your unique circumstances. A New Jersey family law attorney can provide detailed advice and guidance to help you determine your options before you marry.

Is a Prenup Right for You?

In all cases, it is important to remember that a prenuptial agreement must be concluded before you marry. Consider financial planning as part of your plans to get ready for your wedding and married life. New Jersey law frowns on postnuptial agreements and tends to find them invalid while prenuptial agreements are a valid form of determining how your goods and assets will be divided in case of divorce.

A prenuptial agreement involves full financial disclosure as assets of both future spouses are considered in negotiations and laid out in the documents. Your family lawyer can provide guidance and representation throughout the process. It is important to remember to be honest during the process of crafting your prenup. If one party is deceptive during the process of negotiating the agreement, it could be thrown out of court.

In addition, each party should have their own divorce attorney to represent them during the negotiations. If one spouse’s attorney handles the prenup, the other spouse does not receive personal representation to protect their own interests. Once again, this kind of issue could render the prenuptial agreement invalid. However, a properly negotiated prenup where both parties are represented is a very strong document that can help ease the path forward in case of a future divorce.

While a prenup involves serious negotiations and discussions about finances, that does not mean that the process is adversarial or that one spouse or the other will “win” the prenup. The agreement can lay out what property will be considered marital property and what will be considered separate property as well as how that property will be divided. It may determine that certain assets will remain the separate property of a specific spouse or that each spouse will keep their own retirement funds.

Business owners may find a prenup particularly important. People may want to make sure a startup is safe from potential disaster during divorce before making a major investment. A prenup is a way that business owners can protect themselves and the future of their companies, and it is a practical choice to enhance the attractiveness of the company to investors, not only a way to plan for a potential future divorce.

However, some people may find it hard to reach an agreement on a prenup or even to broach the issue. While most family law attorneys would counsel openness about financial matters as an important step toward a healthy relationship, it may be challenging for some couples to reach an agreement on a prenup. A revocable trust could be an option for these couples or it may also simply serve as an important estate planning and financial tool.

What About a Revocable Trust?

Trusts are, in many ways, more secure than a prenup. When you create a trust, your personal premarital assets are now the property of the trust as a separate entity, rather than being owned by you. This means that these assets cannot be touched by a spouse in case of a divorce because they belong to the trust, not to you. Keep in mind that you cannot keep marital assets away from your spouse by placing them in trust; a trust is a way to protect personal assets from becoming marital property.

All kinds of property can be owned by a trust, including investments, real estate, vehicles and bank accounts. Trusts are often used as an estate planning tool because you can name the beneficiary to receive the property after you pass away or become incapacitated. There are similar documents that you can also prepare to determine who can make health care or financial decisions for you in case of incapacity. There are many reasons why you may find it helpful to establish a trust as an important part of your estate planning process, including the additional privacy and ease that a trust provides in comparison to a will.

You can remove and add items and income to the trust, change the terms and alter the beneficiaries. In addition, you can be the beneficiary of the trust as well as the settlor, or you may name your children as beneficiaries.

However, once again, there are some caveats, and your divorce lawyer can provide greater insight into your unique situation. If you add marital property to the trust, the entire trust could be voided or determined to be joint property. Just like other kinds of property, it is important not to commingle funds in order to preserve any asset as a solely premarital asset. This also involves, for example, using joint money to pay for costs associated with trust-owned items, like real estate or a vehicle. Your family lawyer can advise you about how to maintain the status of your trust.

You could choose to create both a prenup and a trust. After all, a trust has important estate planning benefits that can be especially important for parents. Because you are the only party involved in creating a trust, there is little question of its legitimacy, so long as commingling of property is avoided. These tools can be helpful for people of all financial backgrounds. While some may think that only the ultra-wealthy use trusts or opt for a prenup, the increase in second and later marriages means that many more people are choosing these preparations.

Keeping Your Assets Secure in a New Jersey Divorce

Both trusts and prenups can be important methods to preserve your assets, long in advance of any divorce. A family lawyer can provide advice and guidance to help you determine the right choice for you. Contact the experienced divorce attorneys at Lawrence Law by calling 908-645-1000 or submitting our online form for a consultation about asset protection at our Red Bank, New Jersey, and Watchung, New Jersey, offices.