Protecting wealth during a divorce can be a crucial factor to consider. When generations of family members have worked hard to build wealth and amass assets to pass on to their children and their children’s children, it is essential to honor their hard work by preventing unnecessary losses, even during difficult circumstances. Fortunately, a few key steps can help to safeguard a family’s legacy and to ensure that fiscal responsibilities are handled appropriately. If you have questions about how to protect your family’s generational wealth during a separation or divorce, consider scheduling a personal consultation with an experience divorce attorney from the Colorado Divorce Law Group by calling (720) 593-6442.
According to the Colorado Bar Association, when dissolving a marriage, the court must allocate separate property to each spouse and distribute marital property after considering certain factors. Without careful planning, a family’s generational wealth could be given to a former spouse, potentially transferring to that person the accumulated results of generations of care and dedication. Assets are meant to pass from one generation to the next. However, during divorce proceedings, a spouse may feel entitled to wealth that is the result of a family inheritance, in addition to whatever the couple has added to that wealth during the marriage.
One of the challenges that divorcing parents face as they prepare to divide marital property is ensuring that the benefits of that legacy continue to benefit their minor children while still protecting the family’s financial legacy from unreasonable demands by a former partner. Ultimately, ensuring that the former spouse cannot inappropriately access assets intended for the couple’s children is crucial. The following examples show why is it so important to protect generational wealth:
Generational wealth is shared between grandparents, parents, siblings, children, and extended family members. Those shared assets may be put at risk when a former spouse attempts to claim ownership. Protecting generational wealth during a divorce helps to safeguard the interests of other family members who have had no part in the marriage or the divorce.
When a former spouse has accumulated substantial personal debt throughout the marriage, the court may deem that debt to be the responsibility of both spouses. In that case, the creditors may have a right to the other spouse’s assets. This could mean garnishment and liens against anything either spouse owns, including generational wealth apportioned as part of a divorce settlement. Unfortunately, family resources may be redirected to pay the former spouse’s personal debts, leaving any children of the marriage unable to benefit from their family’s financial legacy.
In a divorce with children, a main goal is to provide for the children and ensure their safety. Protecting the family’s resources from being redirected to enable irresponsible and even dangerous behavior is, therefore, essential. Poor habits in managing money are not limited to the accumulation of personal debt. Bad money habits can lead to serious financial hardships and trouble if the person who suffers from them maintains control of family assets. Habits to protect a legacy from can include:
These are just a few reasons to protect a family’s wealth. In addition, a divorcing partner is generally not entitled to benefit from the hard work of a former spouse’s grandparents, parents, or extended family members. Protecting wealth during a divorce is, therefore, a top priority. If you would like to learn about options to protect your generational wealth, a skilled attorney at the Colorado Divorce Law Group may be able to help.
Protecting these assets does require planning and a clear separation between marital and nonmarital property. Marital property is accumulated during the marriage, and nonmarital property is typically brought into the marriage. According to the American Bar Association, nonmarital property also includes inheritances received and kept separate during the marriage.
There are two legal documents that a couple can use to help protect assets in case of divorce:
Some couples sign a prenuptial agreement, which means that they agree and sign before they are wed. Prenuptial agreements specify what each spouse will receive in the event of a divorce. A prenuptial agreement can help to ensure that the assets owned by an individual before marriage will not be subject to division as marital property during any future divorce proceedings. The terms may also specify that any trust distribution or inheritance received by a spouse will be his or her sole possession. A carefully drafted prenuptial agreement can help to protect a family’s generational wealth in advance, long before the possibility of a divorce is ever realized.
If a prenuptial agreement does not exist, there is another option called a postnuptial agreement. Postnuptial agreements are like prenuptial agreements, but the couple signs this document after the marriage ceremony. In many cases, this agreement is used when one spouse expects to receive substantial wealth that was not considered before the marriage. Some examples include receiving an inheritance or starting a business. Postnuptial agreements are only valid if both spouses sign.
Prenuptial agreements require significant advanced planning, both personal and financial. Postnuptial agreements can be delicate because they require a married couple to consider the possibility of a future divorce and to establish, during the marriage, which assets they wish to protect from division of marital property in the event that either spouse files for a divorce. An attorney experienced in family law can help to evaluate your options if you are considering either type of agreement as part of your strategy for protecting family and generational wealth in the event of a divorce.
Trusts can help protect a family’s generational wealth. An asset protection trust can help prevent any family assets from becoming intertwined with marital property. In this type of arrangement, all assets governed by the trust are managed by a trustee on behalf of the trust’s beneficiary. Trusts have clear instructions for how to distribute any property and name the rightful beneficiary of the assets. There are several types of trusts, and each one needs to be structured precisely to ensure that the property, money, and other assets comprising the generational wealth will be protected effectively during a divorce proceeding.
Family-owned-and-operated businesses can present a special concern for partners underdoing divorce or separation. If the divorcing partner holds any interest in the business, then it may be vulnerable to a separation of assets. However, family businesses can take steps to mitigate some of the potential risks. Specific provisions in the business’s by-laws can shield the wealth and interests from being distributed to nonfamily. These by-laws should be worded carefully to avoid any challenges from the spouse in court.
Protecting wealth during a divorce requires careful planning. Some couples may feel that there are limited options after the wedding. However, even during the marriage, spouses have a few options that can help to prevent family and generational wealth from being considered marital property during a divorce. If you want to make sure your family’s wealth remains protected during a divorce, consider contacting an experienced family law attorney at the Colorado Divorce Law Group to schedule a consultation by calling (720) 593-6442 today.