Asset protection in the context of marriage is usually done through the use of a prenuptial and sometimes postnuptial agreement. However, this is not the only way to protect a person’s assets from being divided in a divorce. People with significant personal wealth who do not wish to use a traditional prenuptial agreement can use domestic asset protection trusts.
A domestic asset protection trust is a kind of irrevocable self-settled trust that a person can set up with an independent trustee to administer it. Because the trust is irrevocable, it means that once it is set up, the person creating the trust cannot voluntarily choose to terminate or end the trust. The person setting up the trust cannot be the named the trust’s trustee, although he or she can be a beneficiary and can control some aspects of the trust, such as directing the investment of trust assets.
In this way, the trustee does not have direct control of the assets in the trust, and legally the trust assets do not belong to him or her. Therefore, any increased value in assets that may be subject to division in a divorce as marital assets are protected. Unlike prenuptial agreements, the placing of assets into the trust does not require the other spouse’s consent if the trust is set up at least 30 days before the wedding.
Other than that, the trust acts very much like a prenuptial agreement in that trust assets are not generally divided as part of a divorce. However, it is important for trust settlors to remember that the domestic asset protection trust does not protect the trust property from claims made as part of a requirement to pay child support.
While a person is free to set up a domestic asset protection trust without the permission of a spouse, the person setting up the trust is required to sign an affidavit attesting to certain facts. The person setting up the trust has to attest to the fact that he or she holds full title to the assets being transferred into the trust. A false attestation that allows a person to transfer marital property into a trust without the consent of the other spouse is not likely to support the validity of the trust later on.
A domestic asset protection trust can also be beneficial in other situations, such as protecting assets from creditors. A creditor will nevertheless be able to reach the trust assets if the trust was only set up in anticipation of the creditor’s claim, or while the claim was pending. The creditor can file a fraudulent transfer claim against the trust settlor to void the protections of the trust.
Contact Us for More Information
For more information on Michigan’s laws on domestic asset protection trusts and how you can protect your assets from creditors and from division in a divorce, contact an experienced asset protection attorney at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan. Our experienced attorneys can discuss the legal issues that will arise in forming an asset protection trust, and how these issues may affect you.
(image courtesy of Anne Edgar)