Can I shield distributions from divorce claims?

The question of protecting assets from potential divorce claims is a complex one, and the answer depends heavily on individual circumstances and the timing of estate planning actions. While it’s impossible to create an absolutely ironclad guarantee, proactive estate planning, particularly involving trusts, can significantly enhance the protection of assets. In California, which is a community property state, assets acquired during marriage are generally considered owned 50/50. This means any attempt to unilaterally shield those assets during a marriage will likely be scrutinized and potentially overturned. However, strategically planning *before* or *after* a marriage, or during periods of separation, offers more viable options.

How Does Community Property Affect My Estate Plan?

Understanding community property is crucial. All assets acquired during a marriage are considered community property, meaning both spouses have equal ownership. This contrasts with separate property, which is anything owned before the marriage, or received during the marriage as a gift or inheritance. This distinction is critical because separate property remains solely owned by the individual and is generally shielded from divorce claims. The “double step-up” in basis is a significant tax benefit associated with community property. When one spouse dies, the assets receive a step-up in basis to the fair market value at the time of death. With community property, *both* halves of the asset receive this step-up, effectively doubling the potential tax savings for the surviving spouse. This benefit can significantly increase the value of inherited assets and reduce estate taxes.

Can a Trust Really Protect Assets From Divorce?

Trusts, when properly structured and funded *before* a marriage or a significant relationship develops, can offer a degree of asset protection. A pre-marital or pre-nuptial trust can hold separate property, keeping it distinct from the community estate. However, simply transferring assets *into* a trust during a marriage isn’t usually enough. Courts can often “pierce the veil” of the trust and consider the assets as community property if the transfer is seen as an attempt to defraud a future spouse. A revocable living trust, while excellent for probate avoidance, doesn’t offer significant divorce protection. It’s still considered part of the grantor’s estate and subject to division in a divorce. Irrevocable trusts, however, are more difficult to challenge, but require a complete relinquishing of control over the assets.

What About Inheritances and Gifts During Marriage?

While inheritances and gifts received *during* marriage are generally considered separate property, they are susceptible to “commingling”. If you deposit an inheritance into a joint account with your spouse, or use it to purchase a jointly owned asset, it can become commingled and treated as community property. Careful documentation and maintaining separate accounts are vital to preserving the separate property status of inheritances and gifts. For example, I once worked with a client, David, who received a substantial inheritance during his marriage. He mistakenly deposited it into a joint savings account, intending to use it for a family vacation. Unfortunately, when his marriage later dissolved, the court considered the entire amount as community property, drastically reducing his share of the marital assets.

What If I’m Already Married – Is It Too Late?

It’s rarely “too late,” but the options become more limited. A post-nuptial agreement, similar to a pre-nuptial agreement, can define the division of assets in the event of a divorce. This requires full disclosure and agreement from both spouses. Funding an irrevocable trust can also offer some protection, but it requires a considerable commitment and relinquishing of control. I had another client, Sarah, who realized late in her marriage that she needed to protect assets she had accumulated before the relationship. She consulted with an attorney and created an irrevocable trust, transferring a portion of her separate property into it. While her husband challenged the trust, the court ultimately upheld its validity, protecting those assets from division in the divorce. It wasn’t easy, but proactive planning saved her a significant amount of money and stress. Formal probate is required for estates over $184,500. Statutory fees for executors and attorneys can make probate expensive.

Protecting assets from divorce claims requires careful planning and a thorough understanding of California’s community property laws. While no strategy guarantees absolute protection, proactive estate planning, utilizing trusts and agreements, can significantly increase your chances of preserving your assets. Remember, a well-crafted estate plan isn’t just about planning for death; it’s about protecting your financial future and ensuring your wishes are honored throughout your life.

Contact Steven F. Bliss ESQ. at (951) 223-7000 to discuss your specific needs and create a customized estate plan that aligns with your goals.

Don’t leave your financial future to chance. Take control today and secure your tomorrow with expert estate planning.