The dreaded prenuptial agreement (“prenup”) is something that couples entering into marriage fear. Those entering into nuptials pull their hair out trying to figure out the right way and perfect time to raise the subject that they want a prenuptial agreement. When these people are too scared to bring up the issue of a prenup, they enter into marriage with their assets unprotected and vulnerable to division, should divorce occur. Even those who take the plunge and ask for a prenup know that these agreements are not always ironclad, and can still end up being disputed in court. Luckily, there are alternatives for the traditional prenup, one of which is the domestic asset protection trust (DAPT). This alternative to the prenup is specifically allowed by 15 states across the country.
What is a Domestic Asset Protection Trust?
A DAPT is an irrevocable trust that can be used to provide advanced and extensive asset protection. Typically utilized by high-net worth families and individuals to shield money and other assets from creditors, the DAPT has been increasingly used as an alternative to the prenup, in order to shield assets in the event of a divorce. Revocable trusts allow an individual to place assets into a separate account, that they can still control. However, because the individual can still control the revocable trust, it is still accessible to creditors. This is significant because a creditor can include an ex-spouse.
With an irrevocable trust, the individual gives up all rights to the assets in the trust, which will be administered and controlled by a trustee. As a result, neither the individual nor the creditors can reach the assets in the trust. This may seem like that would make a DAPT ineffective. However, an individual would have access to the assets if they are designated as the discretionary beneficiary to the trust, which would mean that the trustee at their discretion could release the funds when they show cause that the funds are needed, though the assets would still be shielded from the ex-spouse and other creditors.
Should I Place My Assets in DAPT?
DAPT’s are not appropriate for all classes of assets. Most importantly, an individual utilizing a DAPT and their assets must reside in the state where the DAPT was created in order for it to be a viable asset protection structure. For example, if your DAPT is in Connecticut, it would not be a good idea to include a home owned in New Jersey into the DAPT, because the Connecticut court would be unlikely to use their discretion to make a ruling on the division of out-of-state property.
Assets that are better suited for transfer into a DAPT include stocks, cash, mutual funds, bonds, and other assets that are of a non-real estate nature. Furthermore, if you are looking for protection beyond what can be extended by the DAPT, you could enter into a DAPT in conjunction with entering into a prenup. This way you could use the prenup to govern the division of real estate, while maintaining the separateness of your cash and other assets.
Though Connecticut does not currently have a statute officially addressing DAPTs, a properly created DAPT could be upheld by a Connecticut court. Contact the family law attorneys here at Greenberg & Krieger LLP in Fairfield County, Connecticut for professional assistance with asset protection services and other divorce-related issues.