Asset protection isn’t just a safeguard in case of divorce; it’s a set of actions you can take to protect yourself against anyone that might want to claim your wealth.
Divorce is never an expectation at the start of a marriage — it’s an unfortunate circumstance that catches couples off guard.
A study published in the American Economic Journal examined Sweden’s position atop the European Union’s gender equality index, due in large part to its progressive standards for parental leave, subsidized daycare, and flexible work. While these benefits have helped Swedish women achieve professional milestones and financial independence, they’ve also led to increased instances of divorce in couples where women receive promotions.
All high net worth individuals who intend to marry should have plans to protect their assets in case the relationship fails. Asset protection isn’t just a safeguard in case of divorce; it’s also a term used to describe a set of actions you can take to protect your assets against creditors, lawsuits, divorced partners, and a multitude of other entities that might want to claim a share of your wealth.
How to Protect Assets During Divorce
Asset protection is possible through multiple methods, with prenuptial agreements being a popular pre-marriage option. Another important safeguard is establishing and funding an irrevocable trust. By removing assets from your estate, it becomes more difficult for other parties to take them because they belong to the trust instead of you.
When people think about protecting their assets during a divorce, they typically ponder how to keep their assets to themselves and don’t consider the sizable expenses of a divorce and newly single life; both can take a significant toll on those assets. Protecting your assets may require contracts and specific types of accounts, but it should also involve setting realistic expectations for life after a divorce.
The reality is that divorces are quite common. If you haven’t thought ahead, you’re liable to lose a significant portion of your wealth if you fail to devise any asset protection strategies and your marriage falls apart. When crafting that strategy, we believe you should consider the following:
1. Individual expenses will increase. Contrary to what you might believe, your expenses after a divorce won’t merely be half of what they were during your marriage. Shared home-related costs such as rent, mortgage payments, and utility bills will likely increase once you no longer share a home with your spouse.
The same income and asset pool now has to support two households instead of just one. You’ll need to put away enough money to support increased monthly expenses after a divorce.
2. Insurance coverage will become compromised. Most employer-sponsored benefits packages include family health insurance. If your ex-spouse was the primary plan participant, you’ll likely need to find a replacement plan.
This is an especially important consideration for women. A National Institutes of Health study found that more than 115,000 women lose their insurance annually due to divorce, with many staying uninsured for months or even years to avoid the cost of a new plan. Both parties should secure their benefits before the proceedings are complete.
3. The division of assets might be complicated. Different assets and financial accounts are subject to various tax obligations. For instance, 401(k) plans and IRA accounts will be taxed at ordinary income tax rates when distributions occur during retirement. When two people are deciding how to share assets, it’s important to consider future tax obligations.
Moreover, if you and your soon-to-be-ex-spouse own non-liquid assets such as real estate or private business interests, you’ll have to figure out a way to value them. The division of pensions, royalties, executive bonuses, offshore accounts, precious metals, and other assets makes divorce proceedings even more complicated.
Divorce is never convenient, and it can be costly. If you’re going through it or other significant family changes, asset protection can help make sure your wealth stays intact.
Are you looking for some preventative asset protection strategies? Contact us to learn more and set up a consultation.
This article is prepared by Pekin Hardy Strauss, Inc. (“Pekin Hardy,” dba Pekin Hardy Strauss Wealth Management) for informational purposes only and is not intended as an offer or solicitation for business. The information and data in this article does not constitute legal, tax, accounting, investment, or other professional advice. The views expressed are those of the author(s) as of the date of publication of this report, and they are subject to change at any time due to changes in market or economic conditions. Pekin Hardy cannot assure that the strategies discussed herein will outperform any other investment strategy in the future, there are no assurances that any predicted results will occur.