- The United States has the sixth-highest divorce rate in the world, with about half of the marriages ending in divorce.
- The unfortunate state of affairs has seen the rise of prenups to protect the parties’ finances.
- It is now emerging that even prenups may not be foolproof as one might think, and now experts recommend establishing an asset protection trust as the better alternative.
About four to five million people hold weddings in the United States every year. Unfortunately, 42% to 53% of these marriages end in a divorce making the US the country with the sixth-highest divorce rate globally. The average length of a marriage in the US is slightly above 8 years. However, some states, particularly Maine and West Virginia, have the longest unions, with marriages lasting over 20 years on average.
The reasons for divorces are many and varied, including financial issues, lack of commitment, infidelity, differences in religious and moral values, substance abuse, growing apart, domestic abuse, lack of intimacy, and other issues.
The real risk of divorce, coupled with the associated costs of the process and settlement, has many people concerned and seeking action to protect their assets before marriage. A popular way of doing this is using a prenuptial agreement (prenup). A prenup is a legal contract between two individuals who are about to get married. The prenup outlines the rights and obligations of each spouse in the event of a divorce. It typically covers the division of property, assets, debts, and spousal support obligations.
More importantly, it defines what is marital property and what is personal property, thus not subject to future claims in the event of a divorce. Prenuptial agreements are often used to protect the financial interests of one or both spouses, especially if either spouse has substantial assets, income, or a pre-existing debt. According to a 2022 poll, 15% of Americans have a prenup, a significant jump from just 3% in 2010. 35% of those who have not married plan to use one in the future.
Unfortunately, prenups are not always the foolproof asset protection tools their reputation makes them out to be, as this article points out. They have significant limitations, so experts are now recommending establishing trust.
Why a prenup may fail
There are many arguments your spouse can make, which, if reasonably proven, can invalidate the whole agreement. The agreement could be thrown out on fraudulent grounds without full disclosure of assets. Your spouse could also argue they were coerced, under duress or not having the right mental capacity to understand the prenup when they signed.
Improper filing, lack of legal representation for both parties, ridiculous provisions, and even filing too close to the marriage are also other reasons a prenup can be invalidated.
Advantages of establishing a trust
People planning to get into marriage should use a self-titled trust. The reasoning is quite straightforward. With a properly structured self-titled trust, you move your valuable assets from your ownership and, thus, marital property into the ownership and management of a trust. Thus, you enter marriage less the property that is in trust. In the event of a divorce, those assets are not in your name and are not marital property since you went into marriage without them.
A prenup, on the other hand, still leaves the property in your name and thus is open to many challenges and the interpretation of the state law and the judge. At the very least, in case it is challenged, it can force you to settle to avoid drawn-out legal proceedings.
Establishing a trust offers the following advantages;
- Your future spouse does not have to know about your trust, and you do not need them to sign anything. This helps avoid awkward conversations if you are uncomfortable broaching the subject of a prenup or discussing your finances and wealth.
- A prenup is often open to challenges using different strategies, a trust is not. It can even protect you against excessive child support, allowing you to name your children as beneficiaries, the amount they get and under what conditions or circumstances.
- A self-titled trust allows you to settle the case on your terms. While a prenup leaves you open to an extended trial, attorneys understand the solid nature of trust, and your spouse’s side will be more willing to settle on your terms as property in the trust is out of their reach.
- A trust survives your death, unlike a prenup which does not. Thus, your stipulations on how the money should be used and the direction of your estate will still follow your wishes even in the event of your demise.
Prenups and other tools to guard against losses in case of divorce are no longer limited to the rich alone. Anyone with something to protect will be well-served, and it is a responsible action. Even as prenups gain popularity, it is clear they have shortcomings, and soon-to-be marriage partners will do well considering the options establishing a self-titled trust offers.