Illinois Divorce Asset Protection: The Use of Trusts
As baby boomers age, they begin to think of leaving a legacy to their children. With the steady rate of divorce among the younger generation, these parents are understandably concerned what will happen to their hard-earned money in the event their child’s marriage ends in divorce. Namely, they do not want to see the ex-spouse walk away from the marriage with any of their money. To prevent these situations, many senior citizens are turning to lifetime or inheritance trusts as a means of divorce asset protection.Illinois Marital and Separate Assets There are two types of divorce assets: marital and separate. Marital assets are property the couple acquired during the marriage and put toward the marital estate. Such assets may include the family home, vehicles, boats, stocks, bonds, artwork or retirement benefits. Separate property is property each spouse owned when he/she entered into the marriage. Generally, separate property remains each spouse’s individual property and is not subject to equitable division in a divorce unless either spouse commingles the separate property with marital property, such as putting the wife’s name on a checking account, or if the wife transfers one-half of her house to the husband. If either spouse receives an inheritance during the marriage, it is considered separate property. During happy marital times, however, most spouses who receive an inheritance do not keep it separate. Instead, they deposit it into the joint checking account, purchase a family vehicle, pay off the mortgage on the family home, invest in stocks and bonds, or perform any act that expressly changes the inheritance from separate to marital property. The result? When the couple divorces five years later, the spouse, who didn't directly receive the gift, will receive one-half of the inheritance, either in actual cash or via property that was purchased using the inheritance. Inheritance Trust and Distribution in Divorce The inheritance trust solves the problem of an ex-spouse walking away from the marriage with half of the spouse’s inheritance. Here is how it works: Bob and Sue have never liked their son Jim’s wife, Jill. She has cheated on him in the past, and they live from paycheck to paycheck because Jill spends money like it grows on the trees that line their palatial home. Bob and Sue know that when they die, Jim will take his inheritance and place it into the joint checking account, thus allowing Jill to spend it all within a matter of months. They also do not like the idea that, if Jim and Jill were to divorce, Jill would receive one-half of their money in a divorce. To protect their money, they revise their estate plan and leave Jim’s inheritance to him in an irrevocable, purely discretionary trust. When they die, Jim will not receive his inheritance outright. In fact, he will not even own the assets. Instead, the trust will own the assets, and the trustee will be responsible for making distributions to Jim pursuant to the terms of the trust, which can also include making no distributions to him at all. Courts have ruled that because the trust beneficiary in these purely discretionary trusts has no right to compel distribution of trust assets to himself, the funds cannot rightly be considered part of the marital estate, and are therefore not subject to division. (Any assets already distributed to Jim and deposited into the joint account would, however, be subject to division). Contact a Palatine Divorce Attorney If you are considering divorce, call Palatine family law attorney Nicholas W. Richardson today. With a decades worth of experience, Nicholas W. Richardson understands that divorce involves more than just looking at your current asset sheet; it also means taking into account potential future assets, and working to protect them. Contact our office today for a free consultation.