How to Divorce-Proof Your Assets in 5 EASY Steps

When we think about marriage, we usually focus on the positives – building a life together, supporting each other’s dreams, and maybe even starting a family. But as family law attorneys, we also know how important it is to plan for the “what-ifs.” And one of the biggest what-ifs is the possibility of divorce.

No one likes to think about their marriage ending, but the truth is, it happens. And when it does, the division of assets can be one of the most stressful and contentious parts of the process. That’s why we always advise our clients to take steps to protect their assets long before divorce is even on the radar.

The good news is, there are several effective strategies you can use to safeguard your separate property and ensure your financial future remains secure, no matter what happens in your marriage. Let’s break down the key steps you can take to make your assets as “divorce-proof” as possible.

Step 1: Know What’s Yours (and What’s Not)

The first step in protecting assets is understanding which ones are actually at risk in a divorce. Most states divide property into two main categories:

1. Separate property: Assets you owned before the marriage or that you received as a gift or inheritance during the marriage. Certain personal injury awards can also fall into this category.
2. Marital property: Most assets that either spouse acquires during the marriage, regardless of whose name is on the title.

In a divorce, separate property usually stays with the original owner, while marital property gets divided between spouses. But there are some important nuances to be aware of. For example:

• If you combine or “commingle” separate assets with marital assets (like depositing an inheritance into a joint account), they can lose their separate status.
• In community property states, most assets acquired during marriage are considered jointly owned and split 50/50 in divorce, regardless of who purchased them.
• Any increase in value of your separate assets during the marriage can sometimes be considered marital property.
• Dividing complex assets like retirement accounts or businesses can involve very specific rules.

As you can see, the line between separate and marital property isn’t always clear cut. That’s why working with an experienced divorce attorney is so crucial – they can help you navigate these complexities and create a customized plan to protect your assets.

Step 2: Put It in Writing with a Prenup or Postnup

One of the most powerful tools for protecting assets in a divorce is a written agreement – either a prenuptial agreement (signed before marriage) or a postnuptial agreement (signed during marriage). These legally binding contracts allow you and your spouse to decide in advance how you’ll divide your property if your marriage ends.

A typical prenup or postnup might:

• Specify that certain assets will remain separate property, no matter what
• Waive one or both spouses’ rights to alimony or spousal support
• Outline exactly how you’ll split your marital property
• Shield one spouse from the other’s individual debts
• Determine what will happen to a family business in the event of a divorce

Now, a lot of people associate these agreements with the rich and famous, but the truth is, they can be valuable for couples at all income levels. Not only do they provide clarity and protection in the event of divorce, but the process of creating them can actually strengthen your marriage by prompting frank, open conversations about your financial expectations and values.

Step 3: Keep Your Financial House in Order

Even if you don’t have a formal prenup or postnup, there are things you can do in your daily financial life to maintain the separate status of your premarital assets and reduce the risk of them being divided in divorce.

The key is to avoid “commingling” – that’s when you mix your separate assets with your marital assets to the point that they become indistinguishable. Here are some best practices:

• Keep detailed records of any assets you bring into the marriage, including account statements, titles, and appraisals. The more evidence you have of an asset’s separate status, the better.
• Maintain separate bank accounts and credit cards for your premarital funds and property, rather than joint accounts.
• If you do use your separate funds to pay for marital expenses, keep records showing that the money came from your separate account.
• If you sell off an asset that was yours before marriage, keep the proceeds in a separate account – don’t mix them with marital funds.
• Think twice before using your separate funds for a down payment on a marital home or other jointly titled asset. Once separate property becomes marital, it can be tough to un-ring that bell.

The more diligent you are about documenting your assets’ separate origins and avoiding commingling, the better your chances of shielding them from division if your marriage ends.

Step 4: Consider More Advanced Asset Protection Strategies

For those with significant assets they want to protect, certain legal structures can provide an extra layer of security in the event of a divorce. These tools are more complex to set up, but for many people, they’re well worth the effort:

• Irrevocable trusts: By placing assets into an irrevocable trust managed by a third-party trustee, you can essentially remove them from your marital estate, making them unreachable in a divorce.
• Domestic Asset Protection Trusts (DAPTs): Allowed in a handful of states, DAPTs are a special type of self-settled trust that can shield assets from division while still allowing you to be a beneficiary.
• Prenuptial and postnuptial agreements: As we discussed earlier, these contracts give you a way to “override” your state’s default property division laws by reaching your own agreements.

Now, the rules around trusts in the context of divorce can get pretty complex, so it’s not something you want to DIY. Working with an attorney who has specific experience in asset protection is key to ensuring your trust is properly structured and funded.

Step 5: Plan Early (Like, Really Early)

If there’s one thing we wish all our clients understood about divorce and asset protection, it’s this: The earlier you start planning, the better. Once divorce is on the table (or even on the horizon), it becomes much, much harder to shield your separate property from division.

And we want to be very clear here – we’re never advocating hiding assets or engaging in fraudulent transfers to keep them from your spouse. Not only is that illegal, it’s also likely to backfire and leave you in an even worse position.

What we are advocating is proactive planning. If you’re bringing significant assets into a marriage, talk to a family law attorney about a prenup. Keep meticulous financial records from the very beginning of your marriage. And if you receive an inheritance or other windfall during your marriage, think long and hard before you commingle it with your marital funds.

How Netsquire Can Help Protect Your Assets

At Netsquire, we’re passionate about helping our clients protect their assets and achieve their financial goals. We know that every marriage is unique, and one-size-fits-all approaches to asset protection simply don’t cut it.

That’s why we always start by getting to know your specific situation inside and out. We look at the big picture – your assets, your family dynamics, your short- and long-term financial priorities. And we use that deep understanding to craft a personalized plan designed to safeguard your separate property and put you in the strongest possible position.

Ready to Take Control of Your Financial Future? Let’s Talk.

We get it – thinking about how to protect your assets in the event of a divorce isn’t exactly fun. But here’s the thing: You don’t have to go through this process alone.

We invite you to reach out to us for a consultation. Our experienced attorneys will listen closely to understand your unique goals and concerns, walk you through your options, and work with you to create a tailored plan to secure your financial future.

Because your financial security? That’s worth protecting. Always.