Most everyone knows about prenuptial agreements. However, there is another way to protect the assets you bring into a marriage in the event of a divorce. It's called a domestic asset protection trust. Not all states have DAPTs. However, if yours does, it may be a good choice either in addition to or instead of a prenuptial agreement.
How Does a DAPT Differ from a Revocable Living Trust?
Unlike a revocable living trust, which many people have, a DAPT is irrevocable. That means that you can't terminate or modify it. However, to varying degrees, depending on the state, they are protected from creditors, and in some cases from a spouse. DAPTs initially became popular because of this protection from creditors. However, increasingly, they're being used by wealthy people to protect their assets in a divorce.
Each state's DAPTs are different. Therefore, it's essential to understand how a DAPT works in your state. A Nevada Asset Protection Trust is considered one of the safest because no creditor, including a spouse in a divorce, can access the funds put in it by the settlor (the person creating the trust), who is the discretionary beneficiary of it.
What Should Be Included in a DAPT?
For people who live in community property states like California, a DAPT can be particularly advantageous because it keeps certain assets out of those that are required to be split 50/50. However, some assets are more appropriate to be included in a DAPT than others and only certain types of assets can be included in some states' DAPTs -- stocks, mutual funds, bonds and other non-real assets, for example. You don't necessarily have to live in the state where you set up the DAPT.
Ideally, it's best to set up the DAPT prior to your marriage. Of course, you'd want to include assets that you're not going to need in the foreseeable future. It's not necessarily a replacement for a prenup. A prenup can provide additional protection for the assets that you acquired before your marriage as well as those you got during your marriage. You'll want to talk to a financial advisor as well as an attorney to determine how best to protect your assets and to understand the laws governing your DAPT.
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