While some New Jersey individuals may use domestic asset protection trusts to protect them from other creditors, some individuals are discovering new uses for them. One new use is to protect a person’s assets in the event of divorce.
Domestic asset protection trusts are different from revocable trusts because they are irrevocable. With a revocable trust, a creditor can come after the assets in a trust because the grantor still retains control of the assets in the trust. A domestic asset protection trust does not allow creditors to reach it. However, a grantor can be a discretionary beneficiary of the assets and can replace the trustee.
Domestic asset protection trusts are possible because 15 states allow for the structure of this form of trust. A person does not have to live in one of the 15 states where these trusts are permitted in order to take advantage of the state laws. Nevada offers particularly attractive options for individuals who would like to create such a trust prior to their marriage. This is because Nevada does not provide “exception creditors” like some other states. For example, some states allow spousal or child support claimants to reach the trust even if other creditors cannot reach the trust. If a person establishes a domestic asset protection trust, he or she should conscientiously add assets to the trust. In particular, cash, bonds, mutual funds and stocks are better to fund the trust than real property in another state.
Individuals who are contemplating marriage may decide to discuss the possibility of using a trust of this nature in combination of a prenuptial agreement or in lieu of one. A family law attorney may be able to explain how a trust of this nature can protect the assets and income a person acquires while married.
Source: Forbes, “How To Protect Yourself In A Divorce Using A Domestic Asset Protection Trust“, Robert Pagliarini , May 15, 2014