Protecting a child’s inheritance in the event of divorce

No one enters marriage expecting it to end. However, every year divorces occur at about half the rate of marriages, meaning that a couple may ultimately split despite the best of intentions initially. For parents who wish to provide for their children after they are gone, this can pose a problem. Without a will or trust people are limited in how they can protect their children from other family members, their spouses and even themselves.

New Jersey is an equitable distribution state. This means that upon divorce, marital property (property acquired during the marriage) will be divided in a fair, but not necessarily equal, manner. However, some assets are immune from equitable distribution. Separate property is property that has not been “commingled” between the spouses. So, for example, if a child is the beneficiary of a retirement account and that child does not pool assets with his or her spouse, then the assets may not be subject to equitable distribution. On the other hand, if he or she uses the money to buy a house with the spouse, for example, then it is joint property and subject to distribution upon divorce.

An irrevocable trust can protect assets

An irrevocable trust has many benefits. One particular advantage is that a trust can dictate how assets are distributed. So, if a person wishes to leave money to a grandchild, but only to be used for higher education, a trust can give assets only for tuition and educational expenses.

A trust can also protect a child during a divorce or from creditors. A spendthrift provision can prevent the beneficiary of a trust from using the assets of the trust as collateral to obtain loans, for example. For beneficiaries already in debt, such a trust can ensure that assets will remain protected.

A properly drafted trust can help to avoid litigation and creditor action over an estate.

Prenuptial agreement is an option

In addition to a trust, a child may wish to create a prenuptial or postnuptial agreement, especially if the inheritance is significant. While ultimately whether to have a prenuptial agreement is up to the child, prenuptials are a great way to protect assets in the event of divorce. Speaking with a child about the benefits of a prenuptial may ease worry about how an inheritance will be used.

Explore legal options

An irrevocable trust is a diverse legal tool that can accomplish many things as part of a comprehensive estate plan. New Jersey residents looking to ensure their heirs and beneficiaries are protected should contact an experienced estate plan attorney to discuss their options.