Your estate plan does not exist in a vacuum. Instead, a wide range of factors and events can significantly impact your estate plan. Divorce is among those events. To help you better understand and plan, an estate planning attorney at Nash Bean Ford & Brown, LLP explains the impact a divorce can have on your estate plan.
When a Marriage Ends
At the beginning of a marriage, it is common to think of the marital assets as “what’s mine is yours and what’s yours is mine.” At some point, however, if the rose-colored glasses come off, you may realize you aren’t really prepared to part with everything that is yours. If your marriage does end in divorce, part of the divorce process includes dividing the marital debts and assets. If you brought considerably more assets into the marriage you may not want to divide those assets equally. Conversely, you may not have assets with significant monetary value; however, you probably own things that have great sentimental value.
The State of Illinois is not a community property state. Instead, Illinois is an “equitable distribution” state when it comes to the division of marital assets. This means that if a court must divide the marital assets, it will do so fairly, not necessarily equally. Only assets that are considered marital assets are divided when a couple divorces. Property that is considered separate property remains the property of the original owner. Separate property usually refers to assets owned by a party prior to the marriage or inherited by a party during the marriage as long as the asset was not converted into a marital asset by co-mingling the asset. This is where people often run into problems. If you unintentionally co-mingle your separate assets, you could lose them in a divorce – and it is easier to do that than you may realize. Using the equity in a home that is your separate property as a down payment for a marital home or paying bills at that home from a separate account could turn separate property into marital property. Ultimately, the division of assets during a divorce could wreak havoc on your estate plan.
How Can You Protect Against the Possibility of Divorce?
Knowing that a divorce can dramatically impact your estate plan, it only makes sense to plan for the possibility. That means protecting your assets within your estate plan by including asset protection strategies within your overall estate plan. Often, this means transferring the assets into a trust to ensure that they are kept separate and not unintentionally co-mingled. A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries, also named by the Settlor. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts.
Keep your separate property in a trust helps to clearly delineate what property is yours and what property is part of the marital estate; however, for true asset protection you need to have that property in an irrevocable living trust. Neither a testamentary trust nor a revocable living trust will work as an asset protection tool because assets held in either trust remain accessible to the Settlor and, therefore, part of the Settlor’s estate in the eyes of the law. Consequently, the law considers those assets to potentially be fair game for creditors or spouses. Finally, if you receive an inheritance during the course of your marriage, be sure to transfer that into your trust immediately to ensure that it does not end up converted to a marital asset. Using asset protection strategies like these will go a long way toward protecting you, your assets, and your overall estate plan in the event of a divorce.
Contact an Estate Planning Attorney
For additional information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about estate planning, contact an experienced estate planning attorney at Nash Bean Ford & Brown, LLP by calling 309-944-2188 to schedule your appointment today.