If you’re planning to leave your child considerable assets, potentially including a share in the property or the family business, you likely want them to have a solid prenuptial agreement when they get married. Even though inheritances are considered separate property that’s not subject to division in divorce, they can become joint property through commingling, which we’ll discuss.
What if your child doesn’t want a prenup, even when you’ve explained what’s at stake? Maybe they’re agreeable to it, but their soon-to-be spouse isn’t. It’s crucial not to pressure an unwilling party into signing one. That’s a sure way to have it ruled invalid if it’s ever needed.
The importance of a carefully established trust
You don’t have to disinherit your child to keep your wealth out of the hands of a future ex-spouse. There are ways you can “divorce-proof” a loved one’s inheritance. There are estate planning tools, like trusts, that can protect a beneficiary’s inheritance from being lost in divorce or to creditors.
That’s because the beneficiary of a trust is not the owner. If the trust is set up correctly, for example as an irrevocable discretionary trust, the assets are owned by the trust, and the beneficiary doesn’t have access to them except through distributions authorized by the trustee. It’s crucial to choose a trustee who will handle the role responsibly when you’re no longer around.
Avoiding commingling can also protect inherited assets
Your child can protect an inheritance that isn’t included in a trust is to avoid commingling it with joint assets or their spouse’s separate assets. For example, if you directly leave your child $100,000 in cash and they put it in a joint checking account, it’s commingled. If they put it towards the purchase of a home that’s also paid for with joint assets, that home will likely be considered divisible in a divorce.
Of course, often it’s just not practical to keep all inheritances separate. Most couples don’t go through their marriage anticipating divorce, and they want their family to benefit from their individual inheritances. However, if you’re leaving considerable wealth to your child, you likely want at least some of it protected.
It’s a lot to think about. If you’re looking for the best way to keep your assets in the family after you’re gone but still allow your child and their future family to benefit from some of them, experienced legal guidance is crucial.