Prenuptial Agreements or Domestic Asset Protection Trust: Opinions?

[Re3iRtH]

Thanks for your comment.

I was looking for tax planning and financial planning. Most of my wealth is in real estate. I have been doing everything on my own but have been looking for someone to help me organize a way to track my real estate business expenses as well as legally save me more on taxes. I feel like I am leaving a bit on the table. I have read a lot about real estate tax law but I think I should br focusing more on medicine

If you can recommend someone, I'd appreciate it! Please PM me if able.

[jfoxcpacfp]

Marriage signifies a permanent commitment that is not available to unmarried cohabitors. It is important to most married couples. There are also many tangible benefits afforded to married couples that are not afforded to the unmarried, such as:

• The ability to receive spousal SS benefits (same for pension if you have one),


• No limit on gifts to a spouse,


• Ability to roll inherited IRA into spouse’s IRA

I’m sure there are some obvious ones that I’m forgetting. I have a list at the office if you want more.

[Re3iRtH]

jfoxcpacfp wrote:

@enjoyit is correct – it depends on the state your reader intends to live in and has assets in (ex: vacation home in another state). For a young doc starting out, a DAPT wouldn’t be as helpful as an established doc nearing retirement. That’s because you need to shelter your assets in the trust before marriage and, as you pay off debt and build up wealth, your assets are outside the trust. Also important to recognize that a DAPT works because it is irrevocable meaning what goes in can’t come out, so you better be sure you’re ready to do this.

Some thoughts:

• As a doctor’s most valuable asset tends to be the retirement account, the pre-nup will not be very helpful.


• Future earnings are an issue in doctor divorces re: alimony/support and this cannot be protected using a pre-nup/DAPT.

The problem a lot of folks have with pre-nups is that each party must get his/her own legal counsel, i.e. they cannot share an attorney. Otherwise, yes, the pre-nup will likely be found invalid. (Btw, I have personal experience in this area as my husband and I have a pre-nup )

If there are significant assets at stake, the reader needs to work with a family law attorney licensed to practice in state(s) where (s)he has assets. I would also recommend a CPA and/or CFP to work in conjunction with the attorney regarding tax implications of any agreements.

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Gosh, all of that just sounds complicated. Sounds like it is better to simply not get married or choose to cohabitate in a state that doesn't enforce cohabitation treated as marriage. By looking into a prenup + marriage you are now signing too documents to accomplish the same thing as signing zero

Is a piece of paper or the thought of marriage keeping anyone together? The divorce figures suggest otherwise. My general intuition also suggests the same. It is way too easy to get divorced nowadays. Also, single motherhood is glorified and being divorced is now A-Okay.

What is the benefit for a successful individual to get married? I genuinely want to know. I can still be a parent, I can still have companionship, I can still fall in love and others fall in love with me, I can still share a residence, etc.

[zippybutton]

I second Asher's comment above.  DAPTs are a great way for the attorneys/professionals that set them up and operate them to make money, but their true ability to protect assets is untested in U.S. courts.  If you are being sold one of these DAPTs, I'd urge you look for a second opinion.  Probably the best place for a second opinion is not another estate planning lawyer, but rather a lawyer that litigates estate and trust disputes because she's likely to know the most about collecting from folks who think their property is protected by a DAPT.

[Asher]

There's really no downside to a prenup.  If the prenup was done properly and fairly -- both parties represented by independent counsel (without one party paying the legal fees for the other's attorney) . . . far enough in advance of the wedding . . . no duress . . . complete and truthful financial disclosures by both parties -- then a court will be more likely to uphold the prenup.

The prenup should be a part of an asset protection analysis and plan, not instead of, and is not a stand-alone remedy.

As to domestic asset protection trusts (DAPTs), that is a separate, complex discussion.  There are serious concerns with a DAPT, including recent case law where several DAPTs did not hold up, public policy concerns, and, significantly, a constitutional issue.  Briefly, the U.S. Constitution includes a provision where the legal judgment of State X must be given "full faith and credit" by State Y.  If a judgment from State X is not honored by the trustee of a DAPT in State Y, we now have a constitutional issue.  This has yet to be tested in court, but will be at some point, and I haven't yet met a client who wants to be that test case.

If one is ready to surrender control of the assets to an independent trustee in a different state, one may want to consider offshore asset protection trusts which would not have the same constitutional issues of DAPTs and would offer excellent asset protection.

(None of the above constitutes legal advice and no attorney-client relationship is established by anything above.)

[vmd]

Donnie wrote:

The best way to protect your assets is not to get divorced (or married).  Honor your commitments or don’t make them.  If you can’t honor your commitments, then the assets should be divided.

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Ive always had a beef with this kind of thinking when it relates to marriage and divorce...You can be the most honorable, committed, serious and faithful married man or woman out there and still can get divorced!

Regardless of how you behave, what you do, or how you think! Its really not up to you.

Marriage is a GAMBLE ...some people are lucky, and some are not.

[Miss Bonnie MD]

It's less than 50%, but it's nowhere near 0. So many naive folks (docs or not) think it will never happen to them. You're way more likely to get divorced than get disabled...and most of us here have DI. Food for thought!

[MPMD]

Most of us younger docs got or are getting married relatively young and relatively broke so I can't imagine a pre-nup would help much.

The "50% of marriages end in divorce" stat is not super helpful unless you want to just take the bleakest look possible. It's such a heterogeneous sample which includes a financially stable widow/widower in their 60s on the second marriage and broke 19 year olds living in a bleak rural setting w/ no jobs. If you are getting married to a fellow professional in your early 30s and are able to have good discussions about location, kids, religion, money, and parents I really don't think you are at a coin toss for marriage success.

[Donnie]

The best way to protect your assets is not to get divorced (or married).  Honor your commitments or don’t make them.  If you can’t honor your commitments, then the assets should be divided.

[ChiGuy1215]

So I live in Illinois, and I am interested as a young physician in protecting my assets from all future creditors too. Prenups are hard to hold up many times and create obviously a social situation, especially if there is a difference in income.

I understand income and assets earned while married will always be under dispute, but everything earned in the last 5 years I want to grow untouched and available for retirement. I don't need that money right now anyway, and I think that money and its dividend do not belong to a future spouse.

Is there an asset protection trust which can accomplish all of this? Anybody know good lawyers in Illinois?

[Hatton]

I actually talked to an attorney about a prenup prior to marriage. I do not live in a community property state. I was told that anything I had prior to marriage was mine.  My understanding is that if you raise the lifestyle of the spouse to the physician lifestyle you can expect to pay have to pay that spouse in divorce to continue that lifestyle.

[Docbeans]

Thanks for the thread, PoF! This came very timely because I have a friend (yes, friend here, too) who has been divorced once (and has a child from that marriage- paying child support and ?alimony.. physician ex-wife, so I dont know for sure) and is now with another person. He likes her enough to want to commit to her but is worried about another divorce. He is in pvt practice and has significantly high earning potential than her. She is a lab/ultrasound tech at the hospital. Are there any ways to help protect assets that will be acquired going forward... ie., acquired after marriage? Thanks!

[PhysicianOnFIRE]

Thanks! This is good information for a reader who I redirected to this forum.

I briefly looked into the issue >10 years ago, but I had a net worth that was probably less than Zero at the time when I met my wife as a resident. I didn't pursue a prenup. So far, so good!

Thanks again,

-PoF

 

[AlexxT]

As noted above, you need to talk to an experienced attorney.

Every state is different.

Generally, both parties need to be represented by their own attorney, and the agreement needs to be signed a state-designated period of time in advance of the wedding to avoid duress ( eg at least a month in advance of the wedding date ).

Prenups, along with trusts, are most important in second marriages in order to protect the children from earlier marriages.

In California, property acquired before the marriage, and inherited property, remain the separate property of each spouse, but in a long marriage things get confusing, especially if one spouse owns a business, so a prenup can help with that.  You can't limit child support, and it's hard to successfully limit alimony.

If one spouse is working while the other is going to school, future earnings are at risk.  Maybe a prenup could help with that.

I didn't consider a prenup because my wife earned about as much as I did, and had about the same assets, when we got married.  So far, so good.

 

 

[jfoxcpacfp]

@EnjoyIt is correct - it depends on the state your reader intends to live in and has assets in (ex: vacation home in another state). For a young doc starting out, a DAPT wouldn't be as helpful as an established doc nearing retirement. That's because you need to shelter your assets in the trust before marriage and, as you pay off debt and build up wealth, your assets are outside the trust. Also important to recognize that a DAPT works because it is irrevocable meaning what goes in can't come out, so you better be sure you're ready to do this.

Some thoughts:

• As a doctor's most valuable asset tends to be the retirement account, the pre-nup will not be very helpful.


• Future earnings are an issue in doctor divorces re: alimony/support and this cannot be protected using a pre-nup/DAPT.

The problem a lot of folks have with pre-nups is that each party must get his/her own legal counsel, i.e. they cannot share an attorney. Otherwise, yes, the pre-nup will likely be found invalid. (Btw, I have personal experience in this area as my husband and I have a pre-nup :-) )

If there are significant assets at stake, the reader needs to work with a family law attorney licensed to practice in state(s) where (s)he has assets. I would also recommend a CPA and/or CFP to work in conjunction with the attorney regarding tax implications of any agreements.