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Watch out for domestic asset protection trusts when you divorce

On Behalf of | Jan 19, 2023 | Division Of Assets

Do you know what a domestic asset protection trust is? If you don’t and your spouse does, you could face problems when you go to divorce.

While California does not recognize these trusts, residents of the state may set one up in another state to prevent their spouse from getting the assets they hold in a divorce.

They are designed to be hard to trace

People have all sorts of reasons to want to conceal their finances from others. Unfortunately, some states have realized that offering outsider the opportunity to do that is a great way to attract their money into the state.

Here is how they work

You can put assets directly into them (without telling your spouse or anyone else). Once the assets are there, they no longer belong to you, so your spouse or people you owe cannot lay a finger on them.

You can decant assets into them from other trusts

This is one of the most contentious things about these trusts. Usually, when you make an irrevocable trust, you cannot make changes afterward. It’s the price you pay for the added security they give compared to the more flexible revocable trusts.

However, some states allow people to decant funds out of an irrevocable trust into their DAPTs. That means that the beneficiaries of the original irrevocable trust can find themselves cut out without being able to do much about it.

If you don’t trust your spouse will be honest in your divorce, the sooner you get legal help to search for assets they may have hidden, the more chance you have of getting what you are due when dividing property. Even if a court cannot force your spouse to turn over the contents of a DAPT, they may compensate you in other ways.