Is a Trust Better Than a Prenup?

In some situations, asset protection trusts may be considered more secure than prenuptial agreements. If you choose to create a trust, all of your personal and pre-marital assets will be placed in a revocable trust. The property is no longer your personal property; it’s now owned by the trust, which protects your assets from your spouse in the event of a divorce.

Alternatively, a prenup is typically used to deal with financial matters if a marriage ends in divorce. It specifies the financial roles and responsibilities during the marriage. Prenups aim to protect both you and your spouse.

Marriage is a lifetime investment that needs all spouses to set a strong foundation before committing. Trusts and prenups may come up in conversation when you’re about to make this life-changing decision. It’s understandable to be concerned, given that more than half of all marriages end in divorce. What should you go for? A prenup or a trust? Which one is better? Here’s a quick guide.

Is a Trust Better Than a Prenup?

You can set up an asset protection trust on your own without involving your future spouse. The trust is built by an estate planning lawyer. You put your assets into it. If you do it appropriately and legally, the trust effectively protects your current assets, in the event of a future divorce.

Prenups are an alternative for individuals seeking to protect their assets in the event of a divorce. However, both you and your fiance/fiancee have to agree to the prenup and sign a contract. If you decide not to enter into a prenuptial agreement before marriage, you can set up an asset protection trust to protect your non-marital assets in case of a future divorce.

Can I Protect My Assets Without a Prenup?

You may be able to preserve all of your pre-marriage assets if you keep them separate. If the separation is evident and you do not contribute any joint funds to the care of your individual property, there is no need for a written agreement.

You can choose to have a single bank account or separate bank accounts with a joint account. This is an often-used approach to protect assets without seeking a prenuptial agreement. There is, fortunately, a more straightforward method to achieve the same aims without requiring you to sign a prenup. You can do this by setting up a self-settled trust.

But if you combine your assets with post-marriage assets, as would likely be the case if you buy a house together, you will need to prepare a written agreement to spell out who owns what. And if you want to be sure that you’ll hold on to your stuff, consider setting up a trust.

Why Should You Not Get a Prenup?

In the event of a divorce, the opposing lawyer can contest the prenup’s legitimacy. It is difficult to dispute a trust, particularly an offshore trust, because the trustee is not subject to the jurisdiction of your local courts.

By setting up a trust, you remove your assets from your marital estate by removing them from your name altogether. Upon getting married, your assets are held in a trust rather than in your name.

Before marriage, removing assets from your marital estate will provide you with more protection than a prenup. The assets are still in your name with a prenup, and an overly zealous judge could invalidate it partially or entirely.

There is no similar means to force a transfer to your ex-spouse with a trust owning the assets. Such an arrangement often deters divorce attorneys accustomed to going after quick wins. The confidence continues to own the assets while you negotiate a fair divorce settlement on your terms.

Does a Prenup Protect Everything?

A prenuptial agreement is valuable in terms of creating transparency and setting expectations for a successful marriage, and it does many things to protect you if the marriage fails. Money and assets are the common issues that arise after a divorce. So, a prenup accounts for the changes you might not anticipate or predict. It gives you an avenue to discuss and ensure your assets are handled the way you intend, during and after marriage.

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