Divorces present various challenges to everyone involved—emotionally, practically, and financially. One of the most common of these is the fair division of assets. This is a particularly important area of focus for high-net-worth individuals or those simply seeking ways to protect their wealth, property, or even the future income they acquire.
In Florida, there are a couple of core tools used to protect assets from the complications of divorce: prenuptial agreements—known as prenups—and trusts. Both offer a certain amount of financial protection, although each functions in different ways and is better suited to some circumstances than others. Let’s take a closer look at these methods and explore which is likely to offer more protection in divorces.
What is a Prenuptial Agreement?
Prenups are legally binding contracts that a couple creates prior to their marriage. It will outline how certain assets, debts, or financial responsibilities will be divided following divorce, separation, or death. The legality of prenups is strictly governed in Florida, and are only enforceable if:
- They’re voluntary – Both parties must independently agree to the terms without duress.
- There’s full disclosure – All relevant assets and liabilities must be disclosed.
- They’re not unfair – The terms of the prenup cannot be considered unconscionable or grossly unfair in the favor of one party.
What can prenups cover?
- Property division — The terms for dividing property, assets, and liabilities.
- Premarital asset protection — Safeguarding specific premarital assets or income generated by these from division.
- Spousal support — Outlining the value, period, and conditions of alimony and other support.
- Debt responsibilities — Assigning specific debts or proportion of debts to certain parties.
- Business interests — Protecting stakes in businesses, ownership of intellectual property, and future earnings.
What are prenups not suitable for?
- Child custody and support — These provisions are determined by courts based on the child’s best interests.
- Publicly disruptive provisions — Elements that are contrary to public policy or considered promoting divorce.
Wherever possible, each party should be represented by separate legal counsel when arranging the prenuptial agreement.
What is a Trust?
Trusts are distinct legal entities, in which a grantor places certain assets under the control of a designated trustee. The trustee then manages the trust explicitly for the benefit of designated beneficiaries. They’re relatively common in estate planning strategies, but they can also provide some protection of assets throughout a marriage and following a divorce.
There are certain types of trust that are relevant to divorces. These include:
- Revocable trusts – In these trusts, all assets remain under the grantor’s control and can be altered or dissolved by them. This close control, however, provides limited protection in divorces.
- Irrevocable trusts – The grantor completely relinquishes control of assets to the trust. As they’re no longer considered part of the grantor’s estate, this tends to offer relatively strong asset protections in a divorce.
So, how does a trust protect assets in a divorce?
The key tends to lie in its separation as property from the grantor. Once held and controlled by an independent entity, property is often not considered legally owned by the grantor. However, Florida courts will generally only consider these as legitimate protections if they’re established prior to the marriage, if the spouse has no control or access to the assets, and the trust is irrevocable in nature. As with many such tools, though, the courts will scrutinize the trusts closely and consider the circumstances to determine validity.
Domestic Asset Protection Trusts (DAPTs) are sometimes used to safeguard assets in divorces, but they are not recognized by Florida courts.
Prenup vs. Trust: Key Differences in Asset Protection
The main elements that differentiate prenups and trusts include the following.
| Aspect | Prenup | Trust |
|---|---|---|
| Control | Agreement between spouses | Control of assets is legally transferred to a trustee |
| Transparency | Assets and liabilities are fully disclosed both before the agreement and during divorce proceedings | Certain types of trusts can remain private |
| Modification | If both spouses agree, a prenup can be amended In the case of irrevocable trusts, no changes can be made | In the case of irrevocable trusts, no changes can be made |
| Court Scrutiny | If prenups are deemed unfair, courts can invalidate them | Fraudulently maintained trusts can be challenged |
| Setup | Requires negotiation and legal drafting of agreements | Can be complex and requires participation of third parties |
Which Offers Stronger Protection?
The strength and usefulness of each approach depends on what your specific financial situation and objectives are.
Prenuptial agreements tend to offer more straightforward protection of premarital assets, future income, and specific property via the application of an enforceable legal contract. As a result, it’s usually a good tool for those who are looking for a certain amount of flexibility but also want direct control over the terms of division in the event of a divorce.
Trusts, on the other hand, can provide strong protection for certain types of assets on the condition that they’re held in irrevocable trusts that are set up before the marriage. However, trusts don’t often protect all future earnings acquired through their use during the marriage.
Using a Combination Approach
Many individuals don’t simply choose between a prenup and a trust, but rather use both tools to create stronger asset protections.
For instance, they might use a trust to safeguard any inherited wealth or family assets, particularly if these assets are intended to stay within the family in the long term. They will also use a prenup to define the rights of any other relevant assets or income—including retirement accounts and business interests—in the event of a divorce.
This combination approach can leverage what is effective about each tool, and fills some gaps left by using only one type of protection.
Wrapping Up: Protection is Not One-Size-Fits-All
Prenuptial agreements and trusts are each powerful tools for protecting assets in a Florida divorce. However, they each have differing advantages and are appropriate for different scenarios. While prenups gain from contractual clarity and relatively straightforward legal enforceability, irrevocable trusts provide robust protection for assets you are willing and able to relinquish control over.
The key in all situations, though, is to ensure these protections are set up and maintained in a strategic and legally robust way. If you’re considering getting married and are concerned about safeguarding your assets, it is vital to seek the assistance of one of our experienced family law attorneys. We’ll guide you in reviewing your assets and selecting the approach that supports your long-term financial well-being.
