How to Protect Assets in a Divorce

pig in a life preserver

When a marriage relationship ends, both spouses often look for ways to get out with their separate property in the divorce. Knowing how to protect your separate assets ahead of time can be essential. Particularly if you have heirlooms, inheritances, or interests in a family business, you will want to do everything you can to keep these items separate from the marital estate. To protect assets from divorce, you will need to be armed with all the right information.

Dividing Assets in Divorce: What Can Your Spouse Claim?

Many people come into a divorce attorney’s office with ideas about which property is “theirs” and what can be given to their spouse. Unfortunately, many of these ideas ignore one basic principle of Michigan property division during divorce: that nearly everything either spouse earns or acquires during the marriage is part of the marital estate. When you file for divorce, you are asking the court to divide that marital estate equitably based on what is fair and reasonable. You generally cannot protect specific marital assets from your spouse if your case goes to trial.

Concealing Marital Assets Often Backfires

You may think the best way to protect assets from divorce is simply to not show them to the judge. Parties in divorce actions often try to get creative in trying to conceal marital assets either before or during the divorce. There are cases where a party bought land, gave gifts to siblings, or even created trusts in their children’s name, all to keep their spouse from receiving the money or property.

However, in every one of these cases, concealing marital assets backfired on the spouse trying to protect their assets from their spouse. Divorce attorneys are allowed to “discover” a lot of information about your family’s financial circumstances while the divorce is pending. When funds go missing, they have ways of tracking those assets down. When that happens, the family court judge can award all the concealed assets to the other spouse, even when the missing money isn’t found until long after the judgment of divorce is signed.

Rather than concealing your assets, you and your attorney should work with your spouse to identify and divide up personal property and financial assets. If there are specific pieces of property that hold significance to you, tell your lawyer about them. That way your legal team can negotiate and advocate to ensure those assets fall on your side of the ledger.

Are Inherited Assets Protected from Divorce?

Nearly everything earned or acquired during a marriage is marital property. However, there are exceptions for gifts and inheritances specifically given to one spouse during the marriage. These exceptions, along with anything either of you owned before the marriage, are called “separate property.” You will likely be awarded your separate property automatically, without it counting against your equitable share of the joint assets. However, to ensure your separate property retains that distinction, you must treat them as separate from the rest of your family’s finances and property. This might involve:

  • Maintaining a separate bank account for inherited money
  • Keeping homes and cars in your name only
  • Avoiding using marital money to make repairs or improvements to your inherited property
  • Declining help from your spouse to operate the family business or maintain inherited property

When inherited assets get mixed up with marital property it is called “commingled property” and risks no longer being protected during divorce. If you and your lawyer can’t trace the assets from the time you received them to the time of divorce, your spouse may be entitled to claim an equitable interest in what was once your separate property.

Michigan law also allows the Court to “invade” the separate property of a spouse if necessary to reach a fair and equitable resolution to the case for the other spouse. However, Courts will first try to balance the scales in other ways before invading separate property.

Insurance, Beneficiary Designations, and Other Estate Planning Concerns

Many families plan for the future by taking out insurance policies, creating investment accounts, and engaging in other asset protection strategies designed to shield their assets from creditors after they die. However, a divorce can affect asset protection planning in ways you may not expect. When you are preparing for divorce, it is a good idea to meet with your estate planning attorney as well, to ensure your spouse does not have the ability to control your finances or your health care choices while your divorce makes its way through the courts.

How Prenuptial Agreements Protect Assets from Divorce

If you know ahead of time that you own, or will inherit, substantial assets you want to protect from divorce, you may benefit from signing a prenuptial agreement prior to the marriage. Prenups allow parties to define what will happen to their assets in the event of their death or divorce, carving out separate property for each spouse. They also lay out guidelines for how the business of the household will be run. Recent changes to the way Michigan courts interpret prenuptial agreements mean their ability to protect assets during divorce isn’t as absolute as it once was. However, a well-negotiated prenuptial agreement that accounts for both spouses’ needs and interests can still streamline the divorce process and protect your most important assets.

At NSSSB, we know how to balance the equitable demands of the court with your desire to protect your assets from divorce. Our Ann Arbor family law attorneys can help you identify your top-priority assets, and develop strategies and settlement proposals that protect your interest in them. Click here to schedule a consultation with one of our experienced attorneys.

Categories: Family Law Blog