In our last newsletter, we touched on the interplay between family law and estates, wills and trusts. A significant part of our Family Law practice, includes the drafting and negotiating of Pre-Nuptial Agreements. Pre-Nuptial Agreements by statute and case law will be enforced if they are fair and reasonable at the time of enforcement, if the agreement is voluntarily entered into and not the product of duress or coercion, both parties have an adequate disclosure of the other’s financial picture and both parties’ have an opportunity to have the document reviewed by counsel and/or other professionals of his or her choice. With that backdrop, experienced practitioners know that one sided agreements; that is agreements that provide for the non-title spouse to receive nothing are difficult to enforce when a marriage subsists for a number of years.
Another device utilized to immunize assets and income is a trust, in a trust the settlor or the person that holds the assets places assets in a trust, a fictional entity, governed by its written terms. A Trustee is appointed to manage the assets, payout the income, reinvest the dividends and run the trust operations. Trusts are created for myriad reasons such as estate planning, legitimate tax avoidance, shielding assets from liability and for any asset preservation upon marriage.
To more thoroughly shield assets from claims for alimony and equitable distribution, assets can be placed in trust in advance of the marriage. Assets placed in a properly drafted trust will be considered outside of the marriage and outside of any claims from a non-titled spouse for equitable distribution. Although this is a burgeoning area of the law, it seems clear that the New Jersey Supreme Court will honor trusts and those equitable factors that sometimes cause Pre-Nuptial Agreements to face uncertain treatment by courts such as duration of the marriage, maybe properly ignored by the Trial Court.
As a parent intending to gift assets during life (intervivos) or upon death placing an asset in a trust may very well serve multiple purposes. An asset placed in trust may result in tax avoidance or deferral of the tax consequences, may help your heirs preserve an asset and an income stream from future creditors and future ex-spouses.