Category: Divorce

How to Separate Business and Marital Assets

How to Separate Business and Marital Assets

High-profile cases like the Bezos or the Gates should cause many people to consider how to separate their business and marital assets that are tied together. You need to have plans in place from the beginning. No one thinks their partnership will end. However, it’s necessary to have a plan in place, just in case.

The Dallas Business Journal’s recent article entitled “Does your business need a prenup?” explains that there are three typical outcomes when married couples working as business partners decide to end their relationship:

  • One individual buys out the other partner’s shares and continues running the business;
  • The partners sell the business and divide the proceeds; or
  • The couple continues working as partners after the divorce.

Safeguards can be put in place on the first day of the relationship to protect your personal and business assets in the event of a divorce. A way to do this is through a prenuptial agreement, which states what will happen if a split happens. A pre-nup should:

  • Establish the value of the business as of the date of marriage or the date the agreement is signed;
  • Detail a course of action with the appreciation or depreciation of the business from the date of the marriage;
  • Say how business value will be measured; and
  • Specify the allocation of business interests to be awarded to each spouse in the event of a divorce.

In addition to a prenuptial agreement, any privately held company should have a shareholder agreement (or “operating agreement” for non-corporations). The shareholder agreement is one of the most important documents owners of a closely held business will ever sign.

It controls the transfer of ownership when certain events occur, like divorce and states the following:

  • Which party will buy out the other’s shares of the company if a buyout occurs; or
  • If either party has the right to sell, how the ownership interest will be valued and the terms and conditions concerning the acquisition.

Because there are some tax implications involved in a buyout, it’s best to bring in experienced estate planning attorney for this process. In addition, life events like divorce or changes in a business partnership are an appropriate time to update your will, estate plans and any necessary insurance policies. Remember, it is important to consider how to separate business and marital assets before there is conflict. If you would like to learn more about pre-nups and other business and marital agreements, please visit our previous posts. 

Reference: Dallas Business Journal (Aug. 1, 2022) “Does your business need a prenup?”

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Managing Finances in a Blended Family

Managing Finances in a Blended Family

Family finances can be a big issue in any circumstances. Managing finances in a blended family is even more significant, where two sets of often well-established financial histories and philosophies try to merge into one.

Kiplinger’s recent article entitled “Yours, Mine and Ours: A Checklist for Blended Family Finances” says that a blended family is one where people have remarried, either after a divorce or the death of a spouse. Sometimes it’s older couples already in retirement. In other cases, it’s a younger couple still trying to raise children.

However, regardless of the specifics of any individual situation, when families blend, so do their finances. That is when things can get problematic, if careful planning and communication don’t occur.

Here are a few things to consider:

Money habits. People are raised with different ideas about financial issues. They’re influenced by their parents or by the circumstances of their formative years. Some people are exceptionally frugal and save every penny and seldom, if ever, splurge on something just for fun. Others spend with reckless abandon, unconcerned about the unexpected expenses that life can throw at them at any moment.

Many people are somewhere in between these extremes. If you are entering a serious relationship, you should speak to your new partner about how each of you approaches spending money.

Financial accounts and bills. Once you learn each other’s financial philosophy, you will have decisions to make. These include whether to blend your financial accounts or keep them separate. If the two of you are closely aligned with your finances and how you approach spending, you may want to simply combine everything. If you’re older, have adult children from prior relationships and are more financially established, you may decide to keep things separate.

For many, a hybrid approach may be best — keep some things separate, but have common savings, investments and household accounts to reach your blended goals.

Family. When there are children from a prior marriage — especially young children — additional financial situations will need to be addressed. Issues of child support and how it fits into the overall budget is one concern, as is the status of college funding for the children.

Talk to an experienced estate planning attorney to make sure you managing the finances of your blended family the way you wish. If you would like to learn more about blended families and estate planning, please visit our previous posts. 

Reference: Kiplinger (June 27, 2022) “Yours, Mine and Ours: A Checklist for Blended Family Finances”

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how divorcing over fifty effects estate planning

How Divorcing over Fifty effects Estate Planning

If you are and older couple considering a divorce, take care to consider how divorcing over fifty effects estate planning. According to the Pew Research Center, the divorce rate has more than doubled for people over 50 since the 1990s. The Pandemic is also adding to the uptick, says AARP’s recent article entitled “Getting Divorced? It’s Time to Update Your Caregiving Plan.”

A divorce can be financially draining. Moreover, later-in-life divorces frequently impact women’s finances more than men’s. That is because in addition to depressed earnings from time spent out of the workforce raising children, women find themselves more financially vulnerable post-divorce and more likely to serve as caregivers again in the future. Even so, for partners of all genders, it is important to consider the longer-term financial outlook, not just the financial situation you’re in when you are actually dissolving the marriage.

You and your spouse will be dividing assets and liabilities and the responsibilities regarding spousal support. How one of you will live if the other gets sick or passes away should also be part of this conversation.

Consider where you’ll need to make changes. One may be removing your spouse from beneficiary designations on all your accounts. (In some states, this is automatic.) Your divorce agreement may also include buying life insurance or maintaining a trust or beneficiary designations for one another.

Create or update your estate plan immediately. You should also ask your estate planning attorney to review your marital agreement. They will have suggestions about how to align your estate plan with your divorce obligations. If you and your ex are co-parenting children, your estate plan should address who their guardians will be, if both biological parents pass away. It is also important to address who will manage any inheritance, if you don’t want your ex-spouse handling assets you may leave to your children.

Create your life care plan, which means naming health care proxies or surrogates (who will take care of your medical affairs, if you’re in need of caregiving), designating a financial power of attorney (who will take care of your finances and legal affairs), and naming a guardian for yourself if you’re incapacitated.

Consider the way in which your divorce will impact your children and extended family if you need caregiving. At a minimum, agree between yourselves what level of contact you can manage and, if you share children and loved ones, know that your lives will cross along the way.

While your marriage may not last, the connections will, so make a wise plan. Your estate planning attorney will help advise you on how divorcing over fifty effects your estate planning. If you would like to learn more about estate planning and divorce, please visit our previous posts. 

Reference: AARP (Jan. 25, 2022) “Getting Divorced? It’s Time to Update Your Caregiving Plan”

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Safeguard your Inheritance from Divorce

Safeguard your Inheritance from Divorce

Even if divorce is the last thing on your mind, when an inheritance is received, its wise to treat it differently from your joint assets, advises a recent article “Revocable Inheritance Trust: Inexpensive Divorce Protection” from Forbes. After all, most people don’t expect to be divorced. However, the numbers have to be considered—many do divorce, even those who least expect it. There are a few ways to safeguard your inheritance from divorce.

Maintaining separate property is the most important step to take. If you deposit a spouse’s paycheck into the account with your inheritance, even if it was by accident, you’ve now commingled the funds.

You might get lucky and have a forensic accountant who can dissect that amount and make the argument it was a mistake, as long as it only happened once, but the Court might not agree.

Long before the Court gets to consider this point, if your ex-spouse’s attorney is aggressively pursuing this one act of commingling as enough to make the property jointly owned, you could lose half of your inheritance in a divorce.

You might also try to mount a defense of the particular account or asset being separate property, by identifying the means of transfer. Was there a deed for real estate gifted to you from a parent or a wire transfer for securities? This information will need to be carefully identified and safeguarded as soon as the inheritance comes to you, in case of any future upheavals.

To spare yourself any of this grief, there are steps to be taken now to avoid commingling. Document the source of wealth involved as a gift or inheritance, maintain the property in a wholly separate account and consider keeping it in a different financial institution than any other accounts to avoid commingling.

Another way to safeguard your inheritance, such as gifts and inherited property, against a 50% divorce rate is to use a revocable trust. Creating a revocable trust to own this separate property allows you to make changes to it any time but maintains its separate nature, by serving as a wholly separate accounting entity. The trust will own the property, while you as grantor (creator of the trust) and trustee (responsible for managing the trust) maintain control.

For a turbo-charged version of this concept, you could go with a self-settled domestic asset protection trust. This is a more complex trust and may not be necessary. Your estate planning attorney will be able to explain the difference between this trust and a revocable trust.

One clear warning: if you have already created a revocable trust to protect your estate and it is not funded, you may feel like it would be most convenient to use this already-existing trust for your inheritance. That would not be wise. You should have a completely different trust created for the inherited property, and this would also be a wise time to remember to fund the existing trust.

Using a revocable trust this way will also require customized language in your Last Will, as you’ll want standard language in the Last Will to reflect the trust being separate from your other marital property. If you would like to read more about divorce protection, please visit our previous posts. 

Reference: Forbes (April 13, 2022) “Revocable Inheritance Trust: Inexpensive Divorce Protection”

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Addressing Financial Issues in a Remarriage

Addressing Financial Issues in a Remarriage

When it comes to addressing financial issues in a remarriage, couples should look at the past.  This should include the way in which each person handled finances, and their pre-marital liabilities and assets, along with the present (e.g., new benefit options) and the future. This means how they’ll handle finances as a unit or protect themselves and loved ones in case of death or divorce.

CNBC’s recent article entitled “Remarrying? Here are financial considerations to keep in mind before saying ‘I do’” says that it’s important to release any financial skeletons from the closet. Here are some smart financial moves for new parents:

It’s critical that blended families have similar talks with their children. The children were most likely brought up in different financial circumstances, so it’s important to talk as a family about new financial expectations.

After the prospective spouses identify their collective financial situation, there are a few topics to consider. For instance, if you were previously married for more than 10 years and collecting Social Security benefits on your ex-spouse’s account, you may forfeit those payments if you remarry.  Your new combined income may also result in a higher tax bill. This is sometimes called a “marriage penalty.”

Moreover, financial communication is a crucial best practice to achieve financial success in a relationship. After you remarry, look at the impact on benefits.

Marriage is a recognized life event, so you may be allowed to change your insurance options outside the regular autumn time window.

You should also be aware that if you were previously divorced and getting substantially discounted insurance via the healthcare.gov exchange, when you remarry, your insurance costs may go up if your joint income goes up.

It’s also smart to consider protecting pre-marital assets that were in your name only. You should consult an experienced estate planning attorney prior to addressing financial issues in a remarriage. They may advise against commingling some or all assets, and suggest a trust, segregating pre-marital assets from marital assets, to protect you in the event of divorce.

Estate planning is vitally important, if you have a new family with children. These are the documents that will take care of the people you love. If you would like to learn more about remarriage issues in estate planning, please visit our previous posts. 

Reference: CNBC (March 7, 2022) “Remarrying? Here are financial considerations to keep in mind before saying ‘I do’”

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A second marriage can complicated estate planning

A Second Marriage can complicate Estate Planning

In first marriages, working together to raise children can solidify a marriage. However, in a second marriage, the adult children are in a different position altogether. If important estate planning issues are not addressed, the relationship between the siblings and the new spouses can have serious consequences, according to a recent article titled “Into the Breach; Getting Married Again?” from the Pittsburgh Post-Gazette. A second marriage can complicated estate planning.

Chief among the issues center on inheritances and financial matters, especially if one of the parties has the bulk of the income and the assets. How will the household expenses be shared? Should they be divided equally, even if one spouse has a significantly higher income than the other?

Other concerns involve real estate. If both parties own their own homes, in which house will they live? Will the other home be used for rental income or sold? Will both names be on the title for the primary residence?

Planning for incapacity also becomes more complex. If a 90-year-old man marries a 79-year-old woman, will his children or his spouse be named as agents (i.e., attorneys in fact) under his Power of Attorney if he is incapacitated? Who will make healthcare decisions for the 79-year-old spouse—her children or her 90-year-old husband?

There are so many different situations and family dynamics to consider. Will a stepdaughter end up making the decision to withdraw artificial feeding for an elderly stepmother, if the stepmother’s own children cannot be reached in a timely manner? If stepsiblings do not get along and critical decisions need to be made, can they set aside their differences to act in their collective parent’s best interests?

The matter of inheritances for second and subsequent marriages often becomes the pivot point for family discord. If the family has not had an estate plan created with an experienced estate planning attorney who understands the complexities of multiple marriages, then the battles between stepchildren can become nasty and expensive.

Do not discount the impact of the spouses of adult children. If you have a stepchild whose partner feels they have been wronged by the parent, they could bring a world of trouble to an otherwise amicable group.

The attorney may recommend the use of trusts to ensure the assets of the first spouse to die eventually make their way to their own children, while ensuring the surviving spouse has income during their lifetime. There are several trusts designed to accomplish this exact scenario, including one known as SLAT—Spousal Lifetime Access Trust.

Discussions about health care proxies and power of attorney should take place well before they are needed. Ideally, all members of the family can gather peacefully for discussions while their parents are living, to avoid surprises. If the relationships are rocky, a group discussion may not be possible and parents and adult children may need to meet for one-on-one discussions. However, the conversations still need to take place.

A second marriage can complicated estate planning. Second marriages at any age and stage need to have a prenuptial and an estate plan in place before the couple walks down the aisle to say, “I do…again.” If you would like to learn more about blended families and estate planning, please visit our previous posts. 

Reference: Pittsburgh Post-Gazette (March 1, 2022) “Into the Breach; Getting Married Again?”

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What are the Advantages of Modern Directed Trust?

What are the Advantages of Modern Directed Trust?

Many families use their estate, gift and generation-skipping transfer tax exemptions to fund a flexible modern trust for non-tax reasons, explains an article “Trust Planning in Unprecedented Times” from Wealth Management. Future uncertainty is one of the reasons, which seems keenly appropriate today. What are the advantages of a modern directed trust?

Passing family values as well as wealth to future generations is an important part of estate planning for many families. A directed trust can accomplish both goals, through the participation of family members and advisors in the directed trust’s distribution committee (DC). The DC decides how trust income and principal will be distributed and directs the administrative trustee accordingly.

Any distribution over and above the health, education, maintenance and support of beneficiaries needs to be considered from a tax-sensitive perspective, but the DC has the flexibility to make these decisions.

These modern directed trusts can also be created to allow for charitable purposes. Donations to charity from a non-charitable modern directed trusts lets the family express its social responsibility, while obtaining unlimited income tax deductions to the trust.

There are instances where knowledge of a trust is kept from beneficiaries or other family members, if they lack the financial maturity or don’t understand or comply with family values. Other reasons to keep a trust quiet are asset protection, divorce, ID theft and similar issues. In many modern trust states, the trust can remain quiet, even after the grantor has died or becomes incapacitated.

Modern directed trusts provide protection against divorce. Often the trust’s main protection is the use of a spendthrift provision, which prevents the assignment of a beneficiaries’ interests in an irrevocable trust before the interest is distributed. There are exceptions to the spendthrift clause, and alimony is one of them. In recent cases, courts have disregarded the spendthrift clause when exceptions are involved, especially in cases of divorce.

Litigation can be a problem for trusts. One of the advantages of a modern directed trust is the excellent asset protection it provides when trust discretionary interests are not defined as property or an enforcement right. Many trusts have clauses providing a court to award legal fees and costs to the winning party. The trustee may be reimbursed for attorney’s fees if the plaintiff loses, a significant discouragement for embarking on litigation against a modern trust.

COVID-19 has reframed how often people think about their mortality, which has fueled interest in creating trusts to protect family assets and heirlooms. A “purpose trust” doesn’t have beneficiaries, but is created to care, protect and preserve an asset, either for an extended period of time or even perpetuity. Assets typically placed in a purpose trust include gravesites, antiques, art, jewelry, royalties, digital assets, land, property, buildings and vacation homes.

The uncertain times in which we live call for unprecedented estate planning. Modern directed trusts are a way to preserve wealth across generations with flexibility. Regardless of what changes to federal estate, gift or generation skipping trusts may come in the future, trusts make sense. If you would like to learn more about asset protection, please visit our previous posts. 

Reference: Wealth Management (Jan. 10, 2022) “Trust Planning in Unprecedented Times”

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The Estate of The Union Episode 13: Collision Course - Family Law & Estate Planning

 

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The Estate of The Union Episode 13: Collision Course – Family Law & Estate Planning

The Estate of The Union Episode 13: Collision Course – Family Law & Estate Planning is out now!

There is a dangerous intersection at the corner of Estate Planning and Divorce. In this podcast of the Estate of the Union, Brad Wiewel interviews Jimmy Vaught, a Board certified Family Lawyer with over 40 years of experience, about how to avoid a potential devastating disaster at that corner. Blended families are very common now. With them comes the often complicated situation between loved ones when someone dies. Brad and Jimmy discuss the common pitfalls and share some tips on how to avoid a collision.

In each episode of The Estate of The Union podcast, host and lawyer Brad Wiewel will give valuable insights into the confusing world of estate planning, making an often daunting subject easier to understand.

It is Estate Planning Made Simple!

To learn more about Jimmy Vaught and the Vaught Law Firm, PC, please visit his website:

 

https://austindivorcelawyer.com/

 

The Estate of The Union episode 13: Collision Course – Family Law & Estate Planning can be found on Spotify, Apple podcasts, or anywhere you get your podcasts. Please click on the link below to listen to the new installment of The Estate of The Union podcast. You can also view this podcast on our YouTube page. The Estate of The Union Episode 13 out now. We hope you enjoy it.

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Texas Trust Law/Texas Trust Law focuses its practice exclusively in the area of wills, probate, estate planning, asset protection, and special needs planning. Brad Wiewel is Board Certified in Estate Planning and Probate Law by the Texas Board of Legal Specialization. We provide estate planning services, asset protection planning, business planning, and retirement exit strategies.

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evaluate your estate planning during a divorce

Evaluate your planning during Divorce

Divorce is never easy. Adding the complexities of estate planning can make it harder. However, it still needs to be included during the divorce process, says a recent article entitled “How to Change Your Estate Plan During Divorce from the Waco Tribune-Herald. It is smart to evaluate your estate planning during a divorce.

Some of the key things to bear in mind during a divorce include:

Is your Last Will and Testament aligned with your pending divorce? The unexpected occurs, whether planning a relaxing vacation or a contentious divorce. If you were to die in the process, which usually takes a few years, who would inherit your worldly goods? Your ex? A trust created to take care of your children, with a trusted sibling as a trustee?

Are your beneficiary designations up to date? For the same reason, make sure that life insurance policies, retirement accounts and any financial accounts allowing you to name a beneficiary are current to reflect your pending or new marital status.

Certain changes may not be made until the divorce is finalized. For instance, there are laws concerning spouses and pension distribution. You might not be able to make a change until the divorce is finalized.  If your divorce agreement includes maintaining life insurance for the support of minor children, you must keep your spouse (or whoever is the agreed-upon guardian) as the policy beneficiary.

Once the divorce decree is accepted by the court, the best path forward is to have a completely new will prepared. Making a patchwork estate plan of amendments can be more expensive and leave your estate more vulnerable after you have passed. A new will revokes the original document, including naming an executor and a guardian for minor children.

The will is far from the only document to be changed. Other documents to be created include health care directives and medical and financial powers of attorney. All of these are used to name people who will act on your behalf, in the event of incapacity.

It’s a good idea to update these documents during the divorce process. If you are in the middle of an ugly, emotionally charged divorce, the last person you want making life or death decisions as your health care proxy or being in charge of your finances is your soon-to-be ex.

Talk with your estate planning attorney about evaluating your planning during the divorce process. They will be able to make further recommendations to protect you, your children and your estate during and after the divorce. If you would like to read more about estate planning during and after divorce, please visit our previous posts. 

Reference: Waco Tribune-Herald (Oct. 18, 2021) “How to Change Your Estate Plan During Divorce”

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Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact Texas Trust Law to schedule a complimentary consultation.
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