Let’s pretend we’re George Clooney for a minute. Ok, stop looking in the mirror for a second and consider his situation: He’s a wealthy and successful producer, director, and actor, and just married a successful human rights lawyer. Since being George Clooney probably (definitely) pays better than being a lawyer, he may have an interest protecting the substantial assets he has accumulated since his Facts of Life days (See this clip: https://www.youtube.com/watch?v=4ACKYhxhJjM. Check out that hair!).
A traditional option is a prenuptial agreement which has its benefits and drawbacks, including the fact that if they’re contested they become public. Both parties should be represented by a lawyer to ensure that neither party is being coerced into the agreement. And because both spouses must sign it, it requires an uncomfortable conversation about potential divorce with your fiancée.
Consequently, an alternative asset protection strategy that is gaining popularity is the Domestic Asset Protection Trust (DAPT). A DAPT is an irrevocable trust set up by the settlor (the person putting the assets into it) as a beneficiary. If properly drafted, creditors and potential future former spouses cannot access its assets. It should be set up prior to marriage in order to preserve characterization of the trust assets as separate property. Potential spouses don’t need to agree, give permission, or even know about it. It can be used alone or in addition to a prenuptial agreement.
A DAPT isn’t magic, and is subject to legal requirements and limitations. For example, California law doesn’t provide for DAPTs. However, it can be written under the laws of one of the handful of states that do recognize it. For example, you can create a DAPT under the laws of Nevada, which provides additional creditor protection provisions (Hey, by the way, did you know that one of us is also a licensed Nevada lawyer? Just sayin’.) However, because it is a Nevada trust, you couldn’t put California real property into it. Personal property is fair game, including securities, cash, and other accounts and assets.
Unfortunately, we aren’t all George Clooney. Although I’m sure he’s got all of this sorted, his case provides a useful reminder for anyone considering marriage or re-marriage to consider asset protection measures. If you’re interested, please consult an estate planning attorney to see if a DAPT is right for your situation.