Seeing a child get married and welcoming a son-in-law or daughter-in-law into a family is a joyous occasion. Most of the time parents do not think about the possibility that their child’s marriage could eventually end in a divorce. While you cannot protect your children from a divorce in the future, you can, however, protect and control your assets so that their inheritance does not become part of a divorce. Controlling a child’s inheritance in order to protect it from a future divorce is an option that you might want to consider in your estate planning.
Inheritance and divorce in Ohio
In a divorce proceeding, Ohio courts seek to equitably divide assets that the couple acquired during the marriage. There are exceptions to this, and one exception is assets that are inherited by a spouse during the marriage are considered separate, non-marital property. This might seem straightforward, but separate property, like an inheritance, can inadvertently be converted into marital property through commingling separate property with marital property.
For example, if you leave a $50,000 inheritance outright to your married child and he or she deposits the money into a joint bank account where both spouses repeatedly deposit and withdraw funds, then that $50,000 inheritance is considered commingled, as your child would likely lose traceability of the inheritance. Another example is inherited property, like a house. If your child and his or her spouse live in the house and invest in renovations and perform work that improves its value, part of the property’s value, or all of it, could become marital property subject to a divorce. If your child sells a house or piece of property, and the proceeds are put into a joint account where both spouses deposit and withdraw money, those proceeds will be considered commingled.
Thinking about the possibility of divorce is unpleasant, but the reality is many marriages end in divorce, and it is wise to consider the possibility of divorce in the future. While you cannot control who your child marries and whether a divorce happens, you can control how your son or daughter inherits your assets.
Ways to protect inheritances from children’s divorce
Fortunately, there are estate planning options to shield your hard-earned assets from a child’s future divorce and keep them within the family. An effective estate planning option to protect and control inheritances is through the use of a trust. Trusts act as a holding tank for assets during and after your lifetime with specific instructions on how the assets are to be distributed. Not only do trusts protect inheritances from a child’s future divorce, but they also protect assets from creditors and from going through probate court. Instead of your child inheriting bank accounts, investments, and real property outright at your death and risk subjecting them to a future divorce, you can pass the assets to your child through a trust with control and protection from divorce.
Trusts can be either revocable or irrevocable, and each can provide different advantages depending on circumstances. A revocable trust, also referred to as a living trust, can be revoked by the creator of the trust – the grantor. The grantor controls funding of the trust during his or her lifetime and also how the assets in the trust will be managed and distributed at death. As long as the assets are controlled by the trust, they will not be considered marital property subject to a division of property in the event a child’s divorce.
An irrevocable trust is created and funded by a grantor but, unlike a revocable or living trust, cannot be revoked and someone else is appointed as trustee to manage the assets. This type of trust provides the grantor less flexibility during his or her lifetime, but in addition to providing protection from a child’s future divorce, creditors, and probate protection, it can also protect against the grantor’s creditors during his or her lifetime. The reason an irrevocable trust can protect against the grantor’s creditors during his or her lifetime is that the grantor no longer owns the assets and someone else is the trustee who manages the trust.
Another estate planning option is a limited liability company (LLC). If you have a family business or income-producing farm, a limited liability company can provide protections in addition to a child’s future divorce.
While you cannot control if a divorce happens in the future, you can protect your child’s inheritance from being included in a divorce. If you use a trust or LLC as part of your overall estate planning, you can control your child’s inheritance and prevent it from being commingled with marital assets and subject to a division of property in a future divorce. If you would like to discuss protecting a child’s inheritance from the possibility of a future divorce, call Alex Carr Law today.
