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How can a Domestic Asset Protection Trust help during divorce?

Divorces have the power not only to separate the family, but also to lead to a division of the finances. Some couples create a prenuptial agreement, which outlines the difference in the vastness of their assets, but many couples in Maple Grove, Minnesota, as well as in other parts of the United States, find it to be an uncomfortable topic. Furthermore, a prenuptial agreement is often invalidated in court. Even when a prenuptial agreement is valid, having to pay a large sum in legal fees becomes a reality.

A Domestic Asset Protection Trust may be the answer to most financial problems relating to property division in the event of divorce. A DAPT is an irrevocable trust unlike the conventional revocable living trusts. With a DAPT, the person has the authority to withdraw or even terminate the trust, thereby making it vulnerable to any creditor wanting to reclaim the debt. However, the fact that DAPT is irrevocable does not make the trustee vulnerable to any such risk.

Unlike traditional irrevocable trusts, DAPT does not compel a person to relinquish control over their property. With a DAPT, the creator of the trust continues to have a discretionary benefit of the assets. DAPT is only currently available in 15 states, which does not include Minnesota. However, residents of Minnesota can create a DAPT in any of the states that do permit it. In some divorce cases, the spouse may be allowed to withdraw from the trust to ensure fair property division.

While DAPT seems to be a blessing to many, it comes with its own restrictions. Not all states have accepted this form of trust. Additionally, DAPT may not be ideal for all types of assets. Typically, the assets most suited for DAPT would be assets like cash, stocks and mutual fund bonds.

Source: Forbes, "How to protect yourself in a divorce using domestic asset protection trust", Robert Pagliarini, May 15, 2014

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