In this post, I'm going to discuss asset protection in relation to trusts:

  • What is a Trust? (Part 1 of 4)

  • For what purposes do you use a Trust? (Part 2 of 4)

  • Trusts & Marriage / Trusts & Divorce (Part 3 of 4)

  • The Death Tax & Trust Income Taxes (Part 4 of 4)

Can a trust help me avoid divorce rape?

First, there's absolutely no way I can answer this question. Why? Because the answer entirely depends on (A) where you live, (B) the specific facts of your specific situation, and (C) the judge in your divorce case.

As I said at the end of my previous post, trust law is mostly established at the state level (with some federal laws, like bankruptcy, having an effect on the imperviousness of your trust shield). Since every state has their own laws, that means every state can have a different rule on the same subject. Plus, the courts in each state have their own nuance of culture and shit; so even if two states have literally the same statutory law, the courts in each state can interpret that law entirely differently.

I'll give you an example. StateA and StateB border each other (I'm not giving you the names because then some shit will be obvious that I don't want to be obvious). In this example, we're using residential Landlord-Tenant law. When you move out of an apartment, the landlord owes you your security deposit back (assuming you didn't fuck shit up in the apartment).

This aspect of the law is pretty much identical in both StateA and StateB. The law says that the landlord has 30 days to either return your security deposit back to you or provide you a written accounting of the repairs that the security deposit was used for. The landlord has 30 days to give this to you.

StateA says that if the landlord doesn't give this to you in 30 days, then the landlord owes you 1.5x the amount of the security deposit. So if your security deposit was $100 and the landlord doesn't give you anything within 30 days, then the landlord owes you $150.

Well, the courts in StateA say, "yep, if the landlord doesn't give you the shit within 30 days, then his ass owes you 1.5x the amount. Judges do not have any discretion over this. Do not pass go. Do not collect $200. Landlord fucking owes 1.5x the security deposit. End of story."

What about StateB? Well, very similar to StateA, StateB says that if the landlord doesn't give this to you in 30 days, then the landlord owes you 2x the amount of the security deposit. So if your security deposit was $100 and the landlord doesn't give you anything within 30 days, then the landlord owes you $200, right?

Well, no. The courts in StateB say, "well... even though the statute says '2x', the judge has the discretion to award up to 2x, if the judge in his discretion believes it to be appropriate." What the shit is that? Well, since I represented the tenant in StateA and represented the slumlord in StateB, that worked out perfectly for me in both cases. But the point is that even though it's basically the same law in both states and these two states border each other, the rule applied in court is wildly different.

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So there's no way for me to tell you whether a trust will work for you because the rules are different all over the country. You want to know how it might possibly work for you? Then go talk to an estate planning lawyer near you.

What I can do is give you an overview of things to be aware of.

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Ok, I'm going to cheat here and just link to a few other articles that give you the gist of the information you should be aware of. Honestly, I don't do divorces and I don't do offshore trusts, so these articles are going to do a better job of explaining the concepts of how trusts & divorce and trusts & offshore asset protection intersect, better than I could explain from scratch.

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The take away here is that there are almost as many flavors of ice cream as there are laws related to this subject. I know you wanted a simple explanation, but the complexities of our world prohibit a simple answer from existing.

Several users have PM'd me asking about ways to avoid losing assets in a marriage. Well, buddy, I've got news for you: as a legal construct, one of the principle functions of marriage is to facilitate the easy transfer of property from one spouse to the other. THAT is the fucking point of marriage as a matter of law, the legal facilitation of assets to your spouse!

Hell, even the tax code has a provision about this. If you give $10 million to your brother, your mother, your sister, your father, or even your children, then you're going to incur tax on that transaction. But you can give your spouse $10 million or $10 billion, and there are no taxes incurred in that transaction. (See 26 U.S.C. § 1041).

So if your intention was to find a way to avoid losing assets in the event of an impending divorce, things may not look good for you. I highly suggest you speak to a divorce attorney near you to discover your options.

You want to know a story of what happens when you fraudulently hide assets during a divorce proceeding? The year was 1996. Denise Rossi was married to Thomas Rossi for 25 years. They lived in California. Suddenly, out of nowhere, Denise tells Thomas she wants a divorce. I know, many readers here are shocked at the suddency.

Shortly after the divorced is finalized, Thomas discovers that 11 days before she filed for divorce, Denise won the California State Lottery.

So Thomas takes Denise back to court. It comes out that Denise filed for divorce specifically because she didn't want to share her lottery winnings with her husband of 25 years.

The court frowned on this behavior. You know how divorce court is typically stacked against the man? Well, because of Denise's failure to disclose the lottery winnings during the divorce proceedings and because it was pretty shitty of her to divorce her husband merely to prevent him from sharing those winnings, the judge order Denise to give all of the lottery winnings over to Thomas. Not half. Fucking ALL the lottery winnings.

So if a divorce court did that to a woman for hiding assets, what do you think they'll do to you if they find out you fraudulently hid or transferred assets to avoid your spouse from having them? Inquire with a local divorce lawyer to find out more.

But of course, Denise's real crime was that she got caught. Growing up, my grandmother taught me, "you don't need a driver license to drive; you only need a driver license when you get pulled over." I'm just saying, you have the freedom to do anything. The punishment only occurs when you get caught. So make your asset disposition plans accordingly. Just don't be surprised if you get burned if you play with fire.

Look, across the country, there is one thing that is true in all 50 states. The one, just one, absolutely fool-proof way to avoid losing your shit in a divorce. I'll let the commenters guess as to what that might be. (Except for those common law marriage states. Those mother fuckers have different rules. You gotta watch out for that shit if you live in one of those jurisdictions because I have heard stories about common law divorces being a thing. They're just not a thing in my jurisdictions, so I don't know anything about them to be able to comment.)