Protecting Inheritance in Divorce: Q&A with Matthew Ludt

Protecting Inheritance in Divorce

Protecting an inheritance during a divorce is a key concern for high-net-worth individuals, especially in states like Minnesota where specific legal standards apply. At Atticus Family Law, we guide clients through strategies such as leaving inheritances directly to heirs, avoiding the commingling of assets, and considering the use of trusts to ensure that their family wealth remains secure. By working with experienced estate planning and divorce attorneys, you can safeguard your inheritance and protect it from becoming marital property. Learn more from the Q&A with our Lead Attorney and Founder of Atticus Family Law below.

Q: I had this question come up twice today with high-net-worth clients. Both couples have estates of $15 million+. They have children who are married with no prenup. They don’t want money to go to their kid(s), then end up getting split up in a divorce. What should they do?

A: In both Minnesota and Wisconsin, the standard for exempting inheritances from division of marital property is well-regarded and practiced. Here are some key points to consider:

1. Leave Inheritances Directly to the Heir: Anything left to heirs and their spouses will make it marital property, making the inherited character irrelevant. If they don’t want the inheritance divided upon an heir’s divorce, they should leave it just to the heir and not the spouse.
2. Avoid Commingling: The heir should be savvy in purposely abstaining from comingling the inheritance any more than necessary. This means using separate bank accounts, separate investment accounts, and only applying marital funds as necessary to protect the asset (e.g., real estate maintenance).

Q: Is a trust like this even really necessary or that much more protective?

A: Establishing a trust can add an extra layer of protection, but it’s not always necessary if the heir follows the steps mentioned above.

Q: Further, if this trust was set up, could the child be their own trustee and still have the same level of protection during divorce proceedings?

A: While having a trust where the child is their own trustee can offer some level of protection, it’s generally more prudent to have a third party as the trustee. This could be an aunt, uncle, or a corporate trustee. A third party can ensure that the funds are distributed according to the trust’s terms and provide a higher level of protection during divorce proceedings.

Q: What do you advise your clients of in these situations?

A: I advise clients to be clear about their intentions and cautious about how they handle their inheritances. The main points are to avoid leaving assets to the spouse and to keep the inheritance separate from marital assets. This helps protect the inheritance from becoming marital property and subject to division during a divorce.

For high-net-worth individuals concerned about protecting their inheritance from division during a divorce, it’s crucial to plan carefully. By leaving inheritances directly to the heir, avoiding commingling of assets, and considering the use of trusts with third-party trustees, you can provide significant protection for your assets.

For personalized advice and detailed planning, it’s best to consult with both an estate planning attorney and a divorce attorney to ensure all bases are covered.

Matthew Ludt, Founder, Owner, & Leader at Atticus Family Law, shares insights on how to protect inheritances in divorce situations.