FAQ Friday: Preparing for possible divorce
On Friday, April 23rd at 11 a.m. EST, Mr. Steven Berger discusses the following situation, "My wife and I have one son. He just got married and we like his new wife. However, we are concerned that if we pass away and leave everything to him that he could lose a major portion of his inheritance in the event of a divorce. In fact, we are in a position to give him a substantial down payment on a house if we could be assured the house remains in his name."
Summary:
You could help him buy the house just in his name. You could also do a promissory note so that you can get the money back if you want to but it can be difficult to enforce. You could also take a joint ownership interest or a tenants in common if you put 20% down and would account for future appreciation. These are all options to discuss with your son.
Outright gifts are also an option. $15,000 from each parent and $15,000 to daughter-in-law, so $60k total can be gifted. An irrevocable trust would be a great option and you can make gifts to the trust as well. We usually suggest gifts large enough to make it worth it for administering.
If both parents pass and there are substantial means, a Trust is best. First would go to surviving spouse and on second death, goes to son. Have a corporate trustee with discretion to administer. There can’t be forced distributions if there is a divorce. Most protected way. Not everyone wants to pay a corporate trustee or allow son to be trustee.
Having set ages for certain distributions also helps protect assets for longer. You could also leave it outright to your son and if he puts it in a separate account and doesn’t co-mingle with marital assets then it could be safer.
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