Q: How can I protect my separate assets (cash, savings, car) from my spouse’s potential future debt claims
How can I protect my separate assets (cash, savings, car) from my spouse’s potential future debt claims (IRS seizure, collection lawsuits from business and credit card creditors)? Divorce is not anticipated. This is in Colorado.
A: Keep all of your assets titled in your name only.
This can be a tricky question, and it is my understanding that the answer may vary for different purposes, so it would be wise to also get opinions from a bankruptcy attorney and a tax attorney as well. This answer is going to be from an estate planning and family/divorce perspective. I do not practice in the areas of bankruptcy and tax, and there may be other issues in those areas that would need different or additional action in order to address them.
It is also important to note that if there are already some debts in motion, particularly tax related ones, there are circumstances where those debtors may be able to ignore any planning you do now as to any assets you own now.
From the family side of things, a post-nuptial agreement may be the simplest way to address this. A post-nuptial agreement works like a pre-nuptial agreement, but is done after you are already married. Post-nuptial agreements have effect outside of the context of divorce; they can also be helpful in estate planning and financial planning (including dealing with creditors). In this agreement, you can specify which assets and which debts are only yours, which are only his, and which are joint. This agreement can address only certain assets or debts, but in light of your question, it would probably be best to address all assets and debts in yours. Then, you need to be sure that those assets and debts are titled accordingly. Follow all of the rules you create in your agreement.
A creditor for an existing debt may be able to get past the agreement if they can show that the agreement appears to have been done for the purposes of defrauding creditors. You want to be sure that the agreement is fair on its face. If you have a significant portion of the assets allocated to you and your husband has most of the debt allocated to him, you need to be prepared to be able to prove why that is fair in your particular situation (if you brought most of the money that acquired those assets or had those assets before marriage, for example, and perhaps the debt is largely out of an endeavor of your husband's).
Any debts not yet created would generally be blocked by this agreement as long as you continue to follow the rules in that agreement.
Keeping assets and debts in only your name or his name will get you part way there. There are some circumstances where creditors are allowed to reach the marital assets even though a debt is only in one spouse's name.
An experienced family law attorney can help you with a strong post-nuptial agreement. An experienced tax attorney can give you more complete advice regarding any potential IRS action and what might be done in your particular circumstance. An experienced bankruptcy attorney can give you more complete advice about when debtors can reach the marital estate or take action despite assets being in only one name or a post-nuptial agreement.
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