Using a domestic asset protection trust before a divorce

On Behalf of | Sep 28, 2023 | High-Asset Divorce |

One of the more contentious aspects of divorce is the division of assets. Establishing protections for your property before a divorce occurs is preferable, and one way to do this is through a domestic asset protection trust. While Illinois does not allow them, you could set one up in another state.

What is a domestic asset protection trust?

A DAPT is an irrevocable trust which allows the settlor of the trust to also be a beneficiary. Most asset protection trusts do not allow the creator of the trust to receive payments or benefits. A DAPT does allow such benefits and provides a way for the settlor to retain access to those protected assets.

To receive payments or benefits from the trust, a third-party distribution trustee must be appointed to oversee distributions. The settlor can appoint this trustee before the trust is established.

How can a DAPT protect assets from a divorce?

Nevada’s domestic asset protection trusts are especially advantageous in protecting your assets before a divorce because it does not recognize exception creditors. These are creditors that typically can get access to assets secured in a DAPT after the limitation period has expired. Examples of exception creditors are child support and payment of alimony.

Additionally, anyone who submits a claim for assets that have been transferred into the trust must file their claim within a certain period of time. If the statute of limitations has expired for that particular asset, the creditor will have no claim.

Residents of Illinois should be able to establish a domestic asset protection trust in the state of Nevada. However, you will need to be familiar with the rules of placing assets outside of the state of Nevada into a Nevada DAPT. Your state might not recognize certain aspects of the trust, and you will need to be sure all assets, including real property, will be protected in a divorce.