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How a living trust can protect your business in a divorce

You thought you had it all. You met the love of your life, got married and bought your dream home. You finally dropped that last 15 pounds and even ran your first marathon. You worked up the courage to quit your job and started your own publishing company--which has been thriving.

Suddenly things went south. Your relationship hit the rocks. Things were said and done that can't be taken back, and now you're facing the prospect of divorce. To add salt to the wound, you also stand to lose part of your business to your spouse. In a flash, everything you hold dear could be taken from you.

In a divorce, a court will divide all of your shared assets between you and your spouse:

  • If you started a business after you got married, your business is considered "marital property," which can be valued and split between you and your ex-- just like your home or car.
  • Even if you started a business before you got married, your spouse could still stand to receive a portion of this asset. For example, let's say you owned a company, then got married, and over the course of your marriage, the value of your business increased by $100,000. The amount your company increased in value while you were married can be considered marital property, and in the event of a divorce, your spouse could be entitled to a piece of this income.

How do you avoid this?

One potential workaround is to put your business in a living trust. Under the terms of a living trust, you give up ownership of the asset (in this case, your business), and instead entrust a third party member (a "trustee") to manage the asset for your benefit throughout your lifetime. Under the terms of a living trust, the property is not technically yours, so it cannot be split with your spouse in the event of a divorce.

A living trust has other advantages too. It allows you to designate any beneficiaries of your property in the event of your death, which is an effective way for your loved ones to avoid probate.

Trusts are a valuable tool both for financial planning and reaching your financial goals as well as for protecting your business assets in the event of unforeseen misfortune.

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