Protect Your Assets – Gifting the Family Business

Question: My 32 year old son is working in the family business.  He is dating a young lady I think he will marry.  We have worked very hard to build the business to where it is now. Although we like his fiancée, we are aware of the statistics – one-half of the marriages end in divorce.  He is contributing significantly to the value of the business.  We would like to begin gifting the business to him now.  Will any gifts or inheritances of the business we give him be divisible in any divorce? And if so how can we protect our assets? 

Answer: It depends 

Some states are community property states and generally those states classify gifted and inherited assets as “separate property” which means that as long as they stay in your son’s name and he does not transfer them to joint name with his wife they will remain his property – even in divorce.

Other states are “equitable division” states –meaning that a judge can take gifted and inherited assets and the expectancy of receiving assets into account in your son’s divorce. 

In Massachusetts and Connecticut it is very common for a parent to be subpoenaed in a child’s divorce proceeding. If the divorcing spouse serves the soon to be ex in-laws with legal papers the parents must turn over a summary of their estate planning documents, the date they were last amended and their net worth statement.

 Not complying with that order will land them in jail for contempt.

The Judge is then authorized to take those gifted and inherited assets as well as any the child may receive in the future, into account in determining how the marital assets will be allocated between the spouses. Typically if there is one spouse that will be receiving gifts or inheritances the Judge will order a division of the marital assets that is not equal – in other words the spouse who is not receiving the gifts/inheritances will receive a greater percentage of the marital assets than the spouse who will be receiving them downstream.

 Even if you do not live in an equitable division state that does not mean your child’s gifted or inherited assets are safe –he may move to an equitable division state at some subsequent time and the laws of that state will impact how his assets are divided. 

 When a family owns a business subpoenaing the parents’ assets has an additional obstacle. The value of your family business will be on that financial statement.  That means that there is the potential for your ex daughter in law to question whether or not the value on that statement is right.  Many parents find that unnerving.  Gifting (lifetime or death time) your assets to your son in trust form does not solve the problem.  All that does I affect the valuation of the asset.  If the asset was transferred to him directly the value is easier to determine than if he has expectancy in the trust.

 Encouraging him to sign a prenuptial agreement prior to marriage which specifically excludes all gifted and inherited assets (and can exclude what they appreciate to) is your best defense.

Patricia M. Annino, Esquire, is the author of the highly acclaimed book, Cracking the $$ Code: What Successful Men Know And You Don’t (Yet). Patricia is in demand nationally as a speaker for womens’ organizations on assorted topics.  Patricia works with organizations and women looking to educate and empower them to plan and work smarter with their finances and estates.  For more information visit:  www.patriciaannino.com

Comments

  1. odzie¿ damska says:

    Great articles and nice a website design too 🙂

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