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Marriage-minded entrepreneurs might consider a DAPT

On Behalf of | Sep 4, 2019 | Family Law

There are a lot of strategies you can use to try to protect your assets from a future divorce. You can try to choose the perfect spouse. A prenuptial agreement is also a good backup, and some couples even find excellent reasons to sign a “postnup.”

New Hampshire business owners who think they might someday marry, or divorce, could explore the idea of setting up a Domestic Asset Protection Trust (DAPT). Only allowed in 17 states and only available in the Granite State since 2009, some business owner use this type of trust to maintain a grip on assets even after divorce.

DAPTs protect assets from creditors

Most DAPTs are set up to shield the assets of primarily wealthy people from creditors. In fact, one reason for the adoption of DAPTs by some states is to try to keep more wealth from being sheltered offshore in other counties.

Say you transfer ownership of the assets of your company to a DAPT. DAPTs are “irrevocable” trusts that you typically don’t have to access when a creditor comes calling. But how do you gain access to the assets yourself? This is the power of a DAPT, recently authorized in some states. As the beneficiary, you can touch the assets, but your creditors generally can’t.

How a DAPT could help you in a divorce

New Hampshire is an “equitable distribution” state, meaning that the court mostly splits a couple’s assets fairly, if not always equally, in a divorce. But if your business’s assets are yours, this equitable distribution is a creditor that draws on your business. It might even mean losing the business, splitting it into pieces or liquidating it.

However, if ownership of your business assets has been transferred to a DAPT, the trust is not responsible for paying your creditors, whether they’re divorcing spouses or nearly anyone else.

Exceptions to the power of a DAPT

Each state allowing DAPTs configure them their own way. In New Hampshire, exceptions to creditor protections include alimony, spousal support and child support. You will notice that these don’t equitably divide your business’s assets. Your New Hampshire DAPT also cannot shield you from lawsuits for personal injuries, wrongful death or property damage.

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