PRE-MARITAL ASSET PROTECTION: HOW TO SECURE YOUR ASSETS BEFORE GETTING MARRIED
For people getting married, with substantial personal or real property, business interests, or inheritances, saying “I Do,” without first securing your assets, may cloud your financial future in uncertainty. That is why our experienced attorneys at the Law Office of Joshua S. Reed can’t stress to our clients enough how important Pre-Marital Asset Protection can be. After all, proactive planning today may help numb the pain of a potential divorce.
In this article, we’ll explore the use of Pre-Marital Asset Protection Tools, such as Prenuptial Agreements, Estate Planning Strategies, and Trusts, that can help you secure your assets before marriage and avoid unintentionally joining your individually held assets to the divisible property of the marital estate. So, whether you're already engaged or just starting the conversation, understanding your options now can provide you with peace of mind and help you avoid costly disputes in the future if things don’t go as planned.
Why Do I Need To Secure My Assets Before Marriage?
In the state of Tennessee, as well as many other states, a married couple’s Marital Property is typically subject to equitable division in the event of divorce, while the couple’s Separate Property typically is not. (Tenn. Code Ann. § 36-4-121(b)). However, the question of “whether an asset is acquired before or during marriage” is not as clear cut as it seems, nor is it the sole factor considered in determining whether an asset is Marital or Separate Property. (Tenn. Code Ann. § 36-4-121(c)).
(Click here to read more about how Asset Division works in Tennessee.)
Unintentionally Commingled or Transmuted Property
In many cases, what was once considered the Separate Property of one spouse may actually become “commingled” with or “transmuted” into Marital Property over the course of the marriage. Separate Property is considered to have been commingled if such property is inextricably mingled with Marital Property or with the separate property of the other spouse. See Snodgrass, 295 S.W.3d 240, 256 (Tenn. 2009) (quoting Langschmidt v. Langschmidt, 81 S.W.3d 741, 747 (Tenn. 2002)). While transmutation is often determined to have occurred when the owner of the Separate Property has demonstrated an intent to treat that property as marital, has actually treated that property as marital (e.g. by way of the other party’s substantial contribution to the asset), or has given the other party joint ownership of that property. See Snodgrass. According to the Tennessee Supreme Court in Snodgrass, the rationale underlying the commingling and transmutation doctrines is, “that dealing with property in these ways creates a rebuttable presumption of a gift to the marital estate” since property acquired during the marriage is presumed to be marital under many Marital Property statutes. So, should your Separate Property be found by a court to have been commingled or transmuted, even assets that you had individually owned prior to marriage may be subject to division in a divorce proceeding.
However, it is still possible to prevent your Separate Property from becoming a part of your marital estate through the use of various Pre-Marital Asset Protection Tools. This is because Pre-Marital Asset Protection Tools, as further elaborated in the “Pre-Marital Asset Protection Tools” section below, can help refute the “marital gift presumption” and ensure your assets retain their Separate Property status throughout the marriage. Thus, your pre-marital assets would be considered separate from your marital estate and not be divisible in the event of divorce.
Pre-Marital Asset Protection Tools
Individuals entering marriage in Tennessee have several asset protection tools at their disposal to help preserve the separate character of their pre-marital assets. While the “commingle” and “transmutation” doctrines may make it seem as if unintentionally gifting your separate property to your marital estate is an unavoidable cost of marriage, the Law Office of Joshua S. Reed is here to set your mind at ease because that is simply not the case. If a party can show evidence of circumstances or communications that clearly indicate an intent that pre-marital property remain separate, the “marital gift presumption” can be successfully overcome. See Snodgrass. This is where the use of Pre-Marital Asset Protection Tools, such as Prenuptial Agreements, Estate Planning Strategies, and Trusts comes into play.
Prenuptial Agreements (“Prenups”)
A Prenuptial Agreement, also known as an Antenuptial Agreement or Prenup, is a contract signed before marriage in which the parties can explicitly designate which assets are to remain separate and how Marital Property will be defined and divided in the event of divorce. In Tennessee, Prenuptial Agreements are among the most effective tools for clarifying and preserving the separate nature of pre-marital assets. However, a Prenuptial Agreement is only as useful as it is enforceable. As such, it is important that you first consult an experienced attorney to help ensure that your Prenup is drafted and executed in substantive and procedural compliance with the law. (Click here to schedule a 1-on-1 consultation with one of our talented Attorneys. If you live or do business in the Knoxville, Farragut, or surrounding East Tennessee areas, your first consultation with us is COMPLETELY FREE!)
Under Tennessee law, Prenuptial Agreements are generally enforceable when entered into:
Freely or voluntarily;
With knowledge, or otherwise with a full and fair disclosure of assets and liabilities having been made by and between the parties; and
In good faith, and without the exertion of duress or undue influence.
See Randolph v. Randolph, 937 S.W.2d 815, 819 (Tenn. 1996); see also Tenn. Code Ann. § 36-3-501.
A well-drafted Prenuptial agreement that has been prepared and executed in a manner consistent with the law not only reduces litigation risk but can also act as decisive evidence of a couple’s intended treatment of premarital and Marital Property. As such, should asset commingling or transmutation be at issue, Prenuptial Agreements can set the record straight as to the couple’s intent and, in turn, establish a solid foundation for overcoming the “marital gift presumption.” However, be aware that Prenups are only evidence of a couple’s intent, and do not prevent spouses from improperly mixing assets during marriage, or otherwise from actually transmuting or commingling assets. That is why it is essential for spouses to continue to treat premarital assets as separate long after the Prenup is signed.
Estate Planning Strategies
You are likely already familiar with typical estate planning tools such as Trusts, Wills, Powers of Attorney, and beneficiary designations, and their uses in passing down property. However, what most people don’t know is that these tools can actually serve a dual purpose when designed with the goal of confirming intent to keep individual property separate in the event of divorce.
In Tennessee, similarly to Prenups, estate planning documents may be introduced as evidence of a couple’s intent to keep certain property separate. However, most individual estate-planning documents, such as a Will, may be better suited as reinforcement for other asset protection strategies, rather than serve as the primary means for achieving your pre-marital asset protection goals. With that being said, when created before marriage and used in tandem with other asset protection tools, Estate Planning Strategies can provide an invaluable layer of additional protection to help keep assets outside the scope of asset division in divorce. For example, listing an asset owned before marriage in a Will as Separate Property intended as a specific gift for a biological child of a previous relationship may act as compelling support for arguments against transmutation when coupled with a signed Prenup that provides for the acknowledgment and consent of the other party to such treatment and specific gift of that asset.
The utilization of estate planning tools for pre-marital asset protection can be incredibly nuanced and may even be invalidated by the court if not done in compliance with the applicable case law or statutes. That is why you should meet with an estate planning attorney who understands how the different estate planning and asset protection tools interact with one other and can design an estate plan that is specifically catered your individual asset protection needs. (Click here to schedule a 1-on-1 consultation with one of our talented Attorneys. If you live or do business in the Knoxville, Farragut, or surrounding East Tennessee areas, your first consultation with us is COMPLETELY FREE!)
Checklist: Estate-Planning for Pre-Marital Asset Protection Best Practices (TN)
Separate titling: Confirm all pre-marital property (real estate, vehicles, artwork, investments) remains titled solely in your name or a separate legal entity.
Trusts in Wills: Include Testamentary Trusts that allot specific premarital assets to children.
Beneficiaries: Name children, other family or Trusts as beneficiaries of life insurance, IRAs, 401(k)s and retirement plans.
Separate accounts: Maintain separate personal bank and investment accounts for premarital funds. Keep detailed records of any withdrawals or uses of these funds.
Valuations: Get professional appraisals of family businesses, real estate and collectibles acquired before marriage. Formal valuations support separate property claims later.
Legal review: Work with an estate planning attorney to ensure Trusts, Wills, and business agreements reflect your intent. Update documents immediately after marriage to reflect any Prenup or Trusts created.
Trusts
While most Estate Planning Strategies or documents seem to protect pre-marital assets in a manner very similar to that of Prenups (with both acting as evidence of intent), there are certain estate planning tools that can offer much more. Unlike Prenups, tools such as Trusts can not only demonstrate intent, but can also serve as a vehicle for actually keeping such property separate from the marital estate.
Establishing a Trust before marriage can serve as a powerful mechanism for shielding assets from being classified as part of the marital estate. Under Tennessee law, assets held in a properly structured Trust are generally not considered Marital Property unless they are used in such a way that suggests donative intent or active commingling with the marital estate.
Accordingly, it is of the utmost importance that the Trust be funded before marriage and administered in a manner that maintains its separateness. Naming a third-party trustee, avoiding the use of Trust assets for joint expenses, and maintaining separate Trust records can all help reinforce the argument that the property was never intended to be marital. As such, for individuals in Knoxville, Farragut, or surrounding Tennessee areas, a specially tailored Trust created before marriage can be invaluable to preserving the value of each spouse’s pre-marital assets.
Checklist: Establishing a Separate Pre-Marital Trust (TN)
Choose the right Trust type: There are many different types of Trusts, both revocable and irrevocable, that can be used for premarital asset protection. However, it is important that you speak with an estate planning attorney to help you determine which type of Trust is best for accomplishing your particular goals.
Fund with separate assets: Transfer pre-marital property (cash, investments, collectibles, real estate interests) into the Trust prior to marriage.
Independent trustee: Appoint a co-trustee or unrelated trustee with discretion over distributions.
Avoid marital uses: Never use Trust principal to pay household bills or loans for the marital estate.
Consult a Trust attorney: Obtain legal advice to ensure compliance with the law.
Does Securing My Pre-Marital Assets Set My Marriage Up To Fail Before It Even Begins?
The unity of two individuals through marriage creates not only a romantic tie between the two, but also a financial one that operates almost like an equal (or equitable) business partnership in the eyes of the law. With that being said, marriage is a beautiful thing, built on pillars of love, trust, and mutual understanding. Which is why your friendly, neighborhood Knoxville/Farragut, Tennessee attorneys at the Law Office of Joshua S. Reed completely understand how many of our love-struck clients may initially feel uncomfortable with exploring their asset protection options or otherwise having the “Prenup talk” with their significant other.
However, what many don’t realize is that pre-marital asset protection need not run counter to the aforementioned pillars of marriage, but rather, it can re-enforce those pillars by providing a solid foundation on which they may stand. Pre-Marital Asset Protection Tools accomplish this by reducing each party’s intentions, concerns, and understandings into a clear, comprehensive writing. This, in turn, promotes transparency between partners and removes much of the financial stress, insecurity, and communication breakdowns that come with operating a business partnership out of the equation. As a result, by the time you and your significant other are hand-in-hand on the wedding altar, you both will be on the same page and free to enjoy the newly formed romantic ties of your marriage with the peace of mind that your equally-new financial ties will be less likely to leave you both tangled up in knots.
Contact Our Office Today!
At the Law Office of Joshua S. Reed, we believe in quality over quantity. Unlike larger firms that handle hundreds of cases simultaneously, we focus on giving each client the level of care they deserve. Our diligent approach allows us to address every detail of your concerns and craft a pre-marital asset protection plan that is specially tailored to your specific needs and that aligns perfectly with your goals.
Ready to take control of your future? Call us for proactive, personalized service located in the Knoxville and Farragut, Tennessee area.
This post is for informational purposes only and is not legal or tax advice. Every situation is fact-specific; please consult counsel about your facts and timing.