Many divorces occur because the parties grew apart or committed acts that were hard to move past. Financial issues, too, drive many divorces. However, what if you want to remain married, but it may make sense for financial reasons to get divorced? For example, what if one spouse has a high chance of losing assets such as the house, cars and money due to a personal injury lawsuit or another type of lawsuit such as one for malpractice? By getting divorced ahead of any legal actions, the both of you would, in theory, have the peace of mind that at least half of your estate is secure. So, is divorce a realistic asset-protection strategy?
Michigan is a “no-fault” state, which means you do not have to provide a reason to divorce. As long as at least one party wants a divorce, the court will likely grant it. That said, there may be avenues to explore that prove less risky than divorce. Here is a look at why divorce for asset-protection reasons can be dangerous.
One spouse may have too much power, and plans can change
A divorce may proceed in good faith with the understanding that both parties will reconcile once the feared lawsuit is over. However, a lot can happen. One of the spouses could meet someone else, or the spouse with most of the assets after the lawsuit is settled decides not to share.
Hidden motives could come to light
It could also be that asset preservation turns out to be a convenient reason to divorce for a person who may have wanted to split for a while. That spouse might not have admitted it to himself or herself, but there it is. What happens when he or she finally acknowledges that hidden motive?
There could be questions of timing
There may also be questions of timing if the divorce and lawsuit are too close together. The lawyer for the other party in the lawsuit could potentially throw up a lot of costly and time-wasting obstacles.
The bottom line is that while divorce solely for asset protection reasons may sound workable, there could be easier ways of protection such as making your business a corporation, boosting your insurance coverage or using trusts.