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Maintenance, Taxes, & Security /
10/01/2005
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| [Homeowners] |
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| Irrevocable trusts and prenuptial agreements protect your vacation home. |
| text by: |
Kim Fredericks |
| photos by: |
Stuart Briers |
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You never liked your son-in-law. You like him even less now that he is
trying to get his share of the family vacation home as part of his divorce
settlement with your daughter. The house where you and your children spent
countless weekends as a family could become a major marital asset if you do not
take the proper legal steps when you pass it down to your offspring.
 Greedy
as the son-in-law may appear, when couples divorce, vacation homes are often
counted among a couple’s key assets, thanks in part to the rocketing values of
real estate. Prices paid years ago for cozy lake houses, mountain cabins and
quaint beach cottages would not be enough for a down payment on what these
properties are worth now. The rising prices are fueled by a swelling demand in
the second-home market. According to the National Association of Realtors,
second-home sales hit a record high in 2004, up more than 16 percent from the
previous year. (Click image to enlarge)
While rising values may prompt some property owners to
consider legal documentation, protecting the family vacation home from hostile
creditors, including angry soon-to-be-ex-spouses, has been a concern of the
wealthy for generations. “The family compound has always been a place that holds
economic and emotional value,” says Glenn Kurlander, managing director of family
wealth advisory services at Smith Barney. “When parents have a home that has
been in the family for generations, they wonder what to do with it at their
death. If they give it to their children, they might lose it in a divorce or
through inheritance at the death of the descendent,” he says. The answer to
their problems has always been the irrevocable trust. “When the property is put
in trust, it is held free from attacks by creditors, whether they are divorcing
spouses or business creditors,” says Kurlander. While the trust cannot save
junior from making bad decisions, in business or love, a well-structured trust
can keep creditors from taking the home.
In the same way that the irrevocable
trust works to protect the family compound, pre- and postnuptial agreements are
often used to keep assets such as a family vacation home out of the clutches of
a spouse in the event that matrimonial bliss turns to misery. “These agreements
are flexible and can determine in advance which assets will be exempt in a
divorce,” says Kurlander. He explains that this situation is often common when
it is a second marriage. “If the wife-to-be enters into the marriage owning a
vacation home that has been in her family for a while, and it is very important
to her, a prenuptial agreement lets her keep that property separate in the event
of a divorce,” says Kurlander. And if a prenuptial agreement cannot be reached,
a postnuptial agreement will also suffice. “Some couples have a difficult time
with such agreements before getting married,” says Kurlander. “If there are
emotional issues, they may be better off addressing the subject in a postnuptial
agreement after the marriage, when the sense of stability is in place.”
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