Spendthrift Provisions: Can They Help in a North Carolina High Net Worth Divorce?

For many spouses in North Carolina, protecting their assets is a top priority when they go through a divorce. This goal becomes even more important during high net worth divorces when assets of substantial value are on the line. Fortunately, spouses have a number of different available methods to help them protect their hard-earned assets. One of the most popular options for spouses is to set up a trust.

That being said, it is important to set up the right trust if you are establishing one solely for the purpose of protecting assets in the eventuality of a divorce. Not all trusts are created equal. Spouses must be very careful when drafting trusts, as even a small oversight could provide their ex with more than enough leverage to overcome this financial barrier. Today, many spouses use a spendthrift provision to provide their trust with even more protection. What exactly is a spendthrift provision, and how does it work in North Carolina?

If you have questions such as these, your best bet is to team up with a qualified, experienced divorce attorney in North Carolina. With the help of an experienced attorney it becomes much easier to protect your trust and approach the divorce process in an efficient, calculated manner. Choose an attorney who specifically has experience with high net worth divorces, and you stand a much better chance of reaching a favorable outcome. It does not make sense to throw away your assets when you do not need to, and a divorce attorney can help you keep hold of them.

The main purpose of a spendthrift trust is to protect your assets against creditors. At first glance, it might seem like this does not really apply to high net worth individuals. After all, these individuals are not struggling with debt. However, spendthrift provisions also protect your assets from claims made by your beneficiary’s creditors. In other words, your beneficiaries cannot accumulate large amounts of debt and then use your trust to pay off their creditors.

Spendthrift provisions were initially intended for beneficiaries who had a history of reckless spending. The trustee could oversee the distribution of funds and make sure that the beneficiaries weren’t squandering large amounts of their inheritance. Today, spendthrift provisions are popular for spouses who wish to protect assets during a divorce.

In North Carolina, a spendthrift provision provides considerable protection for spouses who want to keep hold of their assets. According to the statute, this type of provision “restrains both voluntary and involuntary transfer of the beneficiary's interest,” and it states that “a beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision.” Finally, the law also states that “a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary.”

While this can be a lot to unravel, it basically comes down to this: In North Carolina, your spouse is very unlikely to gain access to your trust for the purpose of receiving alimony payments. On the other hand, they can still gain access to the trust in order to receive child support payments. While the latter fact may be disappointing, a spendthrift provision still provides considerable protection from alimony claims.

You may have noticed that a spendthrift provision specifically provides a trust with protection against creditors. But is a spouse considered a “creditor?” It really depends where the trust was drafted. In North Carolina, spendthrift provisions are typically upheld in court, and spouses are considered creditors to a certain degree. In other states, spouses are quite clearly considered creditors, and the spendthrift provision completely bars them from accessing the trust. For example, some states allow no “exception creditors,” which means your spouse would likely not even be able to access alimony payments from the trust.

If you have been searching the Charlotte region for a qualified, experienced divorce attorney, look no further than Arnold & Smith, PLLC. With offices conveniently located in Uptown Charlotte, Monroe and Mooresville, we are well-positioned to help anyone in North Carolina who wants to protect their assets during a high net worth divorce. We have considerable experience with these matters, and we can explain how a spendthrift provision and other aspects of a trust could fare in the courtroom. Reach out today at 704-370-2828, and we can develop an action plan together.