In the Event of Divorce, Family Assets Could Be Lost

Before giving money to children as shares, please think about divorce first. This is not an exaggeration. If assets are given to children prematurely, property division in the event of a child’s divorce in the United States could lead to significant losses.

1、Risks of Giving Property to Children Too Early

In general, after being married for 5 to 10 years, we might listen to our spouse more than our parents, as our spouse is the one we share our daily life with. However, during this time, if the spouse is someone with strong ideas and strategies, they might say to the other half, “Do you love me? If you do, then give everything to me.” However, if assets, shares, and more are transferred to the spouse, and later the other half changes their mind or the couple becomes unhappy enough to consider divorce, then a significant issue arises. Here’s one case that illustrates this point: in California, there was a person working in finance who feared inheritance taxes and so transferred ownership of several houses to their children at an early stage. The day before their child was getting married, they took out a prenuptial agreement for their future spouse to sign. However, the future spouse burst into tears upon seeing it, and ultimately, the agreement was never signed. Who could have anticipated that a few years later, news would spread that the couple was going through a divorce, and in the end, the parents had to spend seven to eight million US dollars to settle the matter? Since the properties were under the children’s names, and ownership wasn’t clearly divided after their children’s marriages — especially in a community property state where marital property is jointly owned — the risk of losing assets in the event of divorce became even greater.

Note: (Community property states in the US: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin)

2、Issues with Company Shares

If parents give their children company shares too early, things could get even worse. For example, after marriage, a portion of these shares could become owned by the child’s spouse, or, during divorce, the spouse could be entitled to a portion of these shares, making them a shareholder of the company. If these shares constitute a significant portion, turning the spouse into a major shareholder, and their decisions start influencing everything, major problems can occur. Many parents initially think, “Oh, I’ll pass on my assets to my children,” or “I’ll buy the house in my child’s name.” However, they might realize that things aren’t as simple once their children get married. We often say that prenuptial agreements might not hold up against the intimate conversations of a marriage. When a child’s spouse says, “If you love me, transfer assets to me,” and the child transfers a portion of their assets, especially real estate and company shares, they could face significant losses in case of divorce.

In conclusion, in the United States, especially for parents in community property states, if you’re still considering passing on assets to your children early, you should think carefully. It’s not the child’s marriage, but their potential divorce, that might lead to major issues.

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This article is for informational purposes only and should not be construed as financial advice or legal advice. Please consult with a professional to develop a strategy that is right for you. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. TransGlobal Advisory, LLC (TGA) does not provide legal, tax, or accounting advice. You should consult your personal tax or legal advisor before making any financial decisions.