Charitable Giving and The Affects of Divorce
Divorce, or dissolution of marriage, is a legal process that allows married people to terminate their relationship. Right now, all but two countries have divorce laws in place. This means that divorce is an option for the majority of couples that cannot work out their marital issues or have grounds for divorce.
Divorce is a legal process that tackles a number of issues, such as child custody and property division. Doing so will allow for both parties to live their lives independently once their marriage is legally terminated. While it’s possible for the couples involved to complete the divorce process without professional help, most couples seek assistance from family law attorneys or undergo divorce mediation, an alternative process to settle divorces outside of court. When one thinks of divorce, the usual concerns that come to mind are child custody, child support, and the division of assets. However, there is another part of the couple’s lives that most people overlook—charitable giving activities.
What is charitable giving?
Charitable giving is the donation of resources by individuals in the form of money, services, or goods to an organization. According to U.S. laws, any donation given from “detached and
disinterested generosity” without the anticipation of any incentive or benefit in return is considered a charitable gift. Examples of charitable gifts or activities include the following:
- Volunteering every week at a local soup kitchen
- Donating clothes and blankets to a charity for the homeless
- Supporting a relief organization through giving cash donations to the American Red Cross
- Setting up a private foundation to support your selected charitable cause
- Contributing to a donor-advised fund (DAF) where you can recommend grants where the assets you’ve donated can be used
How is charitable giving affected by divorce?
So, you may be wondering, what does divorce have to do with charity giving? In cases where expenses and post-divorce resources are reduced, divorced parties may make another difficult decision to curtail charitable contributions. On the other hand, there are divorced individuals who choose to be more involved in charitable activities after the divorce process when they have gained control of their finances. The varying levels of individual contributions can affect charities, especially smaller local charities that depend a lot on such support.
Another way that divorce can have an impact on charities is when charitable activities are included in the property division process. When the charitable donation is straightforward, such as when the fund has already been given to a charity, neither of the divorcing parties has control of the assets because control of the fund has been transferred to the charity. As a result, this does not need to be included in the property division. However, for charitable activities like private foundations where both divorcing parties are trustees or charitable lead trusts where the couples are beneficiaries, the discussion may be more complex and the impact on the charity may be more evident. In the following scenarios, charities currently supported by the donors may stand to receive less or no future support from their sponsors:
- Dissolving their private foundation and distributing all the foundation’s assets to other public charities
- Dividing the foundation into two separate private foundations so that each divorcing party can continue charitable activities independently of the other
- Dividing the foundation into two donor-advised funds where each party can recommend where the grants will be used over time
How do you minimize the effect of divorce on charitable activities?
Couples, over time, naturally build things together. This includes philanthropic or charitable giving activities. And usually, these couples don’t anticipate divorce complications. But ideally, before a couple starts to set up a private foundation with other family members or individual trustees, it’s recommended to have members sit down and discuss how to handle different scenarios, including one where the divorcing parties are both board members. In such scenarios, anticipating various problematic scenarios and creating a documented plan at the beginning of building a foundation may seem troublesome and cause tension, but it’s one of the best ways to avoid future complications.
When a written succession plan is not available for a divorcing couple, they can seek help from a professional mediator to see if they can agree to continue to run their charitable foundation together. This can become difficult for both parties, but when done right, can be beneficial for both the divorcing couple and their chosen charity. The parties must first have a written agreement to make sure that responsibilities and decision-making policies are in place. It’s beneficial for both the divorcing couple and the foundation if they enlist independent trustees to avoid possible conflicts of interest. If both divorcing parties agree to continue to work on their foundation post-divorce, they should also lay down common goals that they can jointly strive to achieve. With these factors available, personal interests will not get in the way of the foundation’s charitable causes.
Divorce is a difficult process for anyone to go through. Not only the couple, but other individuals and institutions are affected when a couple files for divorce. Which is why it’s important for divorcing couples to plan ahead before making important decisions. It’s also beneficial for all parties involved if a couple seeks professional help—first when setting up their charitable activities and, second, during the stressful divorce process.