Divorce with Trusts & Complex Assets
Trusts are a valuable tool for managing your assets, but they can make divorce more difficult. Many factors can determine whether a trust is considered a marital asset requiring division in a divorce, such as when and how the trust was established.
What is a trust?
A trust is an agreement that allows a third party (a trustee) to hold assets on the behalf of someone else, called the beneficiary. It’s similar to a will, in that it helps you to pass on your assets when you pass away. However, trusts have a few benefits over wills.
While each trust is unique and there are exceptions, in general:
Trusts avoid probate. This is the legal process that happens after you pass away, in which your will is evaluated by the court and your assets are distributed. By avoiding probate, trusts can usually disperse assets more quickly and easily.
Trusts are more private. Probate is a matter of public record, so if your trust avoids probate, you can keep your assets private.
Trusts protect your estate. Through a trust, you may be able to protect your assets from your beneficiaries’ creditors.
Trusts offer more control. As opposed to a will, you can often have greater control over when and to whom your assets are distributed. This is especially helpful if you have many complex assets to manage.
What’s the difference between revocable and irrevocable trusts?
The two main categories of trusts are revocable and irrevocable trusts.
Revocable trusts are also known as living trusts. These trusts let you maintain control over your assets while you’re alive. If you change your mind about the trust or need to alter your financial plans, revocable trusts can be dissolved at any time. Revocable trusts are usually still subject to estate taxes.
Irrevocable trusts cannot be altered or dissolved once established. That also means that your assets are no longer in your control. However, as part of an irrevocable trust, your assets are generally removed from your estate entirely. Irrevocable trusts are often used for inheritance. You may also establish an irrevocable trust to potentially protect separate assets in the event of a divorce.
Are trusts considered marital property?
It depends on when and how the trust was established. If the trust was funded with marital assets, it may need to be divided in a divorce depending on how the trust was created. If the trust was established prior to marriage or its assets are entirely separate, it may not be considered marital property. The court will evaluate the trust to determine whether it has to be divided or not. At times, a domestic relations court may not have any jurisdiction on the trust depending on how it was funded and created.
Does a trust protect assets in a divorce?
It can, if all assets in the trust are separate property and it was drafted well. However, if the trust includes any marital assets, it may be divided during a divorce depending on the trust documents. It is important to work with a trust attorney before divorce to protect any valuable assets. For assets acquired before marriage, it’s wise to establish the trust before you are married to ensure they are protected.
What happens to an irrevocable trust in a divorce?
In most cases, an irrevocable trust will be protected in a divorce. This is because irrevocable trusts put your assets in someone else’s hands and can’t be changed. However, irrevocable trusts may be considered when calculating alimony or child support.
What happens to an inheritance trust in a divorce?
As with any irrevocable trust, inheritance trusts are usually left alone during divorce.
Do I need a lawyer to navigate a divorce with trusts?
We highly recommend it (and not just because we’re a law firm!). Trusts can make divorce especially complex. With an experienced family law attorney, you can better protect your assets and ensure a smoother divorce process.
If you’re facing a divorce, you don’t have to go it alone. Thrive Family Law is here to help you navigate divorce from start to finish. Reach out today to get started.