How does a trust get divided up in divorce?

| Jul 6, 2020 | Property Division |

Trusts, whether you create them for personal wealth protection or as a fund for your children, are great ways to preserve money and assets for you and your family’s future. It is a sure way to put your money where you want it when you want it. But divorce can make a sure thing shaky.

When you start splitting marital assets (or your children get divorced and start splitting theirs), these funds might go elsewhere. What if you set up a trust for your married child to receive a grand sum for graduating? Only for their spouse to divorce them right after and take half of what you spent hard years earning to give them? As BNY Mellon points out in a strategy article, protecting trusts during a divorce depends on the language and the timing.

Irrevocable vs. Revocable

Property division targets one thing: marital property. Irrevocable trusts you put money or assets into, whether premarital or marital, are considered the property of the trust until whatever stipulations occur that divest that property to its beneficiaries. These are often easier to deal with than revocable trusts. If you, as a trust settlor or beneficiary, have access to the property within a revocable trust, courts may consider it as divisible marital property.

Language and timing

Protecting your assets, so they go where you want, is vital to preserving your wealth and legacy. Ensuring that your beneficiaries have very little control over the trust assets (by having them overseen by a third-party trustee) may help a court decide whether or not to consider that property. Metering funds out in a sporadic fashion versus lump sums or regular payments can affect how courts determine the division.

It is a complex topic dependent on many factors that we recommend our readers learn more about.