Many people create trust funds to protect their wealth and pass it down through generations. But what happens to these trust funds when a marriage ends?
During a high-net-worth divorce, these trust arrangements can create complex scenarios that affect property division outcomes. Learning more about how these financial structures impact divorce settlements can help protect your interests.
Protection measures during marital asset division
Revocable trusts typically count as marital property since you control the assets. However, irrevocable trusts work differently.
Once you place assets in an irrevocable trust, you essentially surrender your control and ownership of those assets. They now belong permanently to the trust beneficiary.
This transfer of control generally shields these assets from division during divorce since they no longer belong to either spouse.
Different ways courts may handle trusts
The treatment of trust funds in your divorce depends on several factors, like when you set up the trust and how you use it. For example:
- Pre-marriage trust creation: Trusts established before marriage generally remain separate property.
- Inherited trust funds: Money or assets you inherited through a trust typically belong just to you
- Joint spouse beneficiaries: Trusts naming both spouses as beneficiaries may require division during divorce.
- Commingled funds: Moving trust money into shared accounts could make it part of your marital property.
The timing of when you open a trust fund is crucial. Trusts may help shield some assets from divorce. However, setting up trusts shortly before divorce may face scrutiny and qualify as an attempt to hide assets.
Trusts may influence how much you get from the split
Even if your trust stays separate from the asset division, it can still affect other decisions.
If you receive regular payments from a trust, the court might consider this when deciding spousal support. It could also impact how other assets get divided between you and your spouse.
Substantial trust assets may affect how much spousal support you get. For instance, if you receive regular trust fund distributions, courts may consider this part of your income when determining alimony payments or reducing your share of marital assets.
Making smart decisions about your assets
Protecting your assets through trust makes sense, but timing is everything. Creating new trusts in preparation for a divorce can backfire and make you look suspicious. It can trigger legal challenges and accusations of hiding property.
Working with experienced financial and legal professionals can help your trust arrangements withstand scrutiny while protecting your interests within the legal boundaries of divorce.
