Trust Funds & Divorce: What You Need To Know

A trust fund is a legal arrangement allowing individuals to designate assets into special accounts for the benefit of another person. These funds are managed by a trustee, acting for the use of the beneficiary. When a divorce occurs, some trust funds provide financial protections, tax benefits, and support for the beneficiary, while others do not.

Working with a family law attorney to navigate the complexities surrounding trusts and divorce should be your first step in preparing for your future after divorce.

The Creation of a Trust Before Marriage

Creating a trust fund and when this happens will determine what type of property classification it receives.

In California, trusts created before marriage are classified as separate property or property belonging to one spouse. Business owners often place their business in a trust before getting married to protect their business assets in a divorce.

Unless the purpose is illegal or against public policy, a trust can be created for any reason.

The Creation of a Trust During Marriage

Marriage partners often create trusts to name beneficiaries in the event of their deaths. There are two types of common trusts; divorce affects each differently.

Revocable Living Trusts

Revocable living trusts are similar to wills, except they can avoid probate. Dissolving or ending this type of trust can occur anytime while the two partners are still living. Like other properties, the divorcing partners or a judge must determine what happens to the property in the trust.

The assets in a living trust are subject to California laws for property division. It is essential to understand what is considered separate property and marital property.

  • Marital properties are those assets acquired during the marriage.
  • Separate properties are assets acquired before marriage or after separation, including inheritance or gifts.

Understanding the complexities of properties and how commingling the two types of property can change how the courts view them is critical.

Irrevocable Trusts

Irrevocable trusts cannot be changed or ended after their creation. It is rare for a married couple to place their assets in an irrevocable trust. Creating these trusts allows wealthy individuals to avoid estate tax. But once the irrevocable trust is created, the assets no longer belong to the married parties or trustors but become the beneficiary’s assets when the trustors are deceased.

Beneficiary of a Trust

If you are the beneficiary of a trust while you are married, the trust is considered your separate property. Commingling of assets comes into play if the trust is monetary and put into a joint account or if the trust is a property and the spouse’s name is added to the deed. Speaking with an attorney can be crucial to protecting your gift or inheritance.

Trust Funds and Child Support

Child support has an impact on trust funds. If a spouse benefits from regular disbursements of trust assets, the courts may consider this when determining child support. Additionally, if a parent receives a one-time gift or inheritance, the courts may justify a deviation from the child support guidelines and consider the additional support as a child support award, but this is rare. Generally, there is no way around child support obligations.

It is important to note that a trustee acting with improper motives in the disbursement of trust assets will be found in violation of the rules if they withhold these assets to help a beneficiary avoid child support payments. Any trustee’s objective is to protect trust assets, but this protection cannot be for improper motives.

Los Angeles Family Law and Trusts Attorney

Divorce touches every part of our lives. Discussing all aspects of divorce, including its impact on trusts and how to prepare for financial changes, is vital. When you seek the guidance of Martin Family Law Group, be assured we will search for asset protection solutions that benefit you moving forward after divorce.