A divorce is an incredibly stressful situation. The emotion, the logistics, and the legal matters are a lot to handle. Finances are usually a huge part of the stress. Trusts are typically looked at to protect assets in a divorce, but it’s not always fail-proof. The trust will need to be drafted properly, and you will need to make sure that your will and trust attorney understands exactly what you need.
In simple terms, trusts are arrangements where a third party – the trustee – holds assets for another party, called the beneficiary. A trust will specify exactly how and when assets will be passed. Most of the time trusts are used in an estate plan as a way to avoid probate and reduce taxes. Trusts can be used for asset protection in a divorce as well, but there are a few complications.
When a couple divorces, anything that is considered joint marital assets or property is typically divided by the laws of the state. A judge will determine what is fair to both parties. If a trust is set up prior to divorce, the terms and conditions of the trust must be written carefully so that the trust is not considered marital property. If the trust was set up prior to the marriage, the trust is typically considered separate as long as the funds are not combined with the joint marital assets at any point.
No one goes into a marriage thinking the marriage will end. However, when there are assets to be protected, careful planning can be the difference between keeping your trust and having it go into joint assets that will be subject to distribution by a judge. There is a difference between a revocable living trust and an irrevocable trust, and this can make a big difference in how your trust will be treated in case of a divorce.
Living trusts come in two forms:
An irrevocable trust won’t automatically protect your assets in case of divorce, but if the trust was formed prior to the marriage, the funds will be considered separate property. If the trust was established during the marriage, you may need to prove that it was created with the purpose of keeping assets separated.
When protecting your assets using a trust, you will need to make sure you have a will and trust attorney that understands your full situation. A good attorney will use effective estate planning techniques that will be tailored to your specific situation and concerns.
When it comes to protecting your assets, especially during a divorce, you will need professional guidance and support. Finding an attorney you can trust is the right way to start. If you have questions about your will or trust, or are interested in planning one, contact my office today.