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Divorce and Trusts: What Happens to the Assets?

Divorce and Trusts: What Happens to the Assets?

While many divorces are resolved amicably, this doesn’t mean that they aren’t complicated. For families of a high-net-worth, they can be particularly tricky as property across state lines, multiple houses, miscellaneous titles, and trusts can complicate the division of the assets.

When it comes to trusts and divorce, what happens to the assets placed in these trusts? Are they included in the division of property? How are they divided between the two spouses? 

When Were the Assets Placed in the Trust?

This is the central question around every trust and property division process during a divorce. If the trust was created before the marriage, this property is generally treated as separate from the rest of the property. This is because the assets were placed in a trust that likely makes the trust, not the spouse, the owner of the property. This shelters the property in the trust from being included in the division of assets. Many people place financial portfolios into trusts that will accumulate interest as the years go by. It is important for everyone to remember that the interest gained on this portfolio, even during marriage, is also treated as separate property. This can significantly shift the balance of property as the divorce proceeding move forward.

What if the Trust Was Created After Marriage?

If the trust was set up after marriage, it may be a different story. Many couples create trusts that serve as a way to pass inheritance down to children and other beneficiaries while circumventing the estate tax. If this trust was set up after the marriage was signed, it likely has the names of both spouses on the trust. This means that this property will be considered as marital property when it comes time to divide the assets. If the trust was set up after marriage yet has the name of only one spouse on the title, the handling of this situation will vary from state to state.

Who Benefits From the Assets?

During complicated situations like the one discussed above, the judge is going to ask who benefits from the trust the most. If one spouse benefits from the trust more than the other, the judge could weigh this asset more heavily against the spouse who benefits more. This is because the ultimate goal is to split the property, and the benefits, evenly. Therefore, it is important to think about who is benefiting from the appreciation of the assets in the trust the most. This will play a role in any potential alimony discussion as well.

Obviously, families of a high-net-worth have numerous issues complicating the divorce proceedings, especially when they have assets placed in a trust. For this reason, it is essential for everyone to contact an experienced divorce lawyer that can help make this transition as smooth as possible. 

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