Property Division in a Divorce Affects Property Held in Trust

Trusts and DivorceFinancial trusts are one of the most complicated aspects of property division during divorce. Trusts can be used for asset protection, gifting, tax sheltering, protection from creditors, and more. When you go through a divorce, you must analyze all of your assets, including property held in trust, or corpus. This is true whether you or your spouse is a trust beneficiary or whether you or your spouse created a trust (settlor). Because trusts are such a complex area of the law that involves estate planning and divorce statutes, it is highly recommended to discuss trusts and divorce in Gwinnett County with an attorney.

If and how divorce affects property held in trust depends on when the trust was created, whether the property in the trust is considered marital or separate, how the funds are to be used, and who controls the funds.

What Type Of Property Is in the Trust?

The first thing the courts will look at when determining how to handle a trust during a divorce is the nature of the property held in the trust. Georgia is an equitable distribution state, which means that all property acquired during the marriage is subject to division during divorce. Property that either spouse owned prior to marriage is considered separate property and not subject to division.

Trusts created prior to marriage are generally considered separate property and not subject to division. However, in some circumstances, income a spouse beneficiary may receive from a trust may be used when determining child support and alimony.

Property Held in a Trust May Be Protected

Each state provides different laws regarding trusts and asset division during dissolution. Generally, though, gifts and inheritances are sheltered from equitable distribution. If you are the beneficiary of a trust that was created as a gift or inheritance, the assets within the trust are usually considered separate property and are safe from division.

Determining the Type of Trust

If the trust contains marital property, the next step when discerning how a trust will be handled during a divorce is to determine what type of trust it is. There are dozens of kinds of trusts, but generally, they will fall under one of the two following categories.

  • Revocable trusts. With a revocable trust, the settlor can modify or dissolve the trust at any time, and the beneficiaries have no control over the assets. If you or your spouse are the settlor of a revocable trust because you still maintain control of the assets, the corpus likely will be subject to division or used when determining income. Conversely, because beneficiaries have no control over the funds that can be shut off at any time, if you or your spouse is the beneficiary of a revocable trust, the corpus may not be subject to division.
  • Irrevocable trusts. With an irrevocable trust, the reverse is true: The settlor cannot revoke the trust, and the beneficiaries have an enforceable entitlement to the funds. Because the property within an irrevocable trust is no longer the settlor’s, it is generally not considered property during a divorce. The opposite is true for beneficiaries. Because beneficiaries of irrevocable trusts are legally entitled to the property, the corpus is considered subject to equitable distribution.

Get Legal Help for Asset Division, Trusts and Divorce in Gwinnett County

The complexities of asset division and trusts are beyond the scope of this article. We often have clients ask questions such as:

  • Can I make my husband use his trust funds to pay for child support or alimony?
  • What if I use my trust income for marital purchases?
  • Is the trust that we created for our children safe from division?
  • Will the courts consider my future income from a trust when determining how much alimony I receive?

In addition to a divorce attorney, an asset planning and estate planning specialist may be needed to answer questions like these and determine how best to handle trusts during a divorce. If you are going through a divorce in Gwinnett County, we can help you will all aspects of your property division, including trusts. Contact the Ward Law Firm today and schedule a free initial consultation to discuss your case: 770-383-1973 or fill out our online contact form.