Irrevocable Trusts and Your Assets in a Divorce

November 10, 2018 in Uncategorized | MARTIN WREN, P.C. | LEAVE A COMMENT

Estate Planning

Something that comes to everyone’s mind when they think about divorce is the separating of assets. While judges most likely will distribute a couple’s assets based on fairness or equally, having a carefully worded and timed irrevocable trust could shield your property from having to be divided. However, if you are receiving any income from the trust, that money could be used to calculate alimony or child support. It is important to speak with an experienced estate planning attorney to help create an irrevocable trust to help protect your issues.

Irrevocable Trust Overview

Once an irrevocable trust has been created, the creator of the trust is not able to change or revoke the trust. What this means is that any property put in the trust is the sole property of the trust and is no longer a possession of the trust’s creator. There are tax advantages in this type of trust and this trust protects assets from any creditors. When dealing with a divorce, the property in an irrevocable trust could be subjected to division between you and your future ex-spouse depending on if the trust was created before or during the marriage.

What is Classified as Property of a Trust?

If the irrevocable trust was created prior to your marriage, many states will view the assets as completely separate property and will not subject them to being divided. If the trust was established while you were married, many states believe that it will be able to be divided unless it can be proved that it was created with the intent to keep it completely separate. However, proving that an irrevocable trust was created to be separate can be very tough, especially if throughout the marriage there was a commingling of each other’s assets, for instance, if money from a joint bank account was placed in the trust.

Fraudulent Conveyance

It can be even more difficult to show that your irrevocable trust was intended to be separate, if it was created after your marriage starts developing problems. Many courts will say that the person who created the irrevocable trust only created the trust to limit the assets that are available for divorce and therefore reducing your spouse’s fair share. This is known as fraudulent conveyance. An example of this would be if you were worried that a large majority of your assets will go to your spouse because you committed adultery. In order to prevent this from happening, you move everything into an irrevocable trust for the benefit of your parents. A court would be able to void this transfer and end the trust.

Irrevocable Trusts and Support

You may be able to protect your assets from the division of divorce in an irrevocable trust, however, any income received from the trust is used to calculate child support and alimony. This means if there are large amounts of gains being created and paid out from the trust, your ex-spouse could be owed a portion of that money.

To ensure your property is protected if you are undergoing a divorce, it is recommended to work with an experienced estate planning attorney. A trust lawyer will work with you to find the proper solutions for your property to lessen the stress that you are already facing with your divorce.



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