Divorce proceedings can be emotionally challenging, and when property trusts are involved, the complexities can multiply. The question on many minds is, “Is my property in trust subject to division in my divorce?” The answer is not a straightforward yes or no. It depends on various factors, including your role as either the beneficiary or the settlor of the trust. In this guide, we’ll explore the nuances of property trusts in divorce and provide insights into safeguarding your assets.
Understanding Trusts in Divorce: Property trusts are primarily designed to protect assets, whether from probate or estate taxes after death. However, their protection might extend to divorce scenarios, but this is not guaranteed. Whether your trust becomes a part of the divorce settlement hinges largely on your role within the trust—beneficiary or settlor.
The Beneficiary’s Perspective: As a beneficiary, your position concerning the trust in your divorce is distinct. It’s imperative to be transparent and not attempt to conceal trust assets, as such actions can adversely impact the settlement outcome, potentially resulting in reduced assets.
Is the Trust Marital Property if I’m the Settlor? If you are the settlor of the trust and it contains any marital assets, those assets will typically be classified as marital property and become part of the overall asset division. However, the classification depends on the type of trust you’ve established:
- Irrevocable Trust: In this type of trust, the assets are irreversible and automatically pass to the beneficiary upon your death, remaining unaffected by divorce.
- Revocable Trust: This trust can be altered, either by your decision or through a court order. Assets from such trusts can be included in the divorce settlement if they are considered marital property.
The Prenuptial Perspective: If your trust was established before your marriage and kept separate from marital assets, it is less likely to be involved in the divorce proceedings. Your ex-partner typically has no claim to the contents of the trust in such cases.
Safeguarding Your Trust: Keeping your trust safe during divorce proceedings, whether you’re the beneficiary or settlor, hinges on maintaining a clear separation from marital property, including funds. The court will consider various factors, including financial responsibilities, age, disabilities, contributions to the family, and the marriage’s duration. If your trust is nuptial, it may be subject to division.
Minimizing the Risk: To reduce the risk of your trust becoming a marital asset, consider these proactive steps, although they should be implemented before divorce proceedings begin:
- Establish a discretionary trust for added protection.
- Appoint trustees separate from beneficiaries who can act impartially.
- Avoid categorizing it as a nuptial settlement and maintain a clear separation from marital assets.
- Maintain transparency by disclosing trust values to the court.
While a 50:50 split is often the fairest approach, open communication and cooperation with your ex-partner can lead to a smoother process. If you’re planning to sell your family home and navigate the divorce process efficiently, consider seeking a free property offer today.