Trusts can be valuable and complex financial tools, but what happens to them when a marriage ends? At Sullivan Law & Associates, we understand that divorce, especially in high-profile cases, comes with unique challenges—one of which is determining how assets held in a trust are treated during the dissolution process.
If you’re facing a divorce and wondering how a trust will be handled, you’re not alone. Many individuals in California worry about the fate of their trust assets during a divorce. Will the trust be divided? Who gets to control it afterward? Do the terms of the trust matter? These are important—and often emotionally charged—questions. We’re here to provide the answers.
Understanding the Basics of Trusts in California
Before exploring how trusts are handled in divorce, it’s essential to understand what a trust is and how it works. A trust is a legal entity designed to hold and manage assets. It involves three main parties:
- Grantor (or Settlor): The person who creates the trust.
- Trustee: The individual or entity responsible for managing the trust’s assets.
- Beneficiaries: The individuals or entities who benefit from the trust’s assets.
Trusts can serve various purposes, such as protecting assets, minimizing tax liability, or ensuring financial security for beneficiaries. There are two primary types of trusts you might encounter during a divorce in California:
1. Revocable Trusts
A revocable trust can be altered, amended, or revoked by the grantor at any time during their lifetime. Assets in a revocable trust are typically considered part of the grantor’s estate, which could lead to complications in a divorce settlement.
2. Irrevocable Trusts
An irrevocable trust, on the other hand, cannot be changed after it is created (except in rare circumstances). Assets in this type of trust are usually considered separate property and may be shielded from division in a divorce, depending on the situation.
Key Factor #1: Is the Trust Community or Separate Property?
When determining what happens to a trust in divorce, California’s community property laws play a critical role. Under these laws, most assets acquired during the marriage are considered community property, which means they’re typically divided equally between spouses.
However, not all assets are treated equally in divorce proceedings. Assets placed in a trust can be classified as either community property or separate property depending on several factors, including when the trust was created and how it is funded.
Trusts Created Before the Marriage
If a spouse created or funded a trust before the marriage and did not use marital funds to contribute to it, the assets in the trust are generally considered separate property and not subject to division in the divorce.
Trusts Created During the Marriage
If a trust was created or funded during the marriage using community funds, the assets may be considered community property and included in the divorce settlement.
Commingling of Funds
One complicating factor is commingling. If separate property (like assets in a trust) is mixed with community property during the marriage, it can become challenging to distinguish between the two. For instance, depositing marital income into a trust that was established before the marriage could potentially convert it into community property.
Key Factor #2: The Trust’s Terms and Purpose
Next, the terms and purpose of the trust can significantly impact how it’s treated. Specific language within the trust document may dictate what happens to the trust’s assets in various scenarios, including divorce.
If you’re a beneficiary of a trust, for example, the trust may contain a spendthrift provision designed to protect the trust’s assets from creditors, divorce settlements, or other claims. While spendthrift protections aren’t foolproof, they can provide a critical layer of legal defense in certain cases.
Key Factor #3: Contributions from Marital Income
Even if a trust was initially funded with separate property, contributions made from marital income during the marriage can complicate matters. For instance, if one spouse uses income earned during the marriage to grow trust assets, those contributions may be considered community property, creating a need for further analysis and potential division.
How Sullivan Law & Associates Protects Your Interests
At Sullivan Law & Associates, we understand how high-profile divorces can expose even carefully structured trust arrangements to legal scrutiny. When dealing with trust assets in divorce, thorough and experienced legal representation is essential. Here’s how our firm can help you protect your interests during this challenging time.
1. Detailed Asset Analysis
We start by conducting a detailed analysis of the trust’s history, terms, and funding sources to determine whether the trust assets are separate or community property. This involves working closely with financial experts to understand how the trust was created, its purpose, and how it may be impacted by California law.
2. Documentation Review
Dividing trust assets often requires in-depth examination of financial records, trust agreements, and other key documents. Our attorneys will comb through every detail to ensure your rights are protected and help you reach a fair settlement.
3. Litigation and Negotiation Expertise
Divorce can be emotionally charged, particularly when it comes to dividing valuable assets like trust funds. We combine sharp litigation skills with tactful negotiation strategies, whether you’re fighting to preserve significant assets or coming to the table to discuss amicable resolutions.
Common Questions About Trusts in Divorce
Still have questions? You’re not alone. Here are answers to some of the most common concerns we hear regarding trusts and divorce in California.
Can a beneficiary lose their trust in a divorce?
It depends on the trust’s terms and whether its assets are classified as community property. In many cases, irrevocable trusts with specific protections can shield beneficiaries from losing their trust assets in a divorce.
What happens to our children’s trust?
If a trust was established for the benefit of your children (for example, a college savings trust), its assets are typically not subject to division. However, the terms of the trust may still be reviewed during the divorce process.
Can my ex-spouse access trust assets I created before the marriage?
Generally, trusts created and funded before the marriage remain the separate property of the grantor. However, if marital income or community property was used to grow the trust’s assets during the marriage, your ex-spouse may have a claim to a portion of those funds.
How can I protect my trust in case of divorce?
Pre- or postnuptial agreements are among the most effective tools for protecting trust assets during a divorce. A skilled attorney can help you draft an agreement that clearly outlines how trust assets should be treated in the event of marital dissolution.
Take the First Step Toward a Solution
Navigating the intersection of trusts and divorce is complicated—but you don’t have to face it alone. At Sullivan Law & Associates, we specialize in guiding high-net-worth individuals through the intricacies of California divorce law, providing trusted counsel from start to finish.
Whether you’re a grantor, trustee, or beneficiary, we’ll help you create a strategy tailored to your unique situation. With expertise, empathy, and a proven track record in high-profile cases, our team is here to protect what matters most to you.
Are you facing divorce and concerned about protecting your trust assets? Reach out to Sullivan Law & Associates today to schedule a confidential consultation. Contact us now and take the first step toward securing your future.