Trusts and Divorce

Board Certified Family Law Specialist Matt Arnold answers the question: ” I’m considering separating from my spouse; what actions should I refrain from doing?”


No, we are not talking about trust, the bond of confidence between two people, we are instead talking about something a lot more tangible; trust funds, the popular estate planning vehicle used by more and more families every year. The dissolution of a marriage can impact nearly every aspect of your estate plan, including trusts. To understand more about what divorce might mean for your trust fund and how trust funds can prove helpful in the event of a split, keep reading.


Money-nest-Charlotte-Mooresville-Divorce-Lawyer-272x300What do trusts do?


Trusts are increasingly important estate planning tools and are used to accomplish a variety of objectives. One of the most common is for gifting. Trusts can be established as means of passing assets along to family members and other heirs, both while the benefactor is alive and after he or she is gone. Trusts can also be used to manage certain assets, as tax shelters and to protect money and property from the reach of creditors.


Trusts established prior to marriage


One way that trusts can be useful as it relates to divorce is that they can shield assets from being deemed common or marital property. A good way to ensure that assets or even a small business remains separate is to establish a trust prior to marriage and insert assets or property into that trust before saying your vows. Doing this does not require the permission of your future spouse, it can be done entirely on your own. Once the transfer occurs, the trust, not you, owns the items and the trust then shields those items from equitable distribution down the road if divorce ever does occur.


Trusts and alimony


Interestingly, trusts can also be used to shield assets for purposes of alimony and spousal maintenance. The rules vary from state to state, but in some places the fact that one party benefits from payments derived from a trust does not mean that those payments will be considered when calculating potential spousal support. A recent case in New Jersey dealt with exactly this issue, and the woman who was benefiting from a trust fund set up by her parents was not required to include amounts from the trust fund when calculating potential support owed to her former husband. The court concluded that the beneficiary, the wife, did not have the power to tap into the trust fund and thus this income could not be attributed to her for purposes of calculating spousal support.


Trusts established by others


The case mentioned above highlights another important role trusts can play in a divorce. Besides those trusts established by the parties to a divorce, trusts can also play an important role when they are created by family members, often parents, of the parties. The party married to the beneficiary of the trust may very well try to claim that he or she deserves payment from the trust, and that is something that careful estate planning is meant to avoid. Estate planning lawyers have to be very precise when drafting the language of trusts to be sure that the trust is not later categorized as marital property. Generally, assets placed into a trust before marriage are considered separate rather than marital property. One problem is when these funds are co-mingled with marital funds and it is important that beneficiaries avoid doing this.


Another important issue that can determine whether a trust is deemed marital property and thus taken into account during the equitable division process is whether or not the beneficiary is able to go to the trustee and demand a distribution of income or assets. If so, and if the trustee has easy access, then it is much more likely that the trust will be deemed a marital asset or at least something that can be taken into account while dividing up assets. The less access a person has, the more likely it is that the money will be seen as truly separate, as the beneficiary is truly a beneficiary and the money will not be seen as something he or she has access to.


If you find yourself facing a complicated family law matter, then you need the help of experienced family-law attorneys in Charlotte, North Carolina who can help guide you through the often confusing process of divorce. Please contact Arnold & Smith, PLLC today at (704) 370-2828 or find additional resources here.


About the Author:

ARNOLD & SMITH LAWMatthew Arnold is a Managing Member of Arnold & Smith, PLLC, where he focuses on the areas of family law, divorce, child custody, child support, alimony and equitable distribution.

Mr. Arnold was raised in Charlotte, where he graduated from Providence Senior High School. He attended Belmont Abbey College, where he graduated cum laude, before attending law school at the University of North Carolina at Chapel Hill on a full academic scholarship.

A certified Family-Law Specialist, Mr. Arnold is admitted to practice in all state and administrative courts in North Carolina, before the United States District Court for the Western District of North Carolina, and before the Fourth Circuit Court of Appeals in Richmond, Virginia.

In his free time, Mr. Arnold enjoys golfing and spending time with his wife and three children.





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