If you are the beneficiary of a trust and going through a divorce, you are likely concerned with how the trust is going to impact the final distribution of assets between you and your spouse. When couples divorce in Connecticut and New York, their marital assets are subject to an equitable distribution. This means the court will divide them fairly, not necessarily equally, by considering various factors. To understand how your trust will be treated in divorce, several key questions must be answered.
Who Created the Trust?
Often, a trust is created by one spouse to protect separate assets, particularly in second marriages. In some families, trusts may also be established to ensure that the family wealth is passed on to lineal descendants and not lost in divorce.
Are You the Only Beneficiary of the Trust?
The existence of other beneficiaries of the trust may affect whether the court considers it marital property and to what extent. The more beneficiaries there are, the less likely the trust is going to be divided in a divorce as the beneficiary spouse is only entitled to a portion of the trust.
What Rights Do You Have Under the Terms of the Trust?
A court will examine your rights to income and principal and the amount of control you have over the trust. Generally, the less control you have, and the less right to guaranteed distributions, the smaller the role the trust will play in your divorce.
Did You Use Funds from the Trust During the Marriage?
Does the trust beneficiary spouse regularly use funds from the trust to fund a lavish lifestyle? Was the marital home purchased with funds from the trust? The more trust funds are used for marital assets, and to fund the marital lifestyle, the more likely it is that a judge will consider the trust assets when dividing property in a divorce.
Does Your Trust Contain a Spendthrift Provision?
A spendthrift provision in a trust prohibits a beneficiary from assigning their interest in the trust to a third party. This means that a creditor cannot force a beneficiary of a trust to assign to them their interest in the trust. In the context of divorce, this means that the court cannot force the beneficiary spouse to assign some portion of the trust directly to the non-beneficiary spouse. However, certain creditors, such as a spouse or child with a valid order for child support, may be able to access trust funds irrespective of the spendthrift provision.
Will Your Trust Be Divided in a Divorce?
An experienced attorney can analyze the terms of the trust that you are a beneficiary of and advise you on what a court would likely decide. Unless the trust is the result of a fraudulent conveyance, the principal of the trust is not likely to be divided in the event of a divorce. However, depending on the answers to the questions above, the trust assets, particularly the trust income, may be taken into consideration by a court when dividing the marital assets or assigning alimony or child support.
Our attorneys are well-versed in the many different types of trusts and how they can impact divorce. We frequently counsel clients and their matrimonial attorneys concerning prenuptial agreements, trusts, and other estate planning devices to preserve assets.
If you are considering the best way to protect separate property and income, contact us for a consultation.