Are You Able to Protect Assets in a Divorce with a Trust?
Many people create trusts for different purposes, including avoiding probate or having greater control over the distribution of your property and assets. Trusts can also help protect assets for the purposes of federal benefits or against taxes. If you are getting married or ending a marriage, you might wonder whether a trust will help you protect your assets from your former spouse in a divorce judgment.
How Trusts Work
Trusts are legal arrangements in which a fiduciary holds, manages, and distributes assets for the trust creator. This fiduciary is called a trustee and can be the creator themselves or a designated successor trustee. Trusts can hold assets, real property, and more. Trust creators can create a trust document with specific instructions for how they want the trust property to be distributed to named beneficiaries.
Divorce and Trust Assets
While trusts are most commonly associated with estate planning, they can also be useful to protect assets in a divorce. When spouses in California divorce, they are required to divide all community property - which is property acquired during marriage - equally. Property that individual spouses brought into the marriage, or inheritances and gifts kept separate on only one spouse’s name, will be retained by the owner-spouse and do not have to be divided.
In some situations, a trust can be created carefully to establish that trust property and assets will be considered to be separate property in a divorce. If one spouse created a trust before they got married and were careful not to commingle trust property with community property, those assets will generally be considered to be separate property in a divorce. This means that the spouse who established the trust can retain all assets in the trust following a divorce.
Further, if someone is named as a beneficiary of a trust, it can work to protect assets. For example, a trust document might prevent the beneficiary from demanding trust distributions when they wish. Because they cannot access this property on demand, those assets are not considered to be the beneficiary’s assets. This means it would be not be considered as part of their property for the purposes of community property division in a divorce.
If you are considering asset protection in a possible divorce when creating a trust - whether it might be you or a beneficiary getting divorced - it is important to carefully plan and consider how certain terms of the trust can best work to protect assets from a former spouse. This is best accomplished with the help of an experienced estate planning lawyer who understands how to strategize for asset protection.
Consult with an Experienced Santa Ana Estate Planning Attorney
At the Law Offices of Roshni T. Desai, we recognize all the ways that trusts can protect your estate or your beneficiaries. If you have any questions about trusts and divorce - or any other estate planning matters - please contact us online or call 714-694-1200 today to speak with our legal team.