Our attorneys are regularly called upon to counsel high net worth clients concerning the treatment of trusts in divorce. This can include trusts created for the benefit of a spouse by a third party (i.e., by a parent of a spouse before or during the marriage), and trusts created by either spouse during the marriage.
Start With the Terms of the Trusts
The primary issues to be considered during divorce are whether the trust can be considered marital property and whether the income or distributions can be considered as income available for support.
While the answers to these questions can vary from state to state, the first step in all jurisdictions will be a thorough review of the trust terms. The trust instruments must be evaluated with a particular focus on the rights, powers, and benefits possessed by either spouse. Of course, you will also need to consider the nature of the trust assets, the identity of the trustees, and the applicable standards for distribution.
Are Trusts Considered Marital Property or Available for Support?
Many people start by asking whether a trust interest is marital or separate property. This misses the primary first question – namely, whether the interest is a property right at all. This is a substantial distinction as many jurisdictions will consider separate property interests for a variety of claims in a divorce. For example, even if the property itself is not marital under a particular state’s laws, the increase in value of separate property may be subject to equitable distribution. Likewise, income from separate property may be considered for the purpose of support. Thus, while many jurisdictions do recognize certain protections for separate property, the protections are not absolute.
On the other hand, the potential protection for trust interests is far more broad, as the assets of the trust depending on the facts of the particular matter may not be available for consideration for any purpose, meaning the assets may not be available for any claimed increase in value or for a claim for support.
There may be additional considerations based on the terms of the trust and whether the trust was created by a spouse during marriage, or on behalf of a spouse by a third party.
With So Many Uncertainties, Legal Counsel Is Key
If you would like some guidance about how a trust in a divorce would be handled in your state, contact an attorney at Skoloff and Wolfe, P.C. today. Our team has extensive experience in all areas of Family and Matrimonial Law.
