- June 27, 2022
- CLLB Law
- Estate Planning
A divorce will impact more than just your children and spouse. It may also impact your estate plan.
Before or during your marriage, you may have to revise your will or even divide your trusts and assets. But what happens to a trust when you divorce?
Remember, having a trust is beneficial for many reasons. It can protect assets from taxes and other issues; however, some issues may arise if you plan to get a divorce. Knowing your rights and the laws regarding property division for trusts is helpful. Using the services of an attorney will ensure that you make the right decisions regarding the trust and asset division.
How Does the Court Classify Trust Property?
There’s a good chance you created a living trust to avoid going through probate. You may have had no idea that you would be getting married, let alone divorced. With a trust, there may be property that your spouse is partially entitled to when you file for divorce.
When you divorce, the property that you and your spouse own will be either “marital property” or “separate property.” Marital property will include everything that you and your spouse earned or acquired while you were married, regardless of whose name it is in.
For separate property, though, these are assets that belong only to you or to your spouse. This includes property that you owned, only in your name, before you married. It also includes inheritances and gifts. In Indiana, separate property only remains separate through a prenuptial agreement. In Kentucky, a prenuptial agreement is not required in order to argue that an item is separate.
If you have marital property in your trust, then your spouse will probably have rights to half of what is in it. The trust itself may also be marital property if it was set up with your spouse and includes marital property. In this situation, the trust will have to be dissolved, and then the assets that it contains should be divided evenly between you and your spouse.
Revocable vs. Irrevocable Trusts
The right your spouse has to assets in a trust also depends on whether the trust is revocable or irrevocable. If you have a revocable trust, it’s possible to name yourself as the beneficiary or trustee. Because of this, you can control the assets in the trust. It’s also possible to make other modifications to your trust or to dissolve it at any point in your life.
If you have an irrevocable living trust, you don’t have this level of control over the assets in the trust. You also can’t name yourself the trustee. Nor can you make any changes to the distributions or beneficiaries after the trust is established.
For revocable living trusts, it’s possible to change or even undo them during your divorce. For an irrevocable living trust, it will probably stay unchanged. Since the assets don’t legally belong to you or to your spouse, the assets will stay inside the trust for the benefit of your beneficiaries.
How Trusts Impact Asset Separation During Your Divorce
Even if a revocable living trust is not considered marital property, it will still impact your divorce settlement. Your revocable living trust’s value will determine what you pay in child support and maintenance. This specifically applies to a situation where your spouse doesn’t have many assets or they earn a low income. If you are named as the beneficiary for a larger trust that you established, then your spouse will be given a larger portion of the marital assets in many cases.
For an uncontested divorce, the asset division process may be simple, because you won’t have to worry about involving the court in the divorce settlement. It’s possible for you and your spouse to divide your assets together, which will help you determine the fate of the trust in question.
What if There’s No Change to Your Living Trust During a Divorce?
If you don’t modify the living trust you have established, then in a divorce, there may not be too much to deal with or worry about. Divorce judgments will usually cancel any type of distribution or gifts that were given to your ex-spouse in the trust. In this case, your ex-spouse will benefit only if there is some type of convincing and clear evidence that you intended them to benefit.
Work with an Attorney for Help with Dealing with Asset Division and Trusts in a Divorce
When going through a divorce, there are a lot of complicated issues you must deal with. Having an attorney on your side who understands the law is essential. This legal professional will help you get the desired outcome for your case and minimize the issues that you must deal with.
Remember, trusts are unique entities in your estate plan. Because of this, several factors must be considered and dealt with. Working with an attorney will be the best way to ensure that your rights are protected and minimize issues related to asset division.
You may wonder why you need an attorney if the law is clear regarding what will happen to the trust in the divorce. Unfortunately, there are always issues and situations that you must consider and deal with. Because of this, it’s a good idea to get in touch with an attorney who can review your situation and help you make smart decisions regarding your divorce, trust, and other marital assets. While divorce can be a confusing and overwhelming process, with the help of our legal team, you can understand your rights.
A good first step is to get in touch with our legal team by calling (812) 725-8224. We can look into your situation and help you develop a plan that will protect your rights and ensure that you get the assets you are entitled to in the divorce.