Aside from being used as an estate planning tool, trusts can be used for asset protection in divorce. If a spouse established a trust prior to the marriage, the assets placed in that trust are typically considered separate property as long as the funds are not combined with marital funds at any point.
How is a trust divided in a divorce?
In a divorce, the laws of equitable distribution distinguish marital property from separate property. Generally, trusts are considered the separate property of the beneficiary spouse and the assets in a trust are not subject to equitable distribution unless they contain marital property.
Can assets be divided before divorce?
The Family Law Act states that the division of assets in a divorce must be ‘just’ and ‘equitable’. Due to this, you should not assume that your assets will be split 50/50. This is because there is a lot to consider when it comes to dividing assets, including starting assets, current and past incomes, health and age.
What happens to trust fund in divorce?
Are the family trust’s assets considered ‘property’ in divorce proceedings? When two people divorce or a de facto couple separates, trust assets are generally not considered as part of the property ‘pool’ to be divided between them in any proceedings under the Family Law Act 1975.
What happens to a trust fund in a divorce?
A trust allows a person to manage their property and assets and ensures that said assets are distributed according to their wishes after their death. In order to understand how your trust fund will be affected in a divorce, it’s important to understand New York’s property division laws.
How to determine when trusts are property in a divorce?
When determining what property is divisible in divorce, a court decides whether an interest can be characterized as property, and then whether the property is separate or marital.2 A beneficiary spouse’s interest in a discretionary trust often fails to meet the first prong of the test.
What happens to a revocable trust in a divorce?
If a spouse established a revocable trust and funded it with assets that were marital property, regardless of who’s name is on the title, then it would be considered marital property. However, the assets of an irrevocable trust that are funded with the marital property might not be regarded as marital property in a divorce.
Can a trust be declared invalid in a divorce?
The settlor spouse must, however, be aware that the other spouse may argue that the settlor spouse has wrongly dissipated assets. If the court agrees, it may declare the settlor’s disposition of funds into a trust as invalid, resulting in the assets placed in the trust reverting back to the spouse.
