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The idea of having a property in trust is to keep it safe, whether that be from probate or from estate taxes after death. But are they safe from a divorce?
It’s not a straight yes or no answer, unfortunately. Sometimes trusts can be completely separate from the divorce settlement, but it can equally be a huge part of the property division. It is massively dependant on whether you’re the beneficiary of the trust, or if you’re the settlor.
Whether you’re the beneficiary or the settlor, you need to ensure that you’re completely transparent and don’t try to hide the trust. If you’re found to be hiding assets, this could have a detrimental effect on the outcome of the settlement and mean that you receive less.
Is the trust marital property if I’m the settlor?
If you’re the settlor of the trust and there are any marital assets within the trust, it will count as marital property and so will usually be included in the division of your combined assets. However, this depends on what kind of trust you have set up-
Irrevocable trust- with this trust, it is irreversible. Your property will go to the beneficiary of your trust upon your death, and this cannot be changed even in the case of a divorce.
Revocable trust- this trust can be undone, whether that is decided by yourself or from a court order. In this kind of trust, the assets can be taken out of the trust and split in the divorce settlement if it is considered marital property.
My trust is premarital property
If the trust was set up before your marriage and was kept separate from any marital assets, it shouldn’t be involved in the divorce as your ex-partner doesn’t hold any right to the contents of the trust.
How do I keep my trust safe?
The most important thing to know about keeping your trust safe in a divorce, whether you’re the beneficiary or the settlor, is to keep it separate from marital property. That means having absolutely no involvement with any marital property, including funds. It is affected by the parties involved, as the courts will have to consider the financial stability of both parties, and other factors such as-
The financial responsibilities each party has, for example, children
Age of each party
Any form of disability, physical or mental
The contribution to the family, financial or otherwise
The length of the marriage.
Is the trust nuptial?
There will need to be a connection between your trust and your marriage for it to be considered nuptial, but it can sometimes be hard to prove that there is no connection. You are able to argue that it is not nuptial if;
It was set up by a previous generation
The purpose is to benefit future generations
It was set up before the marriage
It was created to lower inheritance tax
Is there a way to minimise the risk of the trust being involved in my divorce?
To ensure that your trust is not a marital asset, there are a few things you can do, but you’ll need to have done this from the start; you cannot implement these changes now you’re dealing with a divorce.
Make it a discretionary trust, which will add protection in the case of divorce
Have trustees in place that are separate from the beneficiaries that are impartial to add fairness
Avoid making it a nuptial settlement, do what you can to keep it separate from any marital asset, financial or otherwise
Be transparent with values of the trust to the court.
Overall, there are many factors when it comes to your assets during a divorce. Often, things are split 50:50, which is the fairest way, and if you’re able to do this with your ex-partner and keep things civil, it can potentially prevent other assets being scrutinised. If you’re looking to sell the family home and move on from the divorce quickly and tidily, get a free offer today.