Trusts are a useful way to safeguard assets and avoid probate. However, when a married couple divorces, Oklahoma law empowers judges to open up a trust and divide the assets if the trust was established during the marriage with marital property. Knowing how trust property will be treated during property division, as well as how income generated from a trust can be used in calculating support, will help eliminate some of the uncertainty in the Oklahoma divorce process.
Overview of Trusts
A trust is a legal arrangement in which a trustee holds property on behalf of a named beneficiary or beneficiaries. A trust is funded by transferring ownership of personal property, real estate, business interests, stocks, bonds or intellectual property to the trust. Oklahoma recognizes two types of trusts, revocable and irrevocable. The former may be withdrawn or modified by its creator at any time, while the latter may not be modified or withdrawn. In the marriage context, it is not uncommon for a spouse to be the creator, trustee and beneficiary of a trust.
Overview of Property Division
Property owned by a married couple must be divided as part of every divorce in Oklahoma. As an initial matter, the property must be classified as either marital or separate. Property acquired during the marriage, regardless of who holds title, is typically considered marital property, and all property acquired before the marriage is considered separate. Marital property is generally subject to division, unless you can prove that you and your spouse intended it to be separate property. Once the court determines the property to include in the marital estate, it will be divided on the basis of fairness, taking into account both monetary and non-monetary contributions to the marriage, such as services as a homemaker.
If you establish a trust before your marriage, it will be considered separate property and not subject to division in Oklahoma. If the trust was created during the marriage, it will most likely be treated as marital property and subject to division. However, if you can show that the trust was created with separate property, it will not be part of the marital estate. For example, a court may be persuaded to deem a trust separate property if you can offer evidence that the trust was funded by separate property funds held in a separate account, even if contributed during the marriage. Further, because Oklahoma recognizes prenuptial agreements, if the trust is covered by an agreement, its assets will not be divided regardless of when the trust was created. Additional complications can arise if jointly acquired property is added to a trust created before the marriage. In this case, absent specific evidence that the parties intended it to remain separate, those assets will be considered marital property.
While your trust may be exempt from the property division aspect of an Oklahoma divorce, income received from the trust may still play a role in calculating spousal support and child support. Courts in Oklahoma have held that even in cases where money generated from a trust is your only source of income, you may be ordered to support your former spouse with a portion of those funds. In addition, for the purposes of computing a child support payment amount, income received from trusts is expressly included in the definition of gross income and will form the basis for your obligation.