What are Spouses' Rights in Divorce Regarding Beneficiary Revocable Trust?

By Wayne Thomas

The property division aspect of every divorce is governed by state law. In cases where parties cannot come to agreement, the court will distribute all of the assets deemed marital property. Determining whether a spouse has a claim to a revocable trust depends on when it was established and what property was used to fund the trust.

The property division aspect of every divorce is governed by state law. In cases where parties cannot come to agreement, the court will distribute all of the assets deemed marital property. Determining whether a spouse has a claim to a revocable trust depends on when it was established and what property was used to fund the trust.

Overview of Property Division

When a couple cannot come to agreement on how property should be distributed in divorce, the court will decide. Some states divide the property equally while others do so on the basis of fairness, taking into account individual contributions to the marriage. However, as a preliminary matter, all property owned by the couple must be classified as marital or separate. Property considered marital property is subject to division, and generally includes all assets acquired during the marriage that were not obtained by gift or inheritance. All other property is deemed separate and not subject to division.

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Revocable Trust

A revocable trust is a trust that may be withdrawn or changed by the person who created it, often referred to as a grantor or settlor. This differs from an irrevocable trust in which the grantor cannot change or withdraw the trust after its creation. The revocable trust is funded by property deposited by the grantor, who also appoints a trustee to administer the funds and distribute assets to beneficiaries according to the terms of the trust. It is not uncommon in the marriage context for the grantor and his spouse to be beneficiaries under the trust.

Timing

While a revocable trust unquestionably qualifies as marital property, the timing of its creation becomes pivotal in determining whether it is subject to division. If the trust is created during the marriage, most states will treat it as marital property, unless you can prove that you and your spouse intended it to be separate. This might be established by evidence that you and your spouse kept all of your assets in separate accounts, or if you executed a prenuptial agreement covering the property used to fund the trust.

Additional Considerations

It may be the case that your spouse was listed as a beneficiary when the trust was created. Some states have addressed this issue by enacting specific legislation that automatically rewrites the trust instrument removing this designation after divorce. However, if you are also named as a beneficiary, money you receive as interest on the trust funds may be considered income for the purposes of child support and alimony, depending on the state. This means that although your spouse is no longer a beneficiary, a judge could award a portion of your trust income to her after considering the needs of everyone involved and the standard of living enjoyed during the marriage, among other factors.

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Trust Money Divorce in Florida

References

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Revocable Trusts & Divorce

Revocable trusts are arrangements in which the maker of the trust, called the settlor, transfers property to another person to hold for the benefit of a beneficiary, but retains the right to revoke the trust and pull the property back into his own estate. While advantageous in terms of avoiding probate--and keeping irresponsible beneficiaries from wasting trust property--revocable trusts can create complications in divorce cases for settlors and beneficiaries.

The Oklahoma Trust Assets in Divorce

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.

What Is a Non Testamentary Trust?

A trust is a legal document that allows a trustee to hold property for the benefit of others, known as beneficiaries. Trusts are created when a grantor or settlor asks the trustee, which can be a company or a person, to hold and distribute money or property to beneficiaries. The grantor names beneficiaries in the trust documents, and the money and property in the trust will be distributed based on the grantor’s instructions. For example, a grantor can designate that no money is to be distributed to beneficiaries unless it relates to their health, education or welfare. Trusts typically fall into one of two large categories: testamentary and non-testamentary trusts.

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