Can a Spouse Take Ownership of a Property in a Trust in a Divorce?

By Brette Sember, J.D.

Can a Spouse Take Ownership of a Property in a Trust in a Divorce?

By Brette Sember, J.D.

When you're getting a divorce, there are a lot of assets to be divided. One asset might be a trust, which is an estate-planning tool that handles how property is owned during life and distributed after death. Trusts can be revocable (meaning you can make changes to them) or irrevocable (unable to be changed). The type of trust and its provisions impact how a trust is treated in a divorce. The type of property and when it is placed in the trust also impacts how assets will be distributed.

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Premarital Property in a Trust

Premarital property refers to assets owned by a spouse before the marriage. With some exceptions, premarital property is generally not subject to division in a divorce, even if it is placed in a trust, meaning a spouse would have no rights to it. To further protect premarital assets , the trust could be formed as a domestic asset protection trust (DAPT). The person creating the trust, known as the grantor, names himself as the beneficiary. However, a DAPT, which is irrevocable and protects the assets in it from creditors, is not valid in every state, so check your state laws.

Marital Property in a Trust

Marital property is property that was earned, obtained, or received during the marriage. Exceptions include gifts or personal injury settlements or awards. If marital property is placed in an irrevocable trust, that trust cannot be changed and the assets in it cannot be removed and divided in the divorce. The trust assets remain in the trust until after the death of the grantor, when they are distributed to the beneficiaries in accordance with the trust's terms. If marital assets are placed into a revocable trust—including a living trust, which is the common type of trust—then those assets can be removed and divided in the divorce.

Trust Beneficiaries

Another situation to consider is if a spouse is the beneficiary of a trust. For example, a parent may set up a trust and name her child as a beneficiary. Whether the assets in that trust can be affected by the divorce depend on the type of trust and the language used in it.

Spendthrift clause. A spendthrift clause can offer some protection to the beneficiary by allowing the grantor to determine who will receive the trust property. The grantor can specifically say the assets go to the beneficiary and not to his spouse or creditors. In some states, such as Massachusetts, the beneficiary's spouse may be able to access some of the trust income, so it does not provide complete protection.

Discretionary trust. A discretionary trust gives the person managing the trust, known as a trustee, the ultimate authority to decide when, if, and how to make distributions to the beneficiaries. The trustee decides the amount of distributions and when to make them, and the assets remain in the trust until the trustee decides to distribute them. Because the assets in the trust continue to be owned by the trust, they cannot be accessed in the divorce.

The key to protecting marital assets in a divorce is to create an irrevocable trust. Assets that are not owned or controlled by a spouse cannot be subject to division in a divorce. Distributions from a trust of which you are a beneficiary can be protected if the proper language is used.

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