Can a Husband Claim Rights to Your Trust Fund in Divorce?

By A.M. Hill

A trust fund is a legal entity created by the grantor for the financial benefit of another person, the beneficiary. The grantor funds the trust by placing assets in the trust's name. He also names a trustee who is responsible for overseeing the trust and distributing trust assets to the beneficiary according to the trust's terms. Generally, a spouse cannot claim rights to your trust fund in a divorce, but courts in some states have awarded trust fund assets to the non-beneficiary spouse under certain circumstances.

Community Property vs. Equitable Distribution

Marital property typically includes assets acquired during the marriage and separate property belongs exclusively to one spouse. Assets owned prior to marriage, gifts and inheritances received during the marriage and personal injury settlements are common examples of separate property. If you can prove that an asset is yours alone, your spouse has no claim to it. Marital assets, on the other hand, are divided between spouses. The majority of states divide marital property based on the principle of equitable distribution, which awards property fairly, if not always equally. The rest of the states are community property states and apply an equal division of assets.

All-Property States

A handful of states are all-property states. In other words, they consider everything owned by either spouse, both before and after the marriage, divisible upon divorce. In other words, all-property states make no distinction between marital and separate property; all property is fair game for division between the spouses. In Connecticut, for example, it does not matter when you acquired an asset or how you got it, the court has broad authority to consider any property or asset owned by either spouse, including a trust fund, available for division.

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Prenuptial Agreements

If you live in an all-property state, you can protect your separate property trust fund by entering into a prenuptial agreement with your spouse. A prenuptial agreement is a legal contract that determines how property will be divided if the marriage ends in divorce. To be valid, the prenuptial agreement must be entered into voluntarily and signed by both parties before marriage. Both parties must also make full financial disclosures to each other and give the other person the opportunity to consult with an attorney before signing.

Trusts and Commingling

If you live in a state that acknowledges separate property claims, you will have the opportunity to prove your trust fund belongs solely to you. But if you commingle, or mix, marital assets with separate trust property assets, the court may order you to give a portion of that money to your spouse. Therefore, if you funded your trust with separate money, you must be able to trace your contribution through receipts or other documentation that shows the source of separate funds.

Trust Funds and Support Payments

Whether your trust fund is a marital asset or your separate property, the court will include any income you earn from the trust as part of your total assets when calculating child and spousal support. If you are ordered to pay spousal support, also known as alimony, or child support, this can affect the amount of support you are ordered to pay. The same applies to the spousal support recipient -- the court will include trust fund income in the calculation of your total assets to determine if you need spousal support and how much.

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Difference Between Beneficiary Trust & Marital Trust


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How to Use a Trust for Asset Protection

As with other testamentary instruments, such as a will, trusts give clear directions on how to distribute property upon the happening of a specified event, for example, death. Trusts can also protect assets from creditors, depending on the type of trust you use. This occurs because property held in a trust is considered property of the trust. In other words, once you place property in the trust it is no longer yours; it belongs to the trust. Some limitations exist, however. For example, few states allow trusts for the sole purpose of asset protection. A basic understanding of trusts can help you determine the best type of trust to use in order to protect your assets.

How to Terminate Blind Trusts

A blind trust is a special type of trust where the beneficiaries are unaware of the trust's assets and a designated trustee has full authority to manage the trust, including the purchase, sale and exchange of its assets. Politicians and corporate officers often set up blind trusts to avoid conflicts of interest and public scrutiny. In some states, it is legal for a lottery winner to set up a blind trust so that he can anonymously claim his winnings. A trust creator, called the settlor, can set up his blind trust as either a revocable or irrevocable trust. If the blind trust is set up as a revocable trust, the settlor can terminate the trust by following the revocation procedure set forth in either the trust agreement or state statutes. While revoking an irrevocable trust is not always impossible, the process is difficult as it usually requires court approval and consent of all the trust beneficiaries. Common reasons a settlor may want to terminate his blind trust include a change in financial circumstances, unhappiness with the trust’s beneficiaries or desire to shelter trust assets from tax authorities.

How to Contest a Living Trust in Illinois

A living, or inter vivos, trust is created while the person donating trust property is alive. Trusts of this type are generally created as a means to avoid placing property in probate, which can delay the distribution of property to beneficiaries. In Illinois, you have six months from when a will is submitted to probate to formally contest a living trust.

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