Some divorcing couples have very little property or debt to address. Others have complicated financial circumstances that require careful planning. Spouses who have enjoyed higher levels of income during their marriages tend to have more thorough financial plans in place.
For example, they may have established a trust as a way of providing for their children or protecting certain resources from lawsuits and other legal concerns. Trusts can be very useful for the people who create them, but they can also add a degree of uncertainty to divorce proceedings.
What typically happens with a trust during a divorce involving a complex marital estate?
The type of trust determines what transpires
There are many different types of trusts, but people largely group them into two main categories. Revocable trusts are trusts that people can continue to modify or adjust after their initial creation. Their flexibility is valuable, but they offer limited protection because the trustors can still modify them.
Irrevocable trusts are not subject to adjustment after their creation regardless of the circumstances. The only real exception involves the fraudulent creation of a trust without proper disclosures to the other spouse.
If spouses created a revocable trust, they may be able to dissolve the trust as part of the divorce process. If they created an irrevocable trust, they generally cannot regain control over the assets used to fund that trust. They may have to discuss the value of those resources and factor the trust into the broader property division process.
Couples who started trusts to provide support to others, such as a child with special needs or a charitable cause, may feel comfortable allowing a trust to persist after a divorce. Other times, when the goal of the trust relates to asset protection or accessing support for long-term care, there may be more concern about the resources used to fund the trust.
Discussing the intent behind the trust and the type of trust formed with a skilled legal team can help people choose the most reasonable solution for an existing trust during a divorce. Properly addressing complex resources can help spouses secure a fair property division outcome and prepare to move on financially after the end of a marriage.