Trust Considerations in a Divorce

 Trusts are sometimes created with separate property in contemplation of marriage, to protect assets, businesses, and other property. In other cases, divorcing parties have accumulated property and other forms of wealth in a trust during a long-term marriage.  These circumstances can raise issues in a divorce, including if the trust is revocable or irrevocable and if a transmutation of assets has occurred for purposes of community property characterization.
An irrevocable trust is when the trust assets, and their control, has been transferred to a trustee for the benefit of named beneficiaries.  This type of trust typically cannot be changed during a divorce. However, if the trust no longer reflects the parties’ intentions, it will have to be modified with the Court’s approval, and with notice to all affected parties.  This may be done, for example, if one of the parties to the divorce has access to trust assets, and there is evidence that the party is likely to abuse this access.
If the trust is revocable, the divorcing parties can generally revoke or modify any of the interests created by the original trust.  Generally, the parties may amend the trust with new or different terms, to reflect their changed circumstances and intentions.  If the trust is dissolved, the assets must be listed in each party’s declaration of disclosure.
Issues of transmutation of property may also arise. In California, in the absence of fraud, spouses may agree in writing to the transmutation of separate property into community property, or from community property into separate property. No consideration is required, only an “express declaration” of intent by the spouse whose interest is adversely affected.  In some cases, the transfer of property into a revocable trust may be effective as a transmutation of separate property into community property, so long as the trust instrument contains a satisfactory “express declaration” of intent.
This is not an exhaustive list of possible trust-related scenarios. An experienced family law firm, in consultation with tax and estate planning professionals, can help protect you and find the best solution for your needs.
For more information on family law matters contact The Reape-Rickett Law Firm at 661-288-1000.