What Happens to a Family Trust in a Divorce?

What Happens to a Family Trust in a Divorce?

Estate planning is relatively straightforward when you are happily married. You might have formed a will and/or trust to ensure your spouse, children, and other loved ones continue to receive the funds and care they need when you pass away.

As we know, however, life changes frequently and unexpectedly. If you are now considering divorce, you may be wondering how it will affect your family trust and other legal structures.

Generally, two main factors will dictate the division of property within a trust during a divorce:

  1. Property within the trust (i.e., community property vs. separate property); and
  2. The type of trust (i.e., revocable vs. irrevocable).

The following is a little more detail about each of these two factors.

Property Within the Trust

California is a community property state. In other words, all properties and debts acquired during a marriage are considered community property, meaning they are equally owned by both spouses. Separate property is anything that was acquired before the marriage or was gifted to/inherited by only one spouse during the marriage.

In a divorce in California, therefore, the judge will likely divide community property equally between the two divorcees. Separate property will remain the property of the person who originally owned it.

Because a family trust may contain both community and separate property, the court will simply divide the property accordingly.

The Type of Trust

Generally, trusts are either revocable or irrevocable. When you create a revocable trust, you have the power to change or even revoke it at any point in your lifetime. An irrevocable trust, on the other hand, is unchangeable.

So, in order for a court to divide the property in a family trust between two divorcees, the trust must be revocable. The divorce settlement can involve changing the terms of the trust, removing the assets, or dissolving the trust entirely. If the trust is irrevocable, however, the couple’s divorce will not change it in any way, and both people can continue to access and receive funds according to the terms of the trust—even when they are no longer married.

Effectively Navigating the Lifelong Estate Planning Process

No one marries with the intention of one day separating from their partner, and divorce is just one of the many reasons why estate planning is an ongoing process. All sorts of personal, financial, and legal challenges may arise in our lifetimes, and we need to adjust our wills and trusts accordingly.

When you bring your case to the Law Offices of Jeffrey S. Graff, I can take the time to answer all your questions and help you assess your options. Family law and estate planning are closely-related legal areas, and I can use my 35+ years of experience to help you navigate this terrain and protect your best interests.

Let’s begin with a complimentary case evaluation. Call (805) 633-4999 or fill out an online contact form to schedule yours today.

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