What Happens to a Living Trust in Divorce?
April 20, 2023
When it comes to divorce, the division of assets can be a complicated and emotional process. One question that often arises is, “What happens to a living trust in divorce?” The answer depends on the type of trust and whether it is revocable or irrevocable.
Our knowledgeable attorneys at Davidson Estate Law can explain what would happen to your living trust—or, more specifically, the assets held in the trust—during a divorce. We provide legal counsel to divorcing couples and individuals in Oakland, California, and surrounding areas, including Alameda, El Cerrito, San Francisco, Walnut Creek, Berkeley, and throughout the Bay Area.
Types of Living Trusts: Revocable & Irrevocable
There are two types of living trusts. A revocable living trust, also known as a living trust, is a trust that can be changed or revoked by the trustor (person who created the trust) during their lifetime. In other words, the trustor can make changes to the trust or even cancel it altogether. Revocable trusts are commonly used to avoid probate and provide flexibility to the trustor.
On the other hand, an irrevocable living trust is a trust that cannot be changed or revoked by the trustor once it is created. This type of trust is commonly used for estate planning purposes, as it can provide asset protection and potential tax benefits. However, irrevocable trusts are also more complicated to create and involve transferring ownership of assets to the trust itself.
How Are Irrevocable & Revocable Trusts Treated in a Divorce?
In general, irrevocable trusts are considered separate property and are not subject to division in a divorce. This means that if you or your ex-spouse has an irrevocable living trust, it will likely remain intact and unaffected by the divorce settlement. However, there may be exceptions if the trust was created during the marriage and funded with marital assets or if the trust was created with the intention of defrauding creditors or the other spouse.
It’s important to note that if you are going through a divorce and have an irrevocable trust, you should consult with an experienced attorney to ensure that your rights and interests are protected.
Unlike irrevocable trusts, revocable trusts are generally considered marital property and are subject to division in a divorce. This means that the assets held in a revocable trust may be divided between the spouses, depending on the terms of the divorce settlement.
For example, if the revocable trust was created during the marriage and funded with marital assets, both spouses may have a claim to a portion of the assets in the trust. However, if the trust was created before the marriage or with separate assets, it may be considered separate property and not subject to division.
The terms of the trust itself can also impact how it is treated in a divorce. For example, if the trust includes specific provisions regarding how the assets are to be distributed in the event of a divorce, those terms may take precedence over state law.
Living Trusts Created Before the Divorce
In general, there are two types of property that need to be addressed in a California divorce:
Community property refers to assets that were acquired during the marriage; and
Separate property refers to assets that were acquired before the marriage, gifts, or inheritance received during the marriage.
In most states, including California, community property is divided equally in a divorce. Because living trusts are often created when both spouses are still alive, certain assets in the trust may be classified as community property. In this situation, both spouses will have an equal right to those assets, and they will be split accordingly. In some cases, the divorcing couple may agree to divide certain assets unequally, but this agreement must be approved by a court.
Assets in a trust that are considered separate property generally belong to the original owner and are not subject to division in a divorce. However, if the assets in a trust are commingled with community property assets or used for the benefit of both spouses, then there could be arguments made that the assets should be considered community property. If the assets are classified as separate property, they may not be divided between the spouses in a divorce.
Turn to Knowledgeable Legal Advice
The treatment of a living trust in a divorce depends on the type of trust and the specific circumstances of the divorce. If you are going through a divorce and have a living trust, it’s important to consult with an experienced attorney to ensure that your rights and interests are protected during the division of assets. Reach out to Davidson Estate Law to get legal advice and discuss your particular situation.