Can a Trust Protect My Assets in a Divorce?

Divorcing can be incredibly hard on your finances. In addition to the cost of the divorce itself, you and your former spouse must split your assets. The property division process can be incredibly complicated. It can also be a very difficult process emotionally.

Many clients are concerned about how their divorce will affect their financial stability now and in the future. We are often asked how someone can protect their assets during a divorce and whether a trust provides any protections.

How State Divorce Laws Affect Trusts

Florida is an equitable distribution state. This means that marital assets are not necessarily split between spouses 50/50. Instead, the courts divide property based on what is considered fair to both spouses. Consequently, if a trust fund is classified as marital property, it will be subject to property division. However, just because a trust is identified as marital property doesn't mean that it will automatically be split between the two parties.

In some cases, a trust fund may be awarded to just one of the spouses to help balance out property that was awarded to the other spouse. For example, if one spouse is awarded the family home, the other spouse may be awarded the entire trust fund to keep things balanced.

What Happens to a Trust During a Divorce?

Because there are several different types of trusts, there is no simple answer to this question. What happens to your trust during a divorce largely depends on the kind of trust it is. Additionally, other factors will impact how the trust is handled during divorce proceedings. When the trust was established, who contributed funds, and how the trust funds were used will affect how the trust is dealt with during a divorce.

Types of trusts can include:

  • Irrevocable trusts
  • Revocable trusts
  • Grantor-settled trusts
  • Spendthrift trusts

Keep reading to learn how the two most common types of trusts, revocable and irrevocable, are handled during a divorce.

Revocable Trusts

Revocable trusts are trusts that can be amended or even canceled. They are often used in place of wills and are popular because they can help people mitigate or avoid the expensive and lengthy probate process. Revocable trusts are also called living trusts.

If a revocable trust is executed by one spouse (the settlor), it becomes null and void upon the marriage's dissolution. According to Florida statutes, this means that any provisions in the trust for or affecting the settlor's former spouse are voided. The law further states that "any such trust shall be administered and construed as if the settlor's spouse had died on the date of the annulment or on entry of the judgment for dissolution of marriage or divorce." As long as the trust was funded using separate funds, the settlor retains control of the funds, and they cannot be transferred to their former spouse.

However, if a revocable trust is funded using marital funds, it will be considered marital property. When this happens, the courts may order that the trust be canceled or dissolved and that the funds be divided between both spouses.

Irrevocable Trusts

Irrevocable trusts cannot be changed or canceled without the consent of the beneficiaries. When going through a divorce in Florida, irrevocable trusts are not considered marital property. This holds even when one spouse creates an irrevocable trust for the beneficiary of their spouse. This can potentially cause problems for the family if large assets are placed in irrevocable trusts, such as the family home. However, unlike revocable trusts, there is no law that voids provisions for a former spouse in an irrevocable trust post-divorce.

If you are getting divorced and you have a trust fund (or other complicated financial holdings), you should reach out to an experienced lawyer as soon as possible. Trust funds can complicate the divorce process, and a knowledgeable attorney can help guide you through the property division process and help you prepare for dealing with your trust fund.

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