What Happens to My Trust During a Divorce?

Trusts

Are Trusts Considered Marital Property in Texas?

Texas is what is called a community property state. This means that assets and debts gained during a marriage are the shared property of the couple. It doesn't matter which spouse acquires the property, but it will be presumed shared property if it was acquired during the marriage. During a divorce, marital property is supposed to be divided fairly between the two parties. However, this does not always mean a 50/50 split of every asset. The distinction between marital and separate property is outlined in Texas Family Code § 3.001 & 3.002.

Separate property is defined as property that was acquired:

  • Before the marriage
  • During the marriage through gift, devise, or descent (ex: inheritance)
  • As recovery for personal injury sustained during the marriage (minus any compensation for lost wages during the marriage)

Many families also have what is referred to as mixed property or mixed character property. These are assets or financial holdings that contain both separate and marital property. For example, suppose someone has a retirement account established before marriage but contributed marital funds to that account during the marriage. In that case, it will likely be considered mixed property and subject to property division during divorce. Situations like this often require some “tracing” to determine how much is shared and how much is separate. Similarly, there are situations in which income from separate property earned during a marriage will be classified as marital property.

When dealing with trusts during a divorce, the courts will first have to determine whether the trust is marital property or separate property, or some mix of the two. When the trust was established, where the funds for the trust came from, who the beneficiary/beneficiaries are, and the terms of the trust will all be considered when determining how to deal with the trust during the divorce process. The courts may also examine how the trust funds or income from the trust fund has been used during the marriage.

There are several different types of trusts; some of the most common include:

  • Revocable trusts
  • Irrevocable trusts
  • Spendthrift trusts
  • Special needs trusts
  • Charitable trusts

If a trust is determined to be marital property, the courts may require that the trust be dissolved and the assets distributed between the two parties.

Trusts & Prenuptial Agreements

In some cases, a trust fund may be protected from property division by including it in a premarital agreement. A prenup must be established before the couple marries and should clearly outline how the trust fund in question should be handled in the event of a divorce. Furthermore, the prenuptial agreement must be entered into voluntarily by both spouses and be legally valid.

However, just because a trust fund is included in a premarital or postmarital agreement doesn't mean that it is automatically protected. You should speak with your attorney about the situation. If necessary, your lawyer can help you defend your prenuptial agreement and help you prove the trust is truly separate property.

How to Keep Your Trust Separate from Marital Property

When going through a divorce, you will likely have to prove that your trust fund is truly separate from your marital property. Just having established the trust prior to marriage is not enough. If you are concerned about keeping your trust fund separate from your marital property, you should consult with an experienced attorney. This is especially the case if you have a trust and are going through a divorce. Your attorney can help you prepare for the divorce process and use their experience to guide you in dealing with your trust.

If your trust is classified as marital property, your lawyer can help you through the difficult property division process. In some cases, you may not have to dissolve the trust, and with help from your attorney, you may be able to keep the trust intact. For example, you and your former partner may agree that the person wanting to keep the trust fund intact will take on more of the couple's shared debt, or the other person will be awarded more material property, like real estate or vehicles, to ensure that assets are equitable.

If you have a trust fund and are going through a divorce, schedule a consultation with our law firm. We have helped many clients deal with complicated trust issues, including property division and divorce cases where trusts have been commingled with marital assets. Our experienced attorneys are prepared to help you with your case today.

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