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What Happens to a Living Trust in a Divorce?
Divorce affects more than your spouse and children — it can also impact your estate plan. You may have to revise your will or divide assets in trusts created before or during marriage. But what happens to a living trust in a divorce?
How the Court Classifies Trust Property
You may have created a living trust to avoid probate with no idea that you would get married or divorced. Unfortunately, your living trust could contain property that your spouse may be entitled to in a divorce.
In a divorce, everything you and your spouse own is divided into “community property” and “separate property” categories. Community property includes everything your and your spouse earned or acquired during your marriage. It does not matter whose name it is in. Separate property involves assets that solely belong to you or your spouse. This includes property you owned in your name before you were married and gifts and inheritances.
In California, community property is evenly divided between spouses in a divorce. Your separate property stays with you.
So, if you have community property in a living trust, your spouse will likely have rights to half of it. The trust itself may be community property if it was set up by you and your spouse with community property. In this case, the trust will need to be dissolved and its assets evenly divided between you and your spouse.
Revocable Trusts vs. Irrevocable Trusts
Your spouse’s right to assets in your living trust also depends on whether it is revocable or irrevocable. With a living revocable trust, you can designate yourself as trustee or beneficiary and control the revocable trust’s assets. You can also make other modifications to the trust or dissolve it at any point in your lifetime.
With an irrevocable living trust, you do not have the same control over the trust’s assets. You cannot name yourself the trustee. In addition, you cannot make any changes to beneficiaries or distributions once it has been established.
If you have a revocable living trust, you can change or undo it in divorce. If you have an irrevocable living trust, it will most likely remain unchanged. Chances are that you set up an irrevocable trust to provide for your children after you have passed. Since they are not legally yours or your spouse’s, the assets remain in the trust for its beneficiaries.
How Do Trusts Impact Separation of Assets in a Divorce?
Even if your revocable living trust is not community property, it will still influence your divorce settlement. The value of a revocable living trust could determine how much you pay in alimony and child support. This applies especially if your spouse does not have a lot of assets or earns a low income. If you’re the beneficiary of a large trust that you created, your spouse will be awarded more of the marital assets.
An uncontested divorce may make things easier because you will not need to involve the court in your divorce agreement. You and your spouse can divide your assets together so that you both can determine the fate of your trust.
What Happens If No Change Is Made to a Living Trust in a Divorce?
If you do not modify your living trust in a divorce and you pass, you may not have much to worry about. A divorce judgment will typically cancel any distribution or gifts provided to your ex-spouse in a trust. Your ex-spouse could only benefit if there is clear and convincing evidence that you intended them to benefit.
To learn more about what happens to a living trust in a divorce, speak to an experienced Palmdale CA trust lawyer. At Herbert Law Office, we can help you make sure you protect your interests in the event of a divorce. Contact us today for a consultation.