Estate Planning Trusts And Divorce
Trusts are used as an estate planning tool to pass on assets to heirs after a testator’s death. If a trust was created before its beneficiary was married, the distributions the beneficiary receives are likely to be classified as non-marital assets that cannot be divided as part of a divorce under Florida law. However, not all issues regarding trusts and divorces are as clear cut.
To what degree a person can reach assets in an irrevocable trust for the benefit of his spouse depends to some extent on the kind of trust it is, and whether or not the testator is already dead. If the testator is still alive and the trust is a revocable trust, then the trust beneficiaries do not yet have an interest in the assets. If the trust is irrevocable, it is quite difficult to reach the trust assets, although it is not impossible.
A beneficiary’s distribution from a trust can be considered as income when it comes to determining child support and alimony amounts. Once a child support or alimony order has been entered, and a parent who is also a beneficiary of a trust fails to make the required payments, the former spouse to whom the payments are owed becomes a creditor in a sense. As a creditor the former spouse can seek to enforce the support order by seeking garnishment from the trust. The court can even order that any discretionary distributions to the beneficiary be first approved by the court to ensure the trust is not drained of assets before the beneficiary’s obligations are met.
The trust assets can be reached in this way even when the trust has a spendthrift provision that limits or prohibits payments to creditors from trust assets.
If a spouse who is considering divorce moves marital assets into a trust, even an irrevocable trust, in order to try and avoid having the assets distributed in a divorce, the court can still divide the assets. However, trusts that a person creates before he is married in order to protect his non-marital assets in the event of a divorce would not be treated in the same way. In fact, some people chose to use trusts instead of prenuptial agreements.
It is less clear how a court would treat the appreciation of trust assets in a trust a spouse self-settled before marriage. If the appreciation happened during the marriage and the trust is a revocable trust, there may be an argument that the value of the appreciation during marriage should be equitably divided. Spouses can always sign an agreement exempting any such appreciation from consideration as a marital asset.
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The division of property in a divorce can take some time, especially when there are complicated assets that require a court to make a ruling on whether or not the assets are marital property or no-marital property. If you are going through a divorce or thinking of filing for divorce, you need an experienced attorney to assist you with the division of your marital assets and other important issues. For more information, contact an experienced Boca Raton, Florida divorce attorney at Law Offices of Schwartz l White for a consultation.