Irrevocable Family Trusts in Divorce: Some general information on a complex area of the law
Monday, December 7th, 2009
Get Expert Adivse
My advise on dealing with irrevocable trusts in Divorce litigation is to make sure you have good experts involved both on the issue of "Characterization of the Interest" as well as the "Valuation of the Interest".
Every Trust is different and the provisions of the trust must be fully evaluated to determine if the party's interest in the trust will be considered property by the court in a divorce action.
Remainder Interest
Generally speaking, the Court will look at the level of control that the party has over the trust and if they have a "remainder interest". A remainder interest means that it is a certainty in the trust instrument that the benificiary will recieve the property contained in the trust, at some point (unless they do not live long enough to get it). For instance, some trusts are set up so that at a certain age, the party will get the funds (ie; have full control over the funds). This is considered a remainder interest. Even though the party has no control today, they do have a "vested interest" in the funds. Generally this will be considered to be the party's separate property. Once this is determined, any increase in value in the trust during the marriage will be considered marital property even though the party has had no access to the trust assets during the marriage.
Discretionary Power placed with the Trustee
The other issue to look at is the party's power and control over the trust assets. Generally speaking, the more the trust is set up as "discretionary" in the trustee, the less likely it is going to be held as property of the beneficiary. In other words, if the party in the divorce has little or nothing to say about what he or she is going to get and when, that party does not have control over the property and therefore the court would not hold the trust to be his or her property.
An interesting circumstance may be that the party has access to the income from the trust and uses that income to live an extravagant lifestyle but has no control or say over the corpus of the trust. The court could find that there is no property interest. The only avenue that the spouse has in this case is to make a case for maintenance. The spouse would have no claim against the property of the Trust itself as part of the division of the marital estate.
I want to emphasise again that this blog entry is to give you a general idea about how the courts veiw trust instruments in terms of determining if they are property in a divorce case. In any particular case you need to individually review the trust with experts and a good divorce attorney to see how a court might view the trust under the facts and circumstances of your case.
My advise on dealing with irrevocable trusts in Divorce litigation is to make sure you have good experts involved both on the issue of "Characterization of the Interest" as well as the "Valuation of the Interest".
Every Trust is different and the provisions of the trust must be fully evaluated to determine if the party's interest in the trust will be considered property by the court in a divorce action.
Remainder Interest
Generally speaking, the Court will look at the level of control that the party has over the trust and if they have a "remainder interest". A remainder interest means that it is a certainty in the trust instrument that the benificiary will recieve the property contained in the trust, at some point (unless they do not live long enough to get it). For instance, some trusts are set up so that at a certain age, the party will get the funds (ie; have full control over the funds). This is considered a remainder interest. Even though the party has no control today, they do have a "vested interest" in the funds. Generally this will be considered to be the party's separate property. Once this is determined, any increase in value in the trust during the marriage will be considered marital property even though the party has had no access to the trust assets during the marriage.
Discretionary Power placed with the Trustee
The other issue to look at is the party's power and control over the trust assets. Generally speaking, the more the trust is set up as "discretionary" in the trustee, the less likely it is going to be held as property of the beneficiary. In other words, if the party in the divorce has little or nothing to say about what he or she is going to get and when, that party does not have control over the property and therefore the court would not hold the trust to be his or her property.
An interesting circumstance may be that the party has access to the income from the trust and uses that income to live an extravagant lifestyle but has no control or say over the corpus of the trust. The court could find that there is no property interest. The only avenue that the spouse has in this case is to make a case for maintenance. The spouse would have no claim against the property of the Trust itself as part of the division of the marital estate.
I want to emphasise again that this blog entry is to give you a general idea about how the courts veiw trust instruments in terms of determining if they are property in a divorce case. In any particular case you need to individually review the trust with experts and a good divorce attorney to see how a court might view the trust under the facts and circumstances of your case.
