Asset Division and Protection in Trust
When divorce proceedings begin, each couple must evaluate what assets and property are includable to be divided, as well as whether it is considered community property or separate property. In a separate post, we explained the differences between separate and community property based on state law. Since Texas is a community property state, the court views anything acquired during the marriage to be equal property of both spouses, unless titled otherwise. One area of contention when it comes to asset division is whether a trust is includable in a couple’s property division.
Are Trusts Assets to be Divided?
Ultimately, it depends on the type of trust. If it is a revocable trust by which you can amend or revoke the terms, and the property is still in your name, not the name of the trust, that property may be subject to division. It also depends on when you established the trust or if you are a named beneficiary. It is common for some individuals as they acquire wealth to establish a Domestic or Foreign Asset Protection Trust, allowing them to transfer ownership of the property or business rights into a trust. Once you get married, as long as this is kept separate from your marital funds, the spouse can consider this separate property, which is thus untouchable by their spouse in the event of a divorce.
In order to determine whether a trust is marital property, a court will look to see whether future distribution is certain enough or whether the interest is too speculative, as well as whether the spouse has a vested or unvested interest, meaning they do not have to meet any other conditions in order to receive funds from the trust. Many irrevocable trusts do not allow a beneficiary to invade the principal of the trust, but the beneficiary can receive the net income. In a custody or alimony proceeding, a court will look to see how much an individual is getting from a trust in order to determine their need going forward.
While there is no straightforward answer to whether trusts are includable, the individual should first look at the terms of the trust, who formed it and for what benefit, as well as the interests of the beneficiaries and their rights under the terms of the trust. Much of this decision making process is influenced by an individual’s ability to change terms and their discretion as to access of funds.
Contact Us Today for Professional Legal Help
If you or someone you know is filing for divorce in Texas and is struggling to get proper division of their property, we can help you get the results you deserve. At Lindamood & Robinson, P.C., we have significant experience in family law in Houston, and we are ready to advocate on your behalf today.