Trust Funds and Divorce: Will Your Assets Be Protected?

Trust funds and divorce – two words that might make your heart race a bit faster. But here’s the thing: while trust funds may seem like a complicated puzzle in your divorce journey, they don’t have to be.

Trust funds often have built-in protections, and with the right approach, you can get through your divorce while safeguarding these assets.

At Netsquire, we’ve helped countless clients protect their financial future by understanding exactly how trust funds work in New Jersey divorces. Let’s cut through the confusion and get straight to what you need to know.

Does a Trust Protect Assets from Divorce?

First, you need to know that not all trust funds are created equal. The way a trust fund is treated in a divorce largely depends on its specific characteristics.

Here are some key factors that come into play:

1. When the trust was created:  Before or during the marriage?
2. Who created the trust: Was it set up by one spouse, both spouses, or a third party?
3. Who the beneficiaries are: Is it just one spouse, both spouses, or children?
4. Type of trust: Is it a revocable or irrevocable trust?
5. How the trust has been managed: Have marital assets been commingled with trust assets?

Let’s break down how these factors can influence the division of trust funds in a divorce.

Types of Trusts and Their Treatment in Divorce

1. Revocable Trusts

Revocable trusts, or living trusts, can typically be modified or revoked by the grantor (the person who created the trust). In a divorce, these trusts are often considered marital property if they were created during the marriage with marital funds. This means they may be subject to division.

2. Irrevocable Trusts

Irrevocable trusts, on the other hand, cannot be modified or revoked once they’re established. These trusts are generally better protected in a divorce, especially if they were set up before the marriage or by a third party (like a parent or grandparent).

3. Spendthrift Trusts

Spendthrift trusts are designed to protect assets from creditors, including a divorcing spouse. If properly structured, these trusts can offer significant protection during a divorce.

Are Trusts Considered Marital Property in Divorce?

While trusts can offer protection, certain circumstances can make them vulnerable during divorce proceedings:

1. Commingling of assets: If marital assets have been mixed with trust assets, it can blur the lines and potentially make the trust subject to division.
2. Using trust assets for marital expenses: If trust funds were regularly used to pay for marital expenses, a court might view this as making the trust part of the marital estate.
3. Both spouses named as beneficiaries: If both spouses are named as beneficiaries of the trust, it’s more likely to be considered marital property.
4. Trust created during the marriage: Trusts created during the marriage with marital funds are typically considered marital property.
5. Fraudulent transfers: If assets were transferred into a trust to hide them from a spouse during divorce proceedings, a court may disregard the trust.

Protecting Trust Funds in a Divorce

While there’s no guarantee that a trust fund will be 100% protected in a divorce, there are steps that can be taken to increase the likelihood of protection:

1. Proper trust structure: Working with an experienced attorney to set up the trust correctly from the beginning is crucial.
2. Keep trust and marital assets separate: Avoid commingling trust assets with marital assets.
3. Prenuptial or postnuptial agreements: These agreements can specify how trust funds should be treated in the event of a divorce.
4. Careful management: Be mindful of how trust funds are used during the marriage. Using them for marital expenses can complicate matters.
5. Timing matters: Trusts established before marriage generally have more protection than those created during the marriage.

What New Jersey Law Says

The treatment of trusts in divorce can vary depending on state laws. New Jersey, like many states, follows the principle of equitable distribution, which doesn’t necessarily mean a 50-50 split of assets. The court will consider various factors to determine a fair division.

Trust Income vs. Trust Principal

In some cases, even if the trust itself is protected, the income generated by the trust may be considered when calculating alimony or child support. This is particularly true if one spouse has been receiving regular distributions from the trust.

Experienced Divorce Attorneys Understand Trust Assets

Given the complexities surrounding trusts in divorce, it’s crucial to work with professionals who understand both trust law and divorce law. At Netsquire, we have experience navigating these intricate issues.

Our approach includes:

1. Thorough analysis: We carefully review the trust documents and history to understand its vulnerabilities and strengths.
2. Strategic planning: We develop a strategy to protect trust assets as much as possible within the bounds of the law.
3. Expert collaboration: When necessary, we work with financial experts and trust attorneys to ensure all angles are covered.
4. Clear communication: We ensure you understand the potential outcomes and make informed decisions throughout the process.
5. Negotiation skills: Often, the fate of trust funds can be decided through skilled negotiation rather than leaving it to the court’s discretion.

Whether you’re trying to protect a trust or believe you’re entitled to a portion of your spouse’s trust, knowing your rights and options is the first step.

At Netsquire, we’re committed to providing clear, practical advice on these complex issues. We understand that every situation is unique, and we tailor our approach to your specific circumstances. Our goal is to help you achieve a fair outcome that secures your financial future.

If you’re facing a divorce involving trust funds, don’t go it alone. Contact Netsquire today for a consultation. Let’s work together to set you on the path to a secure future.