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How may a trust protect assets in divorce?

On Behalf of | May 6, 2023 | Divorce

Divorcing a spouse involves difficult questions concerning the fate of your property. Will your ex receive a share of everything you own? When it comes to assets you have in a trust, the answer may not be yes.

Holding money or physical property in a trust could protect it from property division. However, it will likely depend on a number of factors concerning the trust.

The nature of the trust property

To ensure that your trust property is separate property, you must not commingle it with marital funds. In other words, you cannot mix your trust money with assets owned by both you and your spouse. Additionally, your spouse might make a claim to your trust if you have made him or her a trust beneficiary.

How you receive trust payments

The terms of your trust payouts could also matter. A divorce judge might divide your trust if you get direct payouts from it. However, you could avoid this outcome if the trust pays money to parties on your behalf. Alternatively, the trust might specify conditions for payments, which could also distance your trust money from your marital expenditures.

The nature of the trust

A judge might consider whether the trust is revocable or irrevocable. A revocable trust is one you can modify or abolish. For this reason, the law generally considers you the owner of the trust. Conversely, you give up ownership of assets you put in an irrevocable trust. This may better protect the trust from asset division.

Divorce cases involving trusts vary by state, so Tennessee law will inform how family law considers your trust in relation to your marital property. Given that circumstances differ across couples, your options may vary from other spouses in your situation.