EP 78: How Does Having a Trust Affect Your Divorce?

Episode 78 of the Divorce and Your Money Show discusses trusts and how they are affected in a divorce.

Legal trusts are often used for such things as estate planning and asset protection. They can also be used for gifting, asset management, tax shelters, or protection from creditors. A trust is a legal vehicle, where a grantor puts assets or money aside, and the person who will receive it later is called the beneficiary. A third person known as the trustee is in charge of managing the assets.

The most important point to notice about trusts in a divorce is the language used in the trust document. You need an attorney to look at this language, which can be very specific or pretty broad. The type of trust and how it is worded for the beneficiary are really important. A well-worded trust explicitly states that the money in the trust is only for the beneficiary. It can prevent a spouse from getting part of the trust.

Even though you and your spouse may have benefited from the trust during marriage, it doesn’t mean that you will benefit from it or use it during the divorce settlement. In some states, income from a trust is also calculated and used to offset or add to spousal or child support. A good financial team will greatly help you understand how things work in your state.

Key Learning Points:

  • Trust is a legal vehicle, where a grantor puts assets or money aside, and the person who will receive it later is called the beneficiary.
  • Trusts can be used for such things as gifting, asset management, tax shelters, or protection from creditors.
  • The most important thing to notice regarding trusts in a divorce is the language used in the document.
  • A well-worded trust explicitly states that the money in the trust is only for the beneficiary.
  • Since the beneficiary doesn’t usually own the trust, it’s even more difficult for the other spouse to benefit from it during divorce.

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