Trusts Protect Assets During Divorce

 Posted on July 14, 2017 in Division of Property

Properties are categorized during a divorce as being marital or non-marital. Marital properties must be equitably divided between the spouses, but non-marital properties are exempt. A spouse has an incentive to identify non-marital properties in order to protect them. Spouses often share their most valuable assets, which may make them marital properties. However, a court may rule that a trust made in one spouse’s name is non-marital property, even if the other spouse was named as a beneficiary. Revocable trusts can protect money and properties from division during a divorce.

Understanding Trusts

A revocable trust, also known as a living trust, is an estate-planning document that allocates assets to beneficiaries without the need for probate court. The grantor puts income and properties into the trust, which is administered by a third-party trustee. Though the trust owns the assets, the grantor has control over them while alive. Upon the grantor’s death, the assets are distributed per the trust’s instructions. A spouse is often a primary beneficiary of a trust, but Illinois law automatically revokes a former spouse’s beneficiary status after completion of a divorce. If the trust was established for the sole purpose of benefiting the spouse, a divorce will revoke the entire trust.

Marital Property and Trusts

Assets in a trust are exempt from the division of property during divorce as long as the trust remained separate from marital property. The nature of the trust and its holdings changes if the grantor:

• Used marital income to fund the trust;
• Based the trust on marital properties; or
• Withdrew funds from the trust and placed them into a marital account.

Upon divorce, marital assets can be removed from the trust in order to distribute them between the spouses.

Trusts and Fraud

A spouse is allowed to transfer assets into a trust in order to protect them during a divorce. However, the trust must exist for the legitimate purpose of establishing an estate plan. A court may deem a trust to be fraudulent if the spouse created it solely as a means to circumvent divorce property laws. The trust could be dissolved, and its assets would be divided during the divorce settlement.

Trusts and Child Support

The value of a trust is not counted as part of a parent’s income when determining child support payments. However, any assets withdrawn from the trust will be considered income.

Division of Property

During a high asset divorce, it is important to identify the marital and non-marital properties. A Kane County divorce attorney with Goostree Law Group can help you determine which properties you can protect. Schedule a free consultation by calling 630-584-4800.

Source:

http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2123&ChapterID=61