Dividing Property That Is in A Trust During Divorce

Dividing PropertyAny property acquired during the marriage is generally considered marital property – meaning both parties have an equal claim on the property – but that’s not always the case with trusts. A trust is a piece of property that is managed by a trustee for a beneficiary. The piece of property funding the trust can be anything from cash to real estate.

There are a variety of reasons someone might want to create a trust. In some cases, they may just want to avoid paying taxes on the property, or they may want to pass it along as an inheritance while avoiding going through probate court. Protecting certain assets from spouses in case the marriage doesn’t last may be the reason behind creating a trust, or it may just be a benefit if that sad day comes.

Trusts received as a gift or part of an inheritance are generally considered separate (non-marital) property, rather than marital property, under Illinois law.

Trusts acquired before marriage are generally not considered marital property unless the funds have been distributed and commingled with marital property. For example, if any funds from a trust had been deposited into a joint bank account shared by both partners, then it would be considered to have commingled with marital property, in which case a judge may consider the trust marital property when dividing assets.

Any property or assets acquired during divorce is generally considered marital property, regardless of whose name is on the title or listed as the beneficiary. This can be true of trusts as well, but there are some exceptions, namely the revocable trust.

Trusts can be revocable, which is when the grantor (creator of the trust) reserves the right to cancel the trust at any time. Beneficiaries of revocable trusts cannot access funds from the trust, which is one way for the grantors of trusts to help provide for a loved one while keeping the funds safe from that loved one’s spouse or ex-spouse.

Sometimes a spouse will create a trust and name the other spouse as the beneficiary as a way to leave something to the beneficiary if something were to happen to the grantor first. Such a trust can be created out of either marital or non-marital property, but either way, once divorce proceedings have begun, the trust is usually revoked and the property reverts to its previous status as either marital or non-marital property.

But most revocable trusts are not automatically revoked in the event of a divorce under Illinois law. If the property used to fund the trust was marital property, then the trust can be revoked in order to finish dividing the marital assets, but any trust assets that were not already set to go to an ex-spouse will automatically be revoked.

If the grantor is the one getting divorced, then all provisions of that trust pertaining to the grantor’s spouse, and which are revocable by the grantor, do get revoked. This includes any gifts or interests in property.

Although the beneficiary of a divorce may succeed in keeping all their rights to that trust secure, if there are children involved, the value of that trust will be included when calculating child support and/or spousal maintenance (alimony).

The attorneys at Sherer Law Offices have been providing legal representation for divorce cases, as well as all types of family law for more than 20 years. Our experienced divorce attorneys will take the time to really listen to your unique situation so that they can plan strategies that can best protect your best interests.