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Trusts can be used to protect assets in event of divorce

Trusts have many uses, from gifting, to asset management, creditor protection, and providing tax shelter. They can also be used in divorce, and with potentially great benefit depending on the circumstances. A few points about the use of trusts in divorce are worth identifying.

One interesting point to note is that assets placed in a trust which was established prior to marriage are usually considered separate property. One way to benefit from by this is to set up an asset protection trust. These trusts can protect those assets and their appreciation from going on the chopping block in the event of divorce. The important thing to remember is that not every state permits self-settled trusts, which seek to give the settler protection from creditors.

Trusts have the purpose of benefitting beneficiaries. One of the issues that can come up with trusts in divorce is whether trust funds which benefited a spouse-beneficiary during marriage can be used in the calculation of alimony upon divorce. The answer varies by state, but something worth noting is that some states which recognize domestic asset protection trusts say that a trust created prior to marriage cannot be held liable for alimony claims. So, some states consider assets placed in a discretionary trust not to belong to the beneficiary with respect to calculating alimony.

Because of issues like this, it is also important to realize that careful drafting of the terms and conditions of a trust will serve to protect funds from unintended beneficiaries.

There is no doubt that trusts can be used, in addition to other techniques, to protect post-divorce assets from creditors. Speaking with an attorney is the best first step to take. He or she will be able to identify the goals you have and the best tools to achieve those goals.

Source: Forbes, "Can a Trust Protect My Assets in Divorce," July 18, 2012

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