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Can a Trust Protect My Assets in Divorce?

On Behalf of | Jan 11, 2019 | Divorce |

Trusts are an effective financial tool as they can be drafted in several different ways for varying purposes. This may include asset management, as a tax shelter, gifting, and protecting assets from creditors. But if you are thinking about divorce – or perhaps planning on getting married and considering the possibility that the marriage may not last – you may wonder whether a trust can protect your assets if you divorce.

Understanding trusts

Trusts are fiduciary arrangements under which a third party – called a trustee – holds the assets for another person, called the beneficiary. Trusts can be devised in many different ways based on the intended purpose, with the ability to specify exactly how and when assets should be passed to the beneficiaries. Trusts are commonly used as part of an overall estate plan as a way to avoid probate or reduce the taxes that may be due upon your death.

Trusts and divorce

Aside from being used as an estate planning tool, trusts can be used for asset protection in divorce. When a couple divorces, property is divided according to the laws of the state. The state of New Jersey follows the laws of equitable property division, meaning that each spouse owns the income earned during the marriage and has the right to manage any property that is listed in their name. A judge will determine property division based on what is deemed to be fair to both parties.

The key to using a trust to protect assets in a divorce is what is listed in the fine print. The terms and conditions of the trust must be written carefully so that the trust is not included as marital property. If a spouse established a trust prior to the marriage, the assets placed in that trust are typically considered separate property as long as the funds are not combined with marital funds at any point. When specifying the terms of a trust, if the beneficiary cannot go to the trustee and demand distribution of assets, then the funds are not considered the beneficiary’s money and are protected from property division in divorce.

Careful planning is important in drafting a trust

When creating a trust, it is critical to thoughtfully consider your objectives and various life scenarios so that you can carefully word the terms of the trust to avoid distributing funds to an unintended beneficiary or other unforeseen consequences.

Don’t risk losing your assets

You didn’t work hard and accumulate your assets to then lose them all to your soon-to-be ex-spouse in a divorce. Protect your financial assets from divorce and other life events by using effective estate planning techniques. At Lomurro Munson LLC, our experienced New Jersey family lawyers skillfully develop estate plans that are tailored to your specific needs and offer you the desired protection of your assets. Contact a member of our team today at 732-482-9285 or online to arrange a confidential consultation to discuss your situation.