The first, and to me the most obvious, thing to know is that if you get divorced, it is time to rewrite your trust!  After a divorce, the last thing you want is for trust to remain the same.  If you leave your trust the same, that could mean your ex spouse gets more assets after you die, and you likely do not want that to happen.  Instead, re-writing your trust will get your assets to the correct people, not an ex-spouse.

Of course, you will want to consider what happens to the assets inside of your trust when you get divorced.  Splitting assets in divorce is always a tricky proposition, and that remains true with a trust.  After you split assets in a trust, you will want to update the trust to reflect your new relationship reality.  Divorce changes how your life looks, so you want your trust and other estate planning documents to reflect that new reality.  You may also want to plan for the potential of your kids getting divorced in the future, and plan for that possibility.  Your trust can address the possibility of your children’s potential future divorce, further ensuring your assets go where you want them to go, not to the wrong people!

 

Splitting Assets in a Divorce – What Happens to Trust Assets?

When you go through a divorce, assets are split between the two divorcing people.  Assets are not always split equally, but rather are split according to a number of factors, and are split as equitably as possible under Colorado law.  Not all assets are treated the same when splitting assets.  Colorado law recognizes marital assets and separate assets.  Separate assets are assets owned by each individual in the marriage, which were owned prior to the marriage, inherited separately during a marriage, or acquired during a marriage, but kept as separate assets.  Marital assets are assets which were earned or acquired during a marriage and used or owned by both parties to a marriage.  I am not a family law attorney, so I am not going to get into all of the details of what is marital property, and what is separate property, but in a divorce, both types of properties factor into the splitting of assets between the parties to a divorce.

If a couple has a joint trust, the assets in the joint trust will most likely be considered marital property and will be split among the two parties to the divorce.  Of course, if you have a joint trust and want to identify a certain asset as being separate property, you can do so in the trust agreement, and that helps prove that asset should be treated as separate property instead of marital property, but most assets in a joint trust will be considered as marital property because they are jointly owned as part of a joint trust.

However, if you owned joint property with your spouse, and you find yourself in need of a divorce, one spouse cannot unilaterally take jointly owned property, or marital property, and convert that property into separate property.  If you find yourself going through a divorce, you will need to split marital property and then you can consider what to do with the property you have left over after the divorce happens.  You can’t just take what was marital property and try to change it into your separate property to protect it in the case of a divorce.

If you have separate trusts:

Those trusts could be considered separate property, especially if the trust agreement specifically says that the assets in the trust are separate property.  Often we can set up a separate trust to hold assets inherited by one spouse during a marriage, which are to be kept as separate property.  The separate trust would then control what happens to the separate property when you pass away, and also could keep the property separate in the case of a divorce.

 

Once Your Divorce is Finalized, You Want to Update Your Trust

As part of a divorce, your assets will be split between you and your former spouse.  The split of assets in divorce is often not what the divorcing parties would have exactly wanted or desired.  Parties to a divorce often find themselves somewhat dissatisfied with the split of assets, especially if one, or both parties to a divorce are upset or angry at the other party, or one party felt slighted by the other party to a divorce.  I have observed this tends to happen quite often in a divorce.

If one party to a divorce is not happy with the other party to a divorce, or if both parties are unhappy, it makes sense that once the divorce is completed, the unhappy party would want to rewrite a trust to eliminate the ex spouse getting any additional assets at the unhappy party’s death.  The unhappy party would want to rewrite the trust to reflect the new reality of life.  The unhappy party would likely want to leave assets to other beneficiaries besides the ex-spouse, such as children, other family members, or even charities.  In doing so, the unhappy party can ensure trust assets go where the person wants, and not to an ex-spouse.

Of course, an ex-spouse may be the person appointed to be guardian of minor children who were joint children of both parties to a divorce, but that does not mean the ex-spouse needs to get more money.  The ex-spouse is still a parent of the minor children, so the ex-spouse is the preferred choice to be a guardian of the minor children.  Money inside of a trust can be set up to be controlled by someone other than the ex-spouse and used to care for the minor children, but not put under the control of an ex-spouse.

 

You Can Protect Assets from Your Children’s Divorce

If you have children who are married, and you want to protect assets in the case of your children going through a divorce, you can set your trust up to address that type of situation.  

You can keep assets in the trust for the use and enjoyment of your children, while prohibiting access by an ex-spouse of your child.  You could also make distributions personal to your child, and not allow distributions to an ex-spouse.  In doing so, you have set up the prohibitions on giving assets to an ex-spouse of your child prior to your child going through a divorce, so that the assets are not considered joint or marital property to your child and your child’s spouse.  Setting this restriction up prior to your child going through a divorce means the ex-spouse will not be able to claim the restrictions were done to adversely impact property to which the ex-spouse might have been entitled to receive if the property has been characterized as marital property at some point.

You also have the ability to require an inheritance be kept as separate property by your children.  You could require the property to be kept in a separate trust, or you could require a marital agreement, sometimes referred to as a pre-nuptial or post-nuptial agreement, that states the property is to be held or maintained as separate property for your child and not for an ex-spouse.  Certainly setting up these types of requirements could be seen as an insult to your child’s spouse, but if you feel strongly that your assets should stay within your family and not pass to an ex-spouse, you are completely within your rights to require such things.

 

Not Everyone’s Divorce is the Same, and Neither is Everyone’s Solution

Not everyone needs, or wants, to protect assets from their children’s potential future divorce.  Many of my clients treat their sons or daughters-in-law as their own children, so that is not a concern for those clients, not everyone’s divorce is the same.  Each individual’s circumstances after a divorce need to be considered and accounted for in your estate plan.  Most trusts need to be rewritten to reflect the new reality of being divorced.  There are rare cases where a trust can stay the same, but that usually only applies if a trust was separate in the first place, and no mention of the spouse was in the trust.  Your will and financial and medical powers of attorney likely also need to be rewritten to remove an ex-spouse as a decision maker for you.  All of your new circumstances and documents in need of updating need to be considered.  

An experienced estate planning attorney can help you get your trust and other estate planning documents in order after a divorce.  To make an appointment to meet with an experienced estate planning attorney, click the button below.