People with significant assets will often create trusts to preserve their wealth and protect their property from creditors. Trusts offer many benefits, but they can present challenges when it comes to divorce. Specifically, it can be difficult to characterize trust distributions. Therefore, it is critical for anyone who intends to seek a divorce to talk to an attorney about how the dissolution of their marriage could affect a trust they or their spouse have. The knowledgeable Dallas divorce attorneys of McClure Law Group are proficient at navigating the legal complexities of high-value divorces, and if you have questions about trust assets and divorce, we can advise you of your rights and help you to seek a favorable outcome.
Trust Distributions and DivorceIn Texas divorce actions, separate property belongs to one spouse, while community property belongs to both spouses and is subject to division. As such, in divorce cases, the court must evaluate the character of all property owned by the parties, including distributions from trusts.
The Texas Family Code (the Code) states that community property is any property that either party obtains during a marriage. The courts presume that property owned by either spouse during the marriage is a community asset. There are exceptions to this rule, however, for property obtained through a gift, devise, or descent, damages recovered for personal injuries, as long as they do not represent compensation for loss of earning capacity during the marriage, and property owned before the marriage.
Assets held in trust are generally not considered community or separate property. Instead, income and distributions from trusts are generally the only aspect of a trust that need characterization in a divorce. In determining whether trust distributions are community or separate, the courts will assess when the trust was created, how the trust was funded, the intent of the settlor, and the character of any assets contributed to the trust. If trust distributions are deemed a combination of community and separate property, the courts must determine what portion constitutes a community asset and is, therefore, subject to division.
Other Factors the Courts Consider When Evaluating Trust Distributions and DivorceOther factors the courts will consider when evaluating trust distributions and divorce is a party’s role with regard to the trust and the trust terms. When a spouse is named as a beneficiary, the court will assess whether they receive income from the trust; if so, the income may be deemed community property or separate property, regardless of when the trust was created. Notably, if a party creates an irrevocable trust before or during the marriage and names their spouse as a beneficiary, the party that created the trust cannot alter its terms or remove their spouse as a beneficiary. If the trust is revocable, however, they can most likely modify it and remove their spouse as a beneficiary.
If a party is the settlor of a trust, whether the trust is revocable or irrevocable can affect whether the trust distributions are community or separate property, as well. Generally, property distributed from an irrevocable trust is more likely to be characterized as separate property than property distributed by a revocable trust.
Meet with a Seasoned Dallas AttorneyIt is essential that all property, including trust distributions, are properly characterized during divorce actions, but parties will often dispute whether trust assets are community or separate property, which can lead to heated disputes. If you or your spouse want to end your marriage and either of you have a trust, it is advisable to meet with an attorney to discuss trust assets and divorce. The seasoned Dallas attorneys of McClure Law Group are well-versed in what it takes to protect people’s financial interests in divorce actions, and if you hire us, we will advocate zealously on your behalf. Our primary office is in Dallas, and we are available to meet clients by appointment at our Collin-County office in Plano. We frequently represent parties in divorce actions in Dallas, McKinney, Rockwall, Fort Worth, Richardson, Frisco, Garland, and Irving. We also help people with family-law issues in cities in Dallas, Collin, Tarrant, Grayson, and Denton Counties. You can contact us by calling us at 214.692.8200 or accessing our form online to set up a confidential conference.