One way that people protect their assets is by placing them into a trust. Not only can this strategy potentially protect the assets from creditors or people who want to sue the owner, it can also protect the assets in the event of divorce. When trusts are involved in a divorce case, there is an extra layer of complexity. However, the legal team at Moradi Saslaw Family Law Attorneys has an in-depth understanding of trusts and California family laws. We can explain your legal rights and options during a confidential case review. Give us a call at (415) 872-1080 or contact us online to learn more.
How Trusts Work
Trusts are legal arrangements in which a trustee manages assets placed in the trust for the benefit of the named beneficiary. Real property, financial accounts, and personal property can be placed in a trust. The creator of the trust can create a trust document that gives specific guidance and instructions on how the trust assets should be managed and distributed to beneficiaries. Trusts are generally privately administered. The trustee owes a fiduciary duty to the creator of the trust and to the beneficiaries to follow the instructions in the trust document.
Individuals who have received an inheritance, own a business, or have other property they wish to keep separate from their spouse may create a trust to protect these assets.
Community and Separate Property Principles
California is a community property state, so any property acquired during the marriage is generally subject to equal distribution between the spouses in the event of divorce. In California, trusts established before marriage are generally considered separate property. Cash distributions a trust beneficiary receives during the marriage are generally considered the beneficiary’s separate property unless they turn it into community property or give it as separate property to their spouse.
Trusts as Asset Protection Devices
A person who is planning on getting married can create a trust that filters out specific property as their separate property. The assets added to the trust would not be subject to division if a divorce occurs, so long as the spouse did not commingle or change the character of the property to community property during the marriage.
If a spouse is named as the beneficiary of the trust, this can also potentially protect assets. If the spouse is not allowed to demand a distribution, the property is not considered the beneficiary’s assets and those assets are not subject to community property division in case of a divorce.
Trusts and Child Support
While assets held in a trust may not be subject to division in case of a divorce, they could still affect other matters, such as child support. For example, a California family court can rule that a parent’s one-time gift or inheritance is a special circumstance that justifies deviating from the child support guidelines. Additionally, if the spouse receives regular disbursements or rents or dividends from trust assets, the court can consider this as income when calculating child support.
While the trustee’s main objective is to protect trust assets, they cannot act in “bad faith or with an improper motive.” A trustee who withholds trust funds for the sole purpose of avoiding paying a beneficiary’s child support obligation may be found to violate this rule and can be ordered by the court to make trust distributions to pay child support or arrears. Once a beneficiary receives a trust disbursement, a judge can order the beneficiary to pay arrears with the funds.
Turn to a Knowledgeable Family Lawyer for Help
If you are considering asset protection in divorce or are planning to marry a trust fund beneficiary, Moradi Saslaw Family Law Attorneys can help. We understand California’s complex rules regarding trusts, community property, and divorce. Let us help you create a strategy that protects your interests. Call us at (415) 872-1080 or contact us online to schedule a confidential consultation.