There are so many questions regarding what happens to your estate and estate planning in the event of divorce. From mild curiosity before marriage to the drafting of prenups, to navigating a divorce, there can also be feelings of guilt or shame for asking this question. We want you to know it’s okay and important to ask the question.
Perhaps you’ve come to this article because you have a Trust, but you also have a crumbling marriage. You want to know what may happen to your Trust.
Or perhaps you’re unmarried, have built a sizeable estate, and are considering marriage. You want to make sure you are protected if the marriage doesn’t work out.
Both of these scenarios are common, and you’ve come to the right place. Today we’re here to discuss how a divorce can affect a Living Trust. We’re going to unpack a few different things before we get into the effects of a divorce on a Trust.
Living Trust
Remember, there are many different kinds of Trusts. For today’s purposes we are only looking at the Living Trust. A Living Trust is a Revocable Trust— meaning it can be changed by the Trustee as long as the Trust maker is alive.
This is the most common type of Trust. While many consider Trusts to be for only the ultra-rich, a Trust can benefit families and individuals at any tax bracket.
So, again, for our purposes today we will be discussing what happens to a Living Trust in a divorce.
Next up, let’s looks at the different kinds of assets or property.
Marital Assets
These are assets or property that were earned or acquired after the marriage took place. Things like joint checking accounts, properties purchased together, businesses started during the marriage, assets grown during the course of the marriage. The state considers these to be marital assets.
Marital assets are joint assets, assets you and your spouse own together. And in a divorce are assets that are subject to division.
Premarital Assets
These are assets brought into the marriage. Often this includes real estate, businesses, inheritances, and other assets of monetary value.
These assets were clearly owned by one of the spouses prior to the marriage. So, for instance, one of the spouses receives a large inheritance of money or real estate from a grandparent prior to the marriage. This asset is typically considered a premarital asset and is not typically considered to be part of the marital property. Meaning it is unlikely to be divided in the divorce.
Another instance would be second marriages or two individuals marrying later in life after they’ve established themselves in careers and financially. The properties and assets they own would likely be considered premarital assets.
Trusts in Marriage
There are instances where Trusts would be considered marital assets or premarital assets. Maybe you received an inheritance in Trust prior to the start of the marriage. This could be considered a premarital asset. Or perhaps you’d already established a Trust prior to the marriage, this also could be considered a premarital asset.
But maybe you and your spouse established a Trust together during the course of your marriage. This would be considered a marital asset and would be taken into account in a divorce.
So, now that we have a solid understanding of Trusts, marital assets, and premarital assets, let’s discuss how a divorce can affect your Trust.
What Happens in a Divorce
When people divorce, all marital assets are considered and divided. Meaning anything considered marital property is subject to division between the two parties. So, if you and your spouse established a Trust together during the course of your marriage, anything in that Trust is considered marital property and is subject to division between both of you.
Additionally, if non-marital or premarital assets are not kept separately, for instance marital property is used to maintain non-marital property (example: a house is premarital property but marital funds are used to put in a pool and an addition), it’s likely the state will consider the premarital property to now be marital property.
A very important rule of thumb is: keep premarital property separate. This is a very important step to safeguard said premarital property.
Lastly, the state of Georgia is very pro creditor. The laws are in place to protect the lender. So, it’s important to know that just because a piece of property may be hidden in a Living Trust, that does not guarantee it will be protected from a creditor. And it’s possible, and often likely, that your former spouse can be a creditor. If you owe child support or alimony, that former spouse can be paid out of your Trust— even if the Trust holds only premarital property that was kept separately perfectly.
A caveat about Prenuptial Agreements, or Prenups. If a Prenup is in place, the Court will follow the guidance of the prenup—which may mean that the general rules about what happens to your Trust in the event of divorce may be different than what actually happens in your situation.
Trusts are amazing estate planning tools that can benefit many. We would love to discuss your needs and help you find the best estate planning tools for them. Call us at (404) 736-6066 or visit our website to schedule a consultation.
