Inheritance Trusts and Divorce: Asset Protection

Divorce can drastically change the division of property, and within that division, trusts come into great importance in safeguarding and sustaining those assets. Of particular relevance in relation to how family wealth may be protected from division are inheritance trusts and divorce. The succeeding article will outline inheritance trusts and divorce and describe the important function these trusts can perform in asset protection during a separation.

In the context of inheritance trusts and divorce, the role that can be played by an irrevocable trust in divorce settlements is one of paramount importance. Irrevocable trusts have the very useful function of being able to allow assets to be kept in a way that they are not so accessible to the extent of being divided out; therefore, they act like a shield from certain claims during the divorce process. Often, inheritance trusts and divorce go hand in glove, trying to protect the integrity of the assets supposed to stay within the family.

This article will also discuss how trusts are being used in the matter of asset protection, highlighting why inheritance trusts and divorce go together as a strategic tool for those who want to secure their financial future. The steps taken in establishing a trust after divorce can reinforce the process of asset protection further, and consideration of the nuances of inheritance trusts and divorce should be an essential ingredient in wealth management.

Managing Inheritance Trusts in Divorce

Inheritance Trusts and Divorce Protection of Assets and Wealth

An inheritance trust is an arrangement in law that protects inherited assets. Within divorce contexts, the trust for inheritance can help separate the inherited wealth from marital property in order to achieve family asset protection. When the inherited assets have generally been placed into some sort of trust prior to, or during, the marriage and kept separate from the marital finances, they are less likely, if ever, to be taken into consideration in the apportionment of marital property during a divorce proceeding.

But if the inherited funds are commingled with marital assets, for instance, being put into a joint account or used to purchase shared property, those funds could lose protection and might even be theoretically divisible.

Irrevocable Trust in Divorce Settlement

Irrevocable Trust in Divorce Asset Protection and Division

An irrevocable trust plays a unique positioning in divorce settlements, as generally such assets placed into the trust will not be considered part of the marital estate. This is because once assets are transferred into an irrevocable trust, the grantor no longer has any control over them; the trust owns the assets, and they typically will be out of the reach of the grantor's and the beneficiary's creditors, including ex-spouses.

An irrevocable trust in divorce can be utilized to shelter wealth beyond the reach of the asset division process. On the other hand, there are courts which scrutinize the timing of the establishment of such a trust. If an irrevocable trust is granted at the right time before divorce to make the assets conceal, the courts may look at this as fraudulent.

Using a Trust to Protect Assets in Divorce

A trust can be an effective tool for protecting assets in divorce. Both revocable and irrevocable trusts can serve this purpose, but irrevocable trusts provide stronger protection since the assets are no longer under the control of the person creating the trust.

Here are ways trusts can help shield assets:

1. Segregating Personal Assets: If personal or family wealth, such as an inheritance, is placed into a trust and not mixed with marital property, it is less likely to be divided during a divorce.
2. Discretionary Trusts: A discretionary trust gives the trustee control over when and how to distribute funds to beneficiaries. This can limit an ex-spouse’s access to those assets during divorce proceedings.
3. Asset Protection: Irrevocable trusts are often used to protect assets from being included in the marital estate during divorce. Since the grantor relinquishes ownership, those assets are shielded from division.
4. Family Trusts: Families may create trusts to pass down wealth to future generations while ensuring it is not accessible in the event of a divorce.

Setting Up a Trust After Divorce

Establishing a Trust After Divorce for Asset Security

After a divorce, individuals often choose to set up trusts to protect their future financial security and ensure that assets are managed according to their wishes. When setting up a trust after divorce, consider the following:

1. Update Beneficiaries: After a divorce, it’s important to update any existing trusts to reflect new beneficiaries. This ensures that the ex-spouse no longer has access to the assets held in the trust unless intended.
2. Asset Segregation: When creating a trust post-divorce, ensure that assets intended for personal use or inheritance for children remain separate from any future marital assets.
3. Irrevocable Trusts: Post-divorce, some individuals choose to set up irrevocable trusts to protect assets from future claims, such as those from future spouses or creditors.
4. Children’s Trusts: Many parents set up trusts for their children post-divorce to ensure that any assets inherited by the children remain protected, particularly in cases where remarriage or blended families are involved.

Conclusion

Trusts are quite crucial in the protection of assets in the case of divorce, both at the time and after the divorce. This can be particularly true when considering inheritance trusts and divorce, as these legal tools can help shield personal and family assets from being divided. Whether through the use of inheritance trusts, irrevocable trusts at the time of divorce settlement, or even their creation after divorce, understanding the dynamics of inheritance trusts and divorce is essential. These legal structures offer flexibility and security for managing and preserving wealth. At One Pacific Trust, we specialize in guiding clients on how to properly apply these trusts, ensuring that assets are protected. Navigating inheritance trusts and divorce can effectively safeguard wealth, providing peace of mind during such challenging times.