How Are Trusts Handled in a Cohasset, MA Divorce?

Trusts are very popular and commonly used. Put simply, they are legal vehicles for handling and transferring money and assets to beneficiaries outside a will. Typically, a grantor creates the trust, a trustee manages the trust’s assets and distributes them when the time comes, and a beneficiary benefits from the assets or income the trust generates.

When considering trust property and whether it will be divisible in a Cohasset divorce, it’s important to understand that all property owned by either party is technically “in the marital pot” and can be considered for division. However, that does not mean it will actually be divided.

To help you figure out whether there’s a real risk that a trust may be divided in your divorce, your divorce lawyer will consider the length of your marriage, whether the trust in question is revocable or irrevocable, and if there is a stream of income or assets emanating from the trust that benefits you or your spouse. An explanation of these considerations follows.

If either party is the beneficiary of a trust, what does that mean for property division and support?

All property, whether owned jointly or individually, is considered for division in a Massachusetts divorce. Generally, a future inheritance is not a divisible asset in Cohasset, MA.

However, if the beneficiary already received the inheritance, it could be a divisible asset, especially if the trust proceeds were commingled (mixed) with marital property. An example would be if one spouse used the trust money to purchase a house during the marriage.

In addition to whether trust proceeds were commingled, Massachusetts will consider the following three factors when determining if a trust will be divisible in divorce.

The Length of the Marriage

As in the division of all other property, the length of your marriage will be very important. The longer your marriage and the longer you’ve been in a financial relationship with your spouse, the more likely a judge will consider your trust property as marital property and that the interest in that trust property will be divided in your divorce.

Whether the Trust Is Irrevocable or Irrevocable

How trusts are handled in divorce depends greatly on how they are set up. The first step is to determine whether the trust is revocable or irrevocable. Depending on the circumstances around each type, trust assets may be divisible. However, divisibility in a divorce will depend largely on whether the trust is revocable or irrevocable.

Revocable Trusts

If a party is the beneficiary of a revocable trust, that person doesn’t have an interest in the asset yet because the grantor can revoke the trust at any time. Because receiving the trust is not guaranteed, and the grantor can terminate it at any time during their lifetime, generally, the court does not consider property or assets in a revocable trust for division, especially if the beneficiary does not have a guaranteed interest in those assets.

For example, if a parent creates a revocable trust to benefit a child at some point, the child does not have a guaranteed right to those assets. This is similar to a will, which can also be changed at any time during the creator’s life. The parent can alter or cancel a revocable trust at any time, so in the case of a divorce, that property or income is typically not considered divisible since it is not guaranteed to the child.

An easy way to remember the rule is this: Interests in discretionary trusts are expectancies and are too remote for inclusion in the marital pot. In other words, if there’s too much reliance on the trustee’s exercise of discretion, there’s no present right to use the trust principal, and, therefore, it’s less likely to be considered divisible in divorce.

Irrevocable Trusts

On the other hand, if the trust is irrevocable, the grantor cannot alter or revoke it. Thus, if money or assets are held in an irrevocable trust, they can be considered in a divorce. However, the impact of these assets on property division or support analysis will depend on whether there is a guaranteed interest or enforceable right to payments. If the beneficiary has a guaranteed interest in the property or a right to demand payments, and these rights are enforceable, the assets are more likely to play a significant role in the property division and support analysis.

Conversely, if the trustee has significant discretion and is not required to distribute the property to the beneficiary, the assets are less likely to be heavily weighed in the division of property or support analysis.  In such cases, the judge may consider the trust a potential future asset. However, it is still unlikely to have a significant impact if it is not a guaranteed right. An irrevocable trust basically functions as a gift because the grantor cannot rescind it.

So, even if the party doesn’t realize the benefit of the asset immediately, the court will still likely consider it in property division. The main factor in the weight the court gives to a beneficial interest in an irrevocable trust is whether there is a guaranteed interest or a guaranteed right to demand payments. If there is, it’s more likely to weigh heavily in the analysis.

An exception to the general rule that irrevocable trust assets are excluded from division in divorce is if a person transfers money into an irrevocable trust to avoid property division in divorce.

Whether the Trust Generates a Stream of Income

Consider whether you or your spouse are receiving money from the trust regularly. Judges have considerable discretion in this area. A good general rule of thumb is that if one person regularly receives income from the trust and the income is consistent, it is much more likely that a judge will treat that as income for alimony and child support purposes.

Find a Massachusetts lawyer to assess how your trust assets will affect you in divorce.

When managing or analyzing trusts in divorce, it is important to consider the above factors, as each can influence whether a trust asset, revocable or irrevocable, will be divisible in divorce. Because the answer is not necessarily clear and will depend on the individual circumstances, it is best to seek the advice of a Cohasset divorce attorney.

At Farias Family Law, we understand how stressful and confusing a divorce can be, especially when dividing assets. Our team of Cohasset family law attorneys has vast experience negotiating divorces that result in positive outcomes for our clients and can help with yours. Contact us today.