Yes, a trust can absolutely be created for a couple and subsequently split, though the process isn’t always simple and requires careful planning. Many couples initially establish a joint trust—often called a revocable living trust—to manage assets and avoid probate, but life circumstances change. Divorce, separation, or even simply a desire for independent financial management can necessitate dividing the trust. While a trust is a powerful tool for managing assets, it’s not a rigid, unchangeable structure, and provisions can be made to accommodate future alterations, including a complete split. Understanding the nuances of trust law and employing the assistance of an experienced estate planning attorney like Ted Cook is crucial for a smooth and legally sound division.
What happens if we get divorced, and our trust isn’t clear?
A significant number of divorces—estimated around 40-50%—involve complications with jointly held assets, and a trust is no exception. If a trust agreement doesn’t specifically address the possibility of divorce or separation, dividing the assets can become a contentious and expensive legal battle. Courts will generally look to the terms of the trust first, but if those terms are vague or silent on the matter, the court will apply state laws regarding community property or equitable distribution. For example, in California, community property acquired during the marriage is typically divided equally, but separate property remains the property of the individual who acquired it. Without clear guidance within the trust document, determining which assets are considered community or separate property can lead to prolonged litigation and substantial legal fees. It’s essential to proactively address these potential scenarios within the initial trust agreement.
How can we divide a trust fairly without a court battle?
One effective method for dividing a trust without resorting to litigation is through a trust amendment and restatement. This involves revising the original trust document to create two separate trusts—one for each spouse—and allocating assets accordingly. This process requires the consent of both parties and should be drafted by an attorney to ensure it complies with all applicable laws. Another approach is a trust termination agreement, where both spouses agree to dissolve the original trust and divide the assets through a separate agreement or settlement. It’s also possible to utilize mediation or collaborative divorce, where a neutral third party helps facilitate a mutually agreeable resolution. These alternative dispute resolution methods can save time, money, and emotional distress compared to traditional litigation. Remember, clear communication and a willingness to compromise are key to a successful division.
I heard about a couple who didn’t plan for this—what happened?
I recall a case involving a couple, the Millers, who established a joint trust fifteen years ago. They never anticipated their eventual separation. When they decided to divorce, their trust document lacked any provisions for division. The trust held significant real estate, investment accounts, and a family business. The ensuing legal battle was protracted and costly. Determining the value of the business was especially challenging, requiring expert appraisals and extensive discovery. The couple spent nearly $75,000 in legal fees and emotional energy, battling over assets they had both contributed to over the years. What started as a simple desire for separation turned into a deeply acrimonious and financially draining experience. The Millers wished they had invested a fraction of that amount upfront in proper estate planning that addressed the possibility of divorce.
How did another couple avoid this issue with a well-planned trust?
Fortunately, I also worked with the Garcia family, who proactively addressed this issue in their trust agreement. They included a “divorce clause” that outlined a clear process for dividing the trust assets in the event of separation. The clause specified that a neutral appraiser would determine the value of the assets, and each spouse would receive an equal share, adjusted for any separate property contributions. When they unexpectedly decided to separate after twenty years, the process was remarkably smooth. The appraiser was appointed, the assets were valued, and the trust was divided within three months, with minimal legal fees and emotional distress. The Garcias saved tens of thousands of dollars and preserved their amicable relationship by investing in proactive estate planning. It reinforced for me the power of preventative measures and the peace of mind that comes with having a well-structured trust.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
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