Whether you aren’t married yet or you’ve already been married for 20 years, trusts offer you a secure way to protect separate property from commingling with marital property in case of a divorce. But how does a trust work, and how can you plan for protecting assets with trusts in a California divorce?
What Is a Trust?
A trust is a legal structure that allows the grantor (the trust creator) to name a trustee (the trust manager) to manage assets held by the trust until meeting conditions for distribution to the trust beneficiaries.
Using a trust offers several advantages. If either spouse has a trust and passes away, the assets held in trust bypass probate and the trustee can distribute the trust assets to the beneficiaries. Additionally, assets held in an irrevocable trust no longer belong to the grantor. These assets belong to the trust, meaning that a court can’t seize the assets to pay a grantor’s obligations.
Types of Trusts
There are many kinds of trusts you can choose from to maintain your separate property from the marital estate. Which type of trust offers the most protection, though? That depends on what kind of assets you own. Some different trust options include:
- A revocable trust. Because the grantor is also the trustee and retains control of the trust during their lifetime, the court sees no difference between assets owned by the grantor and assets owned by the trust. However, the grantor has direct power over asset transfers and revisions or revocation of the trust agreement.
- An irrevocable trust. The grantor must not be the trustee or a beneficiary of an irrevocable trust. Because the grantor gives up control of assets transferred into an irrevocable trust, the trust owns the assets. This offers asset protection for the grantor to retain those assets as separate property.
- A domestic or foreign asset protection trust. A DAPT or FAPT allows the grantor to name themselves a beneficiary while naming a third party as trustee. This protects the assets from property division, but could leave them open to claims of exemption, including taxes, alimony, or child support.
How a Trust Can Protect Separate Property from the Property Division of Marital Assets
Protecting assets with trusts in a California divorce can be a complex legal topic. California is a community property state, meaning any assets acquired during the marriage are marital property, and spouses will divide them evenly in a divorce.
Assets acquired before marriage or in limited circumstances retain their status as separate property and belong to the sole spouse. Separate property usually includes:
- A business owned by either spouse before marriage
- Real estate owned by either spouse before marriage
- Assets inherited from a family member
- An inherited family business
Trusts can help you maintain your separate property and prevent commingling with marital assets in case of a divorce.
Contact an Experienced California Divorce Attorney
Protecting assets with trusts in a California divorce can be complicated. Contact us at Holstrom Divorce Authority to schedule a consultation with an attorney for divorce in Southern California at (844) 237-5791.