Getting divorced in California is hard enough without the added problem of financial wealth. Protecting your family’s wealth with a living trust can help keep assets within the family rather than being chipped away. What happens to the trust during a divorce depends largely on how the trust was initially set up.
Barron’s states that many parents set up irrevocable trusts when they do not like a child’s choice of spouse. This can prove helpful or hurt you during a nasty divorce. Without properly drafting the trust, the wealth held in the trust could become marital property.
One way to protect your trust is to set it up prior to marriage and then keep marital assets separated from those in the trust. Your spouse’s attorney may argue that the funds are marital property during divorce. When they cannot obtain those funds, they may then argue that they deserve more of your marital assets because of your wealth.
A prenuptial agreement can also help retain the wealth in the trust from being whittled away during a divorce. However, if you take distributions from the trust, you could inadvertently defeat the legal protection the trust provides.
When setting up the trust, avoid allowing the beneficiary to control distributions. By taking away the control from you and giving it to the trust, you have a better chance of retaining the wealth within the trust. Your spouse may still argue for their share of the distributions but have less of a leg to stand on.
Keep in mind that your trust includes more than the assets contained within it.
