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What happens to your trust assets during a divorce?

When a couple in Illinois decides to seek a divorce, the process will involve dividing their assets. This part will include identifying separate and marital assets. Trust assets are one type of asset over which you and your ex might become contentious if one spouse has received or is set to receive payment as a beneficiary.

How are trust assets treated during the divorce?

In most high-asset divorce cases, trust assets are considered separate property, which would mean the asset remains the property of the beneficiary spouse. However, in some cases, the asset might be contested. For example, a non-beneficiary spouse might claim that the asset is no longer separate as it has been commingled with marital assets during the marriage or by arguing that they are entitled to receive a part of the asset as its receipt was always a certainty.

Can trust assets be protected in case of divorce?

Protecting the trust asset to ensure the beneficiary is the only one who receives it in a case of divorce is possible. Still, it often means considering divorce possible when the trust is created. Some of the things the trust grantor can make when establishing the trust include:

  • Using clear wording that either makes receiving the asset a possibility, not a certainty, or ensuring that the wording clearly states that only named beneficiaries are allowed to receive payments from the trust
  • Granting additional power to the trustee so they can make changes to the trust if the beneficiary is facing a divorce
  • Setting up indirect distributions of the trust, so that the trustee can make payments on behalf of the beneficiary
  • Creating an irrevocable trust that makes it impossible to change the terms of the original trust

During asset negotiations, you will both want to protect your separate assets and reach a balanced, fair settlement. Ensuring that trusts are protected from their creation can help you achieve this.

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