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Can a Trust be Divided as Marital Property in Divorce?

When a couple marries, each is likely to bring some amount of separate property into the relationship, even if it just personal belongings or a car. Some will acquire additional property through outside sources, such as family gifts or inheritances. If a couple later divorces, the status of this property in relation to the division of the marital estate can become a highly contested issue. The spouse who has a direct interest in the property is not likely to relinquish his or her share without challenging the validity of the distribution, but the other spouse may feel the marital estate contributed to the enhanced value of the asset, and that should be taken into consideration.

Interests in family trusts are a particular type of property that can be tricky to clearly fit within the context of property division in divorce, and a spouse’s right to a portion of any distributions is usually tied to the nature of the interest held by the spouse named in the trust as a beneficiary. A discussion of how Indiana law divides property in divorce generally, and how courts specifically treat the division of an interest in a family trust will follow below.

Property Division Generally

Indiana law calls for the division of marital property in a just and reasonable manner (referred to as equitable division), with a presumption in favor of giving each spouse an equal share of all assets and liabilities. Marital assets include everything owned or acquired by either spouse before and during the marriage, including liabilities. This arrangement can leave some divorcing spouses feeling disadvantaged and facing an unfair loss or property, especially if one spouse stopped working to care for children or one spouse bought the bulk of the property in the marriage. In order to ensure that a fair result is reached, a court has the power to deviate from the legally presumed starting point of an equal division. It is rare for a court to go beyond a 60/40 split, but if circumstances call for a more extreme deviation, it can happen. Having an experienced divorce attorney to advocate for a just division is critical to receiving a fair share of the marital estate. Unlike child custody and support, property division is only ordered once, and only very rarely revisited. Thus, getting property division right the first time is essential.

Division of Trust Distributions

Whether a trust would be considered subject to division in divorce depends on the type of interest a spouse has in the trust principal and distributions. The more remote and speculative the interest is, the less likely a court will consider this property part of the marital estate. Thus, the less control a party has over the trust and whether he or she could reach trust assets, the less it will be treated like marital property. A recent decision by an Indiana court of appeals discussed this issue and determined that a wife’s interest in a discretionary trust, which required a majority vote of the trustees before a distribution could be made and distributions were not mandated, should not be included in the marital pot due to the remote and speculative nature of the interest. Even though the wife received three distributions of $50,000 each, the court still excluded this money from marital property because the discretionary distributions did not change the underlying nature of the trust.

Talk to an Indiana Divorce Attorney

Divorce involves many moving parts that need to be thoroughly addressed to ensure important rights are not unnecessarily lost. A law firm experienced in divorce, such as Christopher L. Arrington, P.C., understand the stresses with which you are coping, and will work to resolve outstanding issues with your best interests in mind. Contact our Danville law firm to schedule an appointment.

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