Assets, such as inheritances, a trust and significant property obtained by gift are usually highly debated issues in a divorce. However, an irrevocable trust that is carefully worded and properly timed can be helpful in protecting some of your assets from being divided. When thinking about divorce in Georgia that involves Trust assets, some of the first thoughts are:
- about how long will the process take;
- are any Trust or inherited property I have in jeopardy of being taken from me;
- will my Trust affect the amount of child support or alimony in my case;
- what will be the new living arrangements for the children; and
- what will happen the house, car and other assets.
Having to decide how the marital property will be divided is one of the main issues in divorce. If no agreement can be made between the spouses, the divorce case will have to be heard by a judge in open court and decided by the court. In summary, a judge will divide the marital assets in a way that the court feels is fair and equitable. However, the court can still consider any income received from that trust when determining the amount alimony or child support that might need to be paid.
What is an Irrevocable Trust?
When an irrevocable trust is created, it cannot be changed and there can be no withdraws made from it, meaning that any assets that were placed into the trust are now property of the trust and the creator has no control of the assets because they are no longer in the creator’s possession. This is beneficial because that could have some tax benefits for the person that created the trust along with giving protection to the assets from creditors or someone seeking to gain those assets. In regards to divorce Georgia, the protection of those assets depends on whether the trust was created before or during the marriage, the purposed of the Trust, and the source (Grantor) of the assets that will fund the Trust. One example of a Trust that usually does not have to be divided in a Divorce is an Irrevocable Life Insurance Trust, which is a kind of Trust that life insurance proceeds can be deposited into in the event a loved one passes away, such as a father or mother. The advantage of the Irrevocable Life Insurance Trust is that there is virtually no risk that the trust asses will be intermingled with marital property and made subject to equitable division in the event of a divorce.
How are assets in a Trust categorized under Georgia law?
If the assets were placed in a trust before the marriage, they are generally categorized as separate property and are protected from being divided in a divorce, remaining the assets of the person that had them at the time of the marriage. If the assets were put into a trust during the marriage by one of the spouses, they could be considered marital property still and subject to division unless it can be proven that they were placed into the trust with the purpose of keeping those assets separate. Having to prove that the trust was intended to keep assets separate can be a very challenging task, even more so if marital money was used to create the trust or there is a mixture of marital and non-marital property in it. However, in most cases, the party in the divorce may merely be the beneficiary of a trust made by their parents. This kind of trust is almost never subject to equitable division in a divorce. So it is important to look at who created and funded the trust; its purpose for being created; and the source of the funds and assets the grantor put into the trust.
What if my spouse is the beneficiary?
If the trust was created during the marriage by one of the spouses, it is quite common for the other spouse to be named a beneficiary. Should you be able to prove that the trust was indeed created to keep certain assets separate, the creator still cannot change the beneficiary on the trust document, meaning that the other spouse can still receive some property from it. It is even possible for the divorced spouse to receive assets from the trust years after the divorce has been finalized. It is important to mention that some states will allow the creator to include some wording that can alter who will receive the assets in case of a divorce. Being able to do so will be a great relief in knowing your ex-spouse will not be able to receive any of those assets.
What if I a Trust is created for the purpose of hiding assets?
Creating a trust after the point where you are having marital troubles can be a bit of an issue. To the court, it may seem like you are trying to hide an asset with the purpose of making sure the other souse does not their share of it, which is called fraudulent conveyance. Meaning that should one of the spouses be worried that most of their property will be given to the other spouse because of an act of infidelity and they create a trust and name a close relative the beneficiary with the purpose of keeping the other spouse from getting that property, the court has the right to void the transfer of property into the trust and to dissolve the trust. This will have the affect of making the formerly trust property eligible for division.
How does my Trust affect any child support or alimony I may have to pay in Georgia?
No matter who made the trust, even if the spouse is successful in protecting their assets from being divided during the divorce due to a trust, any income that is obtained from that trust can be used to determine how much alimony or child support will be paid, if any. This means that if there the spouse is getting a nice size of income from the assets in the trust, the ex-spouse may be able to receive a portion of that from alimony or child support payments.
Alimony: Because alimony is partially based on the paying party’s ability to pay and the need of the party asking for alimony, the court will look at who has the trust account and if can be considered a source of funds for support.
Child Support: Because child support is most based on the income of the party paying child support, the court will look to see if actual income is derived from the trust and if it can be included in the child support calculations used to determine the child support amount.