The specter of divorce leads many Pennsylvania couples to fear for their money or property. Can they safeguard their belongings from being divided up in a divorce? The dividing line between separate and marital property is not always clear. Putting your assets in an irrevocable financial trust is one way to possibly avoid losing them in a divorce, just as long as the terms of that trust are clear.
Forbes points out that third party trusts can dodge the conditions that make property and assets marital property. For an asset to be considered marital property, it has to be acquired during the marriage, with certain exceptions such as inheritances or financial settlements from a lawsuit. Separate property can also become marital property if it is comingled with existing marital property.
However, a financial trust is generally exempt from being considered marital property. A trust is created with a trustee that oversees it and dispenses the assets when a specified threshold is reached. The terms of the trust can specify that the assets contained within it are not marital property and cannot be used to make alimony calculations.
Trouble can emerge when the terms of the trust are not clear. Anything that might violate the sanctity of the trust as separate property can motivate a judge to rule that the assets of the trust are marital property and eligible for division. Possible issues may include whether the assets were ever withdrawn and comingled with existing marital property.
In addition to vague terms, sometimes the conditions of a trust might be open to different interpretations. Such varying interpretations could lead a judge to count a trust as an asset or property you currently own while in reality you cannot access the trust just yet. Since a judge counts the trust as a current asset, it could cut down on what you would receive from the other spouse in a settlement.
Finally, some spouses may establish trusts with their marriage partner as a beneficiary. BottomLineInc points out that if you get divorced and you do not want your future ex-spouse to receive the assets, you would have to remove your partner’s name from the trust. However, check Pennsylvania law first or consult with an attorney, since making such changes is not always possible.