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What Happens to Trusts in a Divorce?

Trust Funds & Divorce Settlements

One of the most contentious debates in a divorce is how to handle financial matters. If someone has a trust, they might be concerned with what happens to a trust fund in a divorce.

A trust allows a person to manage their property and assets and ensures that said assets are distributed according to their wishes after their death. In order to understand how your trust fund will be affected in a divorce, it's important to understand New York's property division laws.

New York Property Division Laws

New York is an equitable distribution state. This means that marital property will be fairly divided between each party. Depending on how your property is classified in your divorce can impact whether or not it is divided during property division. There are two types of property - separate and marital.

Separate property means that you already owned the property before the marriage began. This can also include:

  • Real or personal property

  • An inheritance or gift from someone other than your spouse during the marriage

  • Compensation you received for personal injuries during the marriage not related to loss of wages or earning capacity during the marriage

  • If you and your spouse signed a written agreement stating what assets were separate

Marital property is the assets you and your spouse obtained while married together. This can include real property purchased, personal property like cars, boats, airplanes, furniture, and artwork, cash, securities, bank accounts, retirement accounts and pensions, advanced educational degrees, and gifts to each other.

Are Trusts Considered Marital Property in New York?

Technically, a trust is not marital property. A trust is a relationship where the property is held by one party for the benefit of the other. That being said, a trust can become an issue in a divorce if it was funded with marital property.

If a spouse established a revocable trust and funded it with assets that were marital property, regardless of who's name is on the title, then it would be considered marital property. However, the assets of an irrevocable trust that are funded with the marital property might not be regarded as marital property in a divorce. Instead, they may be taken into account during the equitable distribution phase of a divorce.

Does a Trust Protect Assets in a Divorce?

The New York Estates Powers and Trusts Law (EPTL) Section 5-1.4 addresses the revocatory effect of divorce on dispositions and fiduciary appointment. The law states a divorce or annulment of a marriage revokes any revocable:

  • Disposition or appointment of property made by a divorced individual to the former spouse, which might include a disposition or appointment by will, by security registration in beneficiary form, by beneficiary designation in a life insurance policy, or in a pension or retirement benefits plan, or by revocable trust, including a bank account in trust form.

  • A provision conferring a power of appointment or power of disposition on the former spouse

  • The nomination of the former spouse to serve in a fiduciary or representative capacity, including as a personal representative, executor, trustee, conservator, guardian, agent, or attorney-in-fact

In layman's terms, the statute revokes any nomination of a former spouse as trust fiduciary, executor, agent, guardian, representative, or attorney-in-fact once the divorce is finalized.

Protect Your Trust Fund in a Divorce

If you are getting a divorce and have a trust set up, you must ensure your estate's future is protected. If you are concerned about how your assets will be divided during your divorce, do not hesitate to contact the attorneys at Pickney Law Firm. We have extensive knowledge of the property division process and are here to help our clients protect their assets.

If you need help protecting your assets in your divorce, call Pickney Law Firm today at (516) 565-5555!