In Rhode Island, people who get divorced will undergo a process of equitable property distribution. This means that the couple’s marital assets and liabilities will be divided fairly but not necessarily equally. All of a couple’s assets and liabilities acquired during the marriage are generally considered to be a part of the marital estate and subject to division between the divorcing spouses. In some cases, a divorcing beneficiary’s trust assets might be considered to be marital assets and divided by the court. Grantors can take certain steps to safeguard trust assets so that a beneficiary’s spouse won’t be able to take them if a divorce occurs.
What happens to a trust in a divorce?
Typically, an inheritance will be considered the separate property of the spouse who receives it. However, an inheritance can lose its separate nature if the recipient commingles funds from the trust with marital funds or makes the other spouse the owner of them. When a spouse makes a claim for a portion of a beneficiary’s trust assets in a divorce, the court will determine whether the beneficiary is guaranteed the funds or if they are instead conditional. If the court determines the funds are guaranteed, it might order the trust assets to be divided in a divorce.
How to protect trust assets from a beneficiary’s divorce
When a grantor creates a trust, they can do the following things to prevent a beneficiary’s spouse from accessing the family’s wealth in a divorce property division:
- Establish an irrevocable vs. a revocable trust – With an irrevocable trust, the assets belong to the trust and not the grantor, and the grantor can’t change the trust
- Use conditional trust language so the beneficiary isn’t guaranteed the funds
- Specify in the trust document the proceeds can’t go to non-family members
- Have the trust pay the beneficiary’s expenses rather than giving money directly
There isn’t one solution that will help to prevent your trust account from being considered marital property that is subject to property division. However, planning carefully might make it less likely that your trust funds will be divided.