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Are trusts divorce-proof?

It's not uncommon for individuals to use trusts to shelter assets from a spouse should divorce occur. In some cases, trusts might be used to protect your own assets from the marriage, especially in situations where people are marrying later and both parties have already built up substantial assets or businesses. Perhaps even more commonly, individuals might use trusts to leave wealth to adult children while protecting it from the adult child's spouse.

Using a trust to shelter assets from a spouse of any type can be complicated, and it comes with numerous ramifications, so you should definitely think about the process fully and work with an experienced professional to set it up. One of the first ramifications that can come from this type of activity can be hurt feelings. If you try to shelter assets from a spouse, they might see it as distrust in the relationship or them. Approaching such topics with care and tact is important, and trusts might be a good component of premarital financial planning.

Another thing to know is that trusts aren't always as divorce-proof as you might think. If care isn't taken in creating and managing the trust, it's possible they could be considered marital property, which means both parties stand to benefit from them should the marriage end. How and when the trust is set up is important in this regard, but so is the way the trust is funded. If a trust is funded with commingled marital assets, then it could be seen as marital property by some.

Trusts can be a great way to shelter your assets during divorce and other life changes, but you have to know how to leverage their benefits. Work with an experienced estate planning lawyer to get the most out of your trusts.

Source: Barrons, "Why Some Trusts Crumble and Some Endure During Divorce," Amy Feldman, accessed March 10, 2017

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