Divorce And The Division Of Trusts

August 17, 2022

Divorce And The Division Of Trusts

The division of assets is one of the most important aspects of divorce proceedings. Just about every divorce will go through this process, but the way it is handled will vary significantly depending on a variety of complex factors, such as the financial situation of each spouse and the state where the divorce is being filed. Some couples manage to reach asset division agreements on their own, while others work towards an agreement with the help of divorce attorneys, mediators, and divorce courts. Couples who have established trusts together will also need to consider how the assets held within the trust will be divided during the divorce. For more information about divorce and the division of trusts, contact the experienced divorce lawyers of Johnson Law Group at (720) 463-4333 Text-to-Chat (720) 730-4558 today.

How Is Property Divided in a Divorce?

The rules regarding the division of property during a divorce vary from state to state. Colorado is one of several “equitable distribution” states, which means that a divorce court will make an evaluation of which properties are separate and which are marital, and then divide the marital property in a way they believe to be fair. This does not necessarily mean that it will be distributed evenly. Conversely, other states follow a “community property” standard, in which property acquired by either spouse during the marriage is usually considered marital property, and thus subject to division.

In general, marital property includes most of the assets and debts that the couple has taken on during the marriage, while separate property usually includes the assets and property each spouse owned before the marriage and acquired after the separation, along with gifts and inheritances.

What Factors Do Colorado Divorce Courts Consider When Dividing Property?

Divorce courts in the state of Colorado may consider the following factors when attempting to divide marital property in an equitable way:

  • How much each spouse contributed to acquiring the marital property, including contributions as homemakers and in childcare;
  • The value of any property brought to the marriage by each spouse;
  • How long the couple was married;
  • Whether either spouse contributed to the education, training, or increased earning potential of the other spouse;
  • The age and health (both physical and mental) of each spouse;
  • The vocational skills of each party and the time and expense necessary to acquire these skills;
  • Any possible income tax implications of the court’s ruling on property division;
  • The time and cost required for either spouse to seek education necessary to find employment;
  • Each spouse’s current and potential future earning capacity;
  • Other economic factors, such as pension benefits and future interests;
  • Any written agreements regarding property division or a prenuptial agreement;
  • Any other factors that the court believes are relevant to the case.

Dividing Trusts Formed During Marriage

Each divorce case involves its own unique set of circumstances. Divorce courts generally strive to consider all relevant factors so that they can equitably distribute marital property. When trusts are involved, the type of trust and when it was established will determine how the court decides to distribute the assets of the trust. There will also be additional financial considerations and tax considerations regarding the division of trusts. You can learn more answers about your questions regarding divorce and the division of trusts by contacting the experienced divorce attorneys at Johnson Law Group.

Revocable Trusts

Spouses who created a revocable living trust before their divorce often add several types of marital property to the trust, such as homes and other properties, bank accounts, and investments. Ultimately, the court will evaluate the trust assets in the same way as all other assets, classifying each as either marital or separate property. Most assets acquired during the marriage will be considered marital property when dividing a trust, except for assets acquired by one of the spouses through inheritance, gift, or bequest. Any separate assets will not go through the equitable division process.

Trusts that include both marital and separate properties are often more complicated to distribute. With these commingled trusts, the owner of the separate property will have the burden of proving that the assets are nonmarital property. If the court cannot discern the difference, the contents of the entire trust may be considered marital property. A revocable trust established by a third party (such as a parent or grandparent) will be awarded to the third party-settlor of that trust, rather than the divorcing spouse. This type of trust will not be considered marital property.

Irrevocable Trust

As the name suggests, an irrevocable trust is permanent and cannot be terminated once it has been made official - even in divorce. Once assets have been transferred to an irrevocable trust, the trust becomes the official owner of the assets. Thus, the assets and conditions included in an irrevocable trust will remain under the ownership of the trust following a divorce. However, Iowa state law does allow irrevocable trusts to be modified or terminated if the settlor and all beneficiaries agree.

The Division of Pre-Marriage Trusts

If either spouse was the beneficiary of a trust before the marriage - such as one set up by a parent or grandparent - that trust will usually be considered separate property. However, assets acquired during the marriage that were later added to the trust could be subject to equitable distribution.

Contact an Experienced Colorado Divorce Lawyer To Learn More Today

The financial aspects of a divorce can be challenging to handle, and other factors like childcare arrangements often make the process extremely stressful. While some divorces may be amicable enough for the spouses to agree on the distribution of assets, many divorcees turn to attorneys for assistance in securing favorable and fair terms.

At the Johnson Law Group, our divorce attorneys are dedicated to providing our clients with valuable legal counsel during this difficult time. We are prepared to evaluate your case and develop a sound legal strategy based on the circumstances of the divorce and the nature of your assets. For more information about divorce and the division of trusts, contact our experienced Colorado divorce lawyers today at (720) 463-4333 or at Text-to-Chat (720) 730-4558.

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