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How a Family Trust Can Be Affected by a Divorce

How a Family Trust Can Be Affected by a Divorce

If you are considering a divorce, it is important to understand how separating from your spouse could affect estate planning decisions. In particular, a divorce in Georgia may disrupt the assets and beneficiaries in a family trust. To better understand how your divorce may affect your trust or other estate planning documents, it is vital to speak to an experienced Atlanta family law attorney immediately.

What is a Family Trust?

A family trust is any type of trust set up by an individual to benefit their family members. The family trust is a popular estate planning tool because it allows you to customize how your family members will be provided for, both during your lifetime and after your death. 

The person setting up the trust is the grantor or settlor, while the family members who benefit from the trust are the beneficiaries. The person chosen to manage and administer the trust is the trustee.  

The question on the minds of many is: “How vulnerable is a family trust when a beneficiary divorces?” 

The focus should lie on whether you can assign the family trust assets during a divorce to the beneficiary's spouse.  It is more complex when a grantor wants to ensure family trust assets are protected should a beneficiary divorce. 

Georgia is not a community property state, which simplifies the issue slightly in some ways yet makes it more challenging in others. In community property states, divorcing couples must split all marital assets right down the middle with little regard for the circumstances surrounding those assets. Georgia is an equitable division state, meaning divorcing couples divide marital assets fairly but not necessarily equally.  

What Makes Family Trust Assets Vulnerable in a Georgia Divorce?

There are two primary ways family trust assets become vulnerable when a beneficiary of a family trust divorces. 

The first way is known as “direct assignment,” which allows a judge to directly assign a portion of the beneficiary’s interest in the trust to the spouse during a divorce.  

The other vulnerability is “offset from marital assets.” Trust assets that may not be subject to direct assignment in a divorce may be used to “offset” the family trust beneficiary’s share of the marital assets. 

For example, suppose one spouse has an interest in a family trust equal to 1 million dollars. While the judge might be unable to assign half that to the beneficiary’s spouse directly, they might transfer 100 percent of the trust assets to the family trust beneficiary spouse. The judge might then “offset” that amount by awarding the non-beneficiary spouse an extra $1 million in marital assets. 

You can protect family trust assets from direct assignment through the language of the trust. However, it may be more difficult to preserve those family trust assets from being used as an offset. Doing so may negatively impact the rights of other family trust beneficiaries and can also limit family trust flexibility. 

Since divorce falls under state law, the first consideration is whether all the family trust beneficiaries live in the same state as the grantor. Different states might reach very different conclusions about whether you can award family trust assets to a non-beneficiary spouse during a divorce. 

While community property laws seek to divide assets 50/50, they are likely to provide greater protections for family trust assets during a divorce. If at least one beneficiary lives in Georgia—or another equitable division state—family trust language must consider this—and the family trust assets may be more vulnerable during a divorce. 

Considering that multiple beneficiaries may live in different states, the question becomes whether the grantor must create separate trusts with language tailored specifically to each state or choose more restrictive language across the board with no regard for state divorce issues.  The Grantor or trust maker of a family trust is usually a parent or grandparent who wants to establish an estate plan for family members. The beneficiaries are generally children or grandchildren of the Grantor. 

On the other side of the issue is the spouse of the family trust beneficiary, who now has a pending divorce and is seeking to maximize his or her share of marital assets. This can result in the family trust language being carefully scrutinized by divorce lawyers.  Creating an absolute shelter for the family trust assets might require an irrevocable trust that cannot be amended or revoked. However, an estate planning attorney may create a revocable trust that protects family trust assets during a divorce. 

It doesn’t matter if you are the spouse hoping to shelter your family trust assets from your spouse, or a non-beneficiary spouse hoping to be awarded some of those assets. Your Georgia divorce lawyer will guide you through the process. 

Remember, the possibility of a future inheritance is one factor the court considers when dividing marital assets. As such, the grantor of a family trust should carefully consider whether to protect the beneficiaries’ assets in the event of a divorce. They should then have the language of the family trust drafted accordingly. 

Call Our Experienced Atlanta Family Law Attorneys

At Hobson & Hobson, P.C., our Georgia divorce attorneys know that divorce can affect every couple's decision - including estate planning decisions. Our lawyers work to help our clients address those issues and navigate through them. We advocate strongly for our clients throughout every aspect of the divorce process so that we can protect their futures. 

Call us today at (770) 284-6153 or fill out our confidential contact form. We can set up a consultation so that you can review all your legal options. 

About the Author:

Sarah Hobson

The Marietta divorce lawyers at Hobson & Hobson are prepared to represent you through this tough time in your life. Most are emotional and painful at some point during the process, and these feelings are compounded for divorces that involve the division of valuable assets. You need a knowledgeable divorce attorney with experience handling high asset divorces to advocate on your behalf and safeguard the financial interests you have worked so hard to build.The family law attorneys at Hobson & Hobson have over 30 years of collective experience in family law, spousal support, child support and paternity. We are located in Marietta, GA and serve the surrounding Atlanta area.Every divorce... View full business profile here: Sarah Hobson

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