As if divorce weren't complicated enough on its own, when one or both of the spouses own trust property, dividing up that property can get murky.
Whenever trusts are involved, you'll likely want a lawyer's guidance. However, the overview below can help you understand the type of trust you're dealing with and what to expect from the property division stage of your divorce.
Many different types of trusts exist, but the most common is a simple revocable living trust. You might have used such a trust to name beneficiaries to inherit your property when you die. Revocable living trusts are similar to wills in this way (but have the added advantage of avoiding probate). You can revoke or dissolve a revocable living trust at any time while you're alive.
Irrevocable trusts, on the other hand, can't be revoked once they've been created. These trusts are rarer, but you might have created an irrevocable trust if you were worried about estate taxes (which apply to the estates of the very wealthy). Or you might be the beneficiary of someone else's irrevocable trust—for example, your grandparents created an irrevocable trust and used it to leave property to you.
Married couples often create a shared revocable living trust together. It's very common for this kind of living trust to hold more than one type of property or asset—for example, you and your ex-spouse might have placed your bank accounts, your home, and all of your investments in one. Living trusts are often dissolved during the divorce process; regardless, the divorcing spouses (or a judge) have to figure out what happens to the property that's in the trust.
The assets in a living trust ultimately get divided in a similar way to other property in a divorce. As with other property, if you're divorcing, you'll want to know whether each asset held in the trust is marital property or separate property.
Marital property. Typically, if either spouse (or both) acquired property during the marriage, it's considered marital (or community) property—meaning that, in most states, a judge will add the property to the pot of assets that are to be divided.
Separate property. Separate (or sole or nonmarital) property is property that a judge will typically allow one spouse to keep. It's usually property that a spouse:
State laws do vary, though. For details on exactly how property division works in your particular state, see Property Division by State. Also beware that if you have a prenuptial agreement, the terms of that agreement will guide the division of property.
As a general rule, if you or your ex-spouse transferred assets into an irrevocable trust during the marriage, the assets are no longer marital or community property, and aren't subject to property division in a divorce. Irrevocable trusts essentially leave your hands after you've created them; you can't revoke or change the trust, and neither can a judge. Instead, the property in the trust will usually sit there until you die, at which point it will go to the named beneficiary. (So, for example, if you created an irrevocable trust that leaves money to your niece and nephew, your ex probably won't be able to touch that money.)
However, if one spouse created the irrevocable trust using marital property without the other spouse's consent, a judge can require the spouse who made the trust to reimburse the other spouse.
If you inherited property during your marriage, whether through a trust or not, that property will probably be considered your separate property. (See Inheritance and Divorce.) In other words, it won't be thrown into the marital property pot during the divorce—it'll stay with you alone.
There are noteworthy exceptions, though. It's possible to change separate property into marital property—whether intentionally or not—through your actions during the marriage. So if, for example, you inherited your parents' home and then added your spouse's name to the deed, or if you took inherited money and deposited it into a joint bank account with your spouse, a judge could very well find that the inherited property is now marital property and up for division.
If you or your spouse will inherit property in the future, there's an added layer of complication. While a judge can't touch property you haven't inherited yet, if you're poised to inherit a substantial amount, it's possible the judge will take that fact into consideration when deciding how to divide the marital property.
If you had a living trust, you should create a new one as soon as your divorce is finalized. You can also consider revoking the trust and creating a will instead if you're not concerned about probate. For more details, as well as a list of the other types of estate planning documents you should revisit, see How to Revise Your Estate Plan After a Divorce.
An experienced divorce lawyer can guide you on what steps you need to take regarding trusts during your divorce. If you need to create a new living trust after your divorce, consult an estate planning attorney.