Irrevocable Trust in Divorce Settlement are Dramatic
Irrevocable Trust in Divorce Settlement
An Irrevocable Trust in Divorce Settlement, such as our trademarked – Ultra Trust®, can be a very powerful device in divorce. If an Irrevocable Trust is drafted and implemented correctly, assets transferred to the Irrevocable Trust (Ultra Trust®) are the property of the Ultra Trust® and is not “marital property” subject to equitable distribution between the divorcing parties. The Irrevocable Trust is considered to be a third party independent owner of assets titled to the Trust without regard of its creators. Courts cannot force equitable distribution of assets held by an independent third party in cases of divorce.
Community states like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are considered to be “common law” or community property states, thus assets are considered to “marital assets” subject to equitable division between the divorcing spouses. Title to property in a community property state are deemed to be owned together by both spouses without regard to who purchased the asset. As a general rule, most property acquired by either spouse during the marriage and while domiciled in the community property state, is deemed to be community property and owned jointly by each spouse and therefore not held by a third party. Third party property is not divisible by the common law state. Generally there are a few exceptions, but you need to consult with each Community State. These exceptions are:
1.Property received by one spouse through gift or inheritance.
2.Property received through separate property owned by the spouse outside the community property rules, i.e. rents on separate investment real estate.
3.Through ownership by some other legal entity: Partnership, Corporation, or Limited Liability Company.
An Irrevocable Trust in Divorce Settlement like our Ultra Trust® with an independent Trustee avoids common law disposition in a community property state. If your Irrevocable Trust is the legitimate title holder / legal owner of the property, such third party property held by the Irrevocable Trust is not a marital asset, therefore, not subject to the equitable division of property by the divorcing spouses.
Without regard to your state’s recognition of the marital asset category of separate and non-separate marital property, assets owned by a third party cannot be divided upon divorce even if your state endorses any type of ownership such as Joint Tenancy, Joint Tenancy with the Right of Survivor-ship, Tenants in Common, Tenancy by the Entirety, or Community Property.
The law of equitable distribution is not exactly a 50/50 split of assets. It takes in consideration other non-direct factors, such as: the length of the marriage, the income capacity of each spouse, the standard of living acquired and required, the contribution of each spouse during the marriage, health, age, and other factors the “court” considers “relevant” which can be anything as trivial as who owns the pets. You don’t want to be in front of a judge who’s not having a good hair day. The Uniform Marriage and Divorce Act 307 (UMDA 307) is a puzzle still being interpreted by the courts. Under these circumstances, when you are in front of a judge, their “relevant consideration” is always “equitable distribution.” If you don’t like the judge’s decision, the judge says “sue me,” take my decision to the appeals court, and spend your money proving me wrong. In other words, judges legislate from the bench. So good planning is to never be in front of a judge.
The rule against the division of third-party property means that: property owned and controlled by a third party cannot be divided upon divorce because the title of the property is not a marital asset, but a rather distinct category of assets falling outside the definition of marital property and is property acquired as a separate property outside the ownership consequences of either spouse and cannot be assumed to be owned by either spouse as long as the ownership and control is by a third party. There are many litigated cases: Elkins v. Elkins, 763 N.E.2d 482,486 (Ind. Ct. App. 2002). The presumption that the equitable title is with the owner of the legal title. 73 C.J.S.PP.36 (2003; Morales v. Coca-Cola Co., 813 So. 2d 162, 167 n.2 (Fla. Dist. Ct. App. 2002; Ritter v. Ritter, 920 S. W. 2d 151, 158 (Mo. Ct. App. 1996); and other similar cases.
The third party (irrevocable Trust) ownership not subject to marital property is further strengthened if the property is owned by an additional independent legal entity i.e. LLC, C Corporation, Sub S Corporation, or the Irrevocable Trust is the General Partner of a Limited Partnership.
An Irrevocable Trust in Divorce Settlement vs. Revocable Trusts