Family trusts are often designed to benefit your immediate family or other relatives in the event of your death. One scenario that we often don’t think about is what happens when a beneficiary of a family trust gets divorced. Below are a few possibilities, based on recent case law in Massachusetts.
Direct Assignment to Ex-Spouses
Trusts can be considered a marital asset in divorce. Therefore, during the process of a divorce, a judge may assign part of that trust to the ex-spouse. This is referred to as “direct assignment” of trust assets. The amount assigned is at the discretion of the judge based on the unique circumstances of the marriage. Thus, the portion granted could be equal to, less than, or greater than the amount granted directly to your child.
Offset of Marital Assets
Another possible way that judges can handle assets in a family trust is to offset other assets in the divorce. For instance, let’s assume that your daughter has $1 million in assets from your family trust and 3 million dollars in other marital assets. A judge may grant your daughter only $1 million of the other marital assets but not touch the family trust. Thus your daughter would have $2 million in total assets, and her ex-spouse would also have $2 million (exclusively from other marital assets).
Protecting Assets When a Beneficiary of a Family Trust Gets Divorced
If you are concerned about protecting your beneficiaries in the case of future divorces, then you must change the way that you structure your family trust in terms of how you direct the inheritance to your beneficiaries.. Certain language can be included to make the trust more restrictive upon your death, although it’s also worth noting that there may be pros and cons to that added language. It’s also important to consider where your beneficiaries are located, since state laws can vary. Even if your beneficiaries all currently live in Massachusetts, they may move to another state in the future.
As you can see, accounting for when a beneficiary of a family trust gets divorced is not necessarily straight-forward. It is important to work with an experienced Massachusetts estate planning attorney to create a trust that accomplishes your goals while minimizing negative restrictions. Contact us to schedule an appointment to discuss this and other estate planning concerns that you may have.