The Affect of Divorce on a Family Trust in New Jersey

Examining the Particular Terms of the Trust Should be the First Step on Your To-Do List when Divorce is Looming

A trust exists when a property and asset holder, known as the Grantor, transfers the benefits for management by a third party, known as the Trustee.  Sometimes, the Grantor and the Trustee are the same people.  Those who receive the benefits of the trust are called beneficiaries.  Trusts are a way to manage estate and inheritance taxes and protect the Grantor from creditors, bankruptcies, or sometimes civil suits.  It is also a way to set up a financial plan for minors or someone with a mental or physical disability.  Once the beneficiary has been named and can manage their assets, they will receive the total amount deemed in the trust.  When there is a divorce, changes may need to be made in the trust.

The Four Main Types of Trusts and Their Purpose in NJ

There are many kinds of trusts; the most common will be mentioned here.

1. A revocable trust is made during the Grantor’s living years.  They can change or modify this trust at will.  This is also called a living trust and involves property, usually the Grantor’s abode.  Other assets can be placed or removed from that trust, and a will is included.  This trust provides coverage from probate taxes.  However, if a beneficiary is being sought after by a creditor, the trust received by the beneficiary is not a protected asset.  This becomes even more pertinent if the beneficiary has co-mingled debt with their ex-spouse.
2. An irrevocable trust cannot be altered or revoked.  Once the property and assets are included in the trust, they stay there.  A branch of this is the asset protection trust.  An asset placed in this trust cannot be counted by creditors and protects the beneficiary from losing their inherited assets to the creditor.
3. A charitable trust is when assets are transferred to a charitable organization.  Many Grantors set up a trust for a charity near their heart.  The donation can be made while the Grantor is still living or once they have passed.  Donations of cash, real estate, property, etc., can be handed over to a charity whenever the Grantor establishes their revocable trust. For a beneficiary who has special needs, a constructive trust.  Someone with a physical disability can be included as well.  The court makes these and usually are for adult children unable to live independently.  This trust is constructed so that it will not impede the financial or service benefits of the beneficiary while simultaneously providing them with what they need to live comfortably.  This trust, also known as a staged trust, requires expert legal advice regarding state benefits, maximum earnings limits, and other government benefits they can receive.
4. A dynasty trust creates an estate plan that assures family assets will be passed down to the next generation.  This trust can provide excellent protection from creditors and ex-spouses when drafted properly.

Important Trust Issues and Their Effect on Divorce

According to the Supreme Court of New Jersey, the spouse who is the beneficiary but has not received assets from the trust, the property in the trust is not considered theirs, that notwithstanding, if the assets are available for “use and enjoyment,” they can be considered in the process of equitable distribution. As an example, Donald’s grandfather passed away when Donald was 20, leaving several thousand dollars in a trust which was made irrevocable upon his death, to be distributed when Donald turned 25. Donald marries when he is 22 and divorces five years later. As he had not claimed the assets from the trust, he said they should not be included in the divorce settlement.  The Court disagreed because the trust was irrevocable, and Donald could have access to the funds in the trust at any time he chose.

What is the Effect if the Beneficiary is the Spouse?

The N.J. Supreme Court, in a finding of Tannen v. Tannen (2011), decided that because there was no way for the former spouse to compel distribution of the assets in the trust preemptively, and the possibility that she would receive spousal support and child support from the trust along with named assets, did not justify a reduction of what she was entitled to.  Other decisions must be conducted to prescribe a firmer solution for these issues.

Understanding a Trust Fund in New Jersey

When devising an estate plan, some use a tool known as a trust fund to hold onto property or assets for another person.  These assets can be real estate, cash, a business, or a combination of them.  Trust funds provide tax advantages and financial protection for the Grantor and the beneficiary.  They are flexible in that they can be in many forms and have specific stipulations.  To set up a trust fund, you must have the grantor, trustee, and beneficiary.  Some trust funds payout in one lump sum, while others are intended for long-term financial maintenance.  Often, it is thought that trust funds are only for the rich, but that is not true.  Assets of any amount can be inherited through a trust fund.

Possible Options When There is a Family Trust Fund in the Middle of Divorce

If you are getting a divorce and wondering what will happen to your family trust fund, this is where the waters get murky, and a great matrimonial attorney is key. The short answer to this question is, “It depends.”  If you received an inheritance of real estate before you were married but then built a house or the family on that property, it would be considered in the case of equitable distribution.  Also seen as shared income would be any monetary inheritance you received.  Sometimes, judges make their decisions for spousal or child support based on that inheritance.  Sometimes, a possible future inheritance can also affect a judge’s decision.  But if, for example, you were bequeathed a lake house that would be owned by you and other members of your family, that asset will most likely be considered outside of the scope of equitable distribution.

How Are Material Assets Moved Fraudulently into Trust?

Your spouse may place the marital assets into an irrevocable trust, naming relatives (or others) as beneficiaries to keep those assets from being distributed in the divorce.  While a judge cannot undo an irrevocable document, they can estimate the income and amounts from the trust and use them to determine child support and spousal support.  In the case of fraudulent conveyance, where an asset is placed in a trust rapidly when the holder was threatened with legal proceedings or the transaction took place in secret.

Contact our Team of Matrimonial Lawyers to Help You Deal with a Family Trust in Your NJ Divorce Case

When it comes to trusts and divorce, there are many factors that determine a judge’s decision.  Divorce is devastating enough without having to process legal jargon and complex contracts.  The painful process of separation, worries about the future, and mourning a relationship that is broken, can cause an enormous amount of stress. Add the complexities of a family trust and how to protect your assets to the situation, and it is quickly overwhelming. For this reason, the advice and skilled representation of a lawyer who understands how to handle family trusts in divorces can be invaluable.

The dedicated matrimonial attorneys at Montanari Law Group are here to help you make it through this.  Our experienced divorce and family lawyers can listen to your concerns and explain a clear plan to get you back on the road to a happier life in Wayne, Essex Fells, Bergenfield, South Orange, Hackensack, Woodland Park, Elmwood Park, and or other Passaic County, Essex County, and Bergen County areas. Divorce is hard, but it doesn’t have to be hopeless.  We can talk about your unique case and the steps we will take to help you.

Please call (973) 233-4396 or look us up online for your free consultation.  We want to help you.