Division of Property upon Divorce: The Impact of a Trust
by
George S. Frederick on Jul. 20, 2015
Divorce & Family Law Estate Trusts
Summary: The division of marital assets is one of the most important and complex steps in the divorce process. Parties must first determine what the marital assets are and the value of them.
The division of marital assets is one of the most important and complex steps in the divorce process. Parties must first determine what the marital assets are and the value of them. Under certain circumstances, property that is part of a trust may be protected from inclusion as marital property. Therefore, it is important for both grantors and beneficiaries of trusts to understand when property in a trust may or may not become part of the division of marital property.
Trust Property
Under Illinois law, property acquired as a gift or inheritance and kept separate is generally protected from being classified as a marital asset and thus is not part of the division of the marital estate. In such a case, if a beneficiary of a trust divorces, his or her ex-spouse will usually not be given any rights to that non-marital property—a beneficiary of a revocable trust has no legal right to the trust principal or income due to a grantor’s right to cancel a trust at any time. Hence, forming a revocable trust is one way in which a grantor can provide for a beneficiary and also protect his or her assets from a beneficiary’s ex-spouse at the same time. However, if the funds from a trust are distributed and a beneficiary commingles those funds with marital property, the funds may be considered marital property. Commingling can occur if funds of one spouse are placed into a joint account of both spouses.
In Illinois, a divorce does not automatically revoke a revocable trust. The issue of whether revocation will occur depends on the property that was used to fund the trust. If the property was marital property, the trust may be revoked in order to complete the process of property distribution—marital property continues to be so even if it is used to fund a trust. Under Illinois law, however, trust assets that were going to an ex-spouse are automatically revoked upon divorce.
Upon the end of the marriage of a settlor (the creator) of a trust, every provision that is revocable by the settlor related to the settlor’s former spouse is revoked. This includes any present or future gift or interest in property. In effect, the trust is administered and treated as if the settlor’s former spouse died upon entry of judgment for dissolution of the marriage.
Trusts, Divorce, and Child Support
An additional consideration regarding trusts and divorce is related to child support. Trust income received can be used in the calculation of child support and to determine an individual’s ability to pay or receive alimony. It is important to remember that a court will often take all sources of income, including trust income, into consideration when making these determinations.
Help during Divorce: Consult with a Skilled Divorce Attorney
The determination of marital property can be highly complex and relies on a number of factors. The level of complexity can increase when trust funds are involved. If you would like more information or assistance with the divorce process, please contact a skilled Illinois family law attorney at MKFM Law today. Call 630-665-7300to schedule your consultation. We look forward to speaking with you.
