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In New Jersey trusts can play a significant role in asset management and protection during divorces. Trusts are legal arrangements where assets are held by a third party (trustee) for the benefit of another party (beneficiary). They can also significantly affect how assets are categorized and divided upon divorce. Properly structured trusts can offer a measure of control over asset distribution, simplify property division, and provide financial security for future needs. 

Trusts are legal arrangements through which a trustee holds and manages assets to benefit one or more beneficiaries. Understanding how these trusts operate in divorce can be complex, involving considerations of various types of trusts, their formation, management, and their implications on asset division. 

 Types of Trusts Commonly Involved in Divorce

  • Revocable Trusts: Often called living trusts, these are created during the settlor’s lifetime (the person who makes the trust) and can be altered or revoked at any time. In a divorce, assets in a revocable trust created by one spouse can be considered marital property if they were funded with marital assets.
  • Irrevocable Trusts: Once created, irrevocable trusts cannot be altered or revoked. The trustee completely controls the assets. How irrevocable trusts are treated in a divorce depends largely on when and how the settlor funded the trust and its specific terms.
  • Discretionary Trusts give the trustee broad discretion in determining how much and when to distribute assets to the beneficiaries. These trusts are often scrutinized in divorces to determine the beneficiary spouse’s interest.
  • Spendthrift Trusts: Spendthrift trusts are designed to protect a beneficiary’s interest from creditors. In divorce, these trusts can also limit a spouse’s access to trust assets.

Marital Property vs. Separate Property

New Jersey is an equitable distribution state, meaning that marital property is divided equitably but not necessarily equal. Trust assets will be classified as marital or separate property for divorce purposes. The classification of trust assets as marital or separate property must be determined for divorce purposes. Generally, assets acquired during the marriage are considered marital property. If trust assets have been commingled with marital assets, the trust may be subject to division. For example, if the assets were acquired before the marriage or through inheritance or gifts (unless commingled), they are typically considered separate property. Trusts funded with such assets may be excluded from marital property unless they have been commingled with marital assets.

The Impact of Trusts on Asset Division

The extent to which a spouse can control or access trust assets is vital. If a spouse can dissolve a revocable trust or remove assets, this may affect how those assets are treated in a divorce. If a spouse received regular distributions from a trust during the marriage, these might be considered when determining alimony or support obligations.

Some individuals may use trusts to protect assets from division in a divorce. For instance, prenuptial agreements may specify that certain assets placed into a trust remain separate property.

 Legal Challenges and Considerations

The timing of when a trust was created and funded and the funding source can be points of contention. Trusts created shortly before marriage or with questionable intent can be subject to legal scrutiny. Financial experts may be needed to trace and analyze trust transactions and determine the nature of the assets.

Recent Legal Developments

Recent rulings and changes in state laws could affect how trusts are treated in divorce proceedings. It is crucial for those going through a divorce to consult with a New Jersey attorney experienced in family law to understand the current rules.  

Trusts as a Protection Tool in Your Divorce

In summary, trusts can serve as asset management and protection tools in New Jersey divorces. Their treatment in divorce depends on many factors, including the type of trust, the nature of funding, and legal stipulations. Bozanian McGregor LLC has experienced family law attorneys who handle trust matters and can tailor the approach to your circumstances while complying with New Jersey laws.

About the Author
Elton’s passion has always been family, guardianship, and estate practice, and the complexities that accompany each unique, family-oriented matter.