Do Trusts Provide Protection in Case of Divorce?
The end of a relationship is always painful. It can often become even more difficult, however, when divorce forces both parties to divide their assets. Even without a pre-nuptial agreement, however, there are steps you can take to separate and protect your assets. Depending on the type of asset and the state you live in, trusts can provide limited protection against the division of spousal assets.
Karen likes to say that asset protection has one golden rule: If you can’t access it, other people will also have difficulty accessing it. For this reason, irrevocable trusts are often protected against divorce settlements. Because the beneficiary cannot change the irrevocable trust or control access to it, the trust is not considered part of the grantor’s estate and therefore cannot be divided. This generally remains true even if the trust was created after the grantor married.
Revocable trusts, in contrast, do not provide any divorce protection in the state of Colorado. To return to the golden rule, the grantor of a revocable trust can change, remove, and access the assets in the trust at any time-and so, therefore, can the estate. Any assets in a revocable trust are part of the grantor’s estate and will be divided according to the divorce settlement.
When seeking to protect personal assets against a divorce settlement, therefore, irrevocable trusts can provide limited protection for the beneficiary. Revocable trusts, unfortunately, are subject to the same divisions as any assets outside of the trust.