What Happens to a Trust in the Case of Divorce?
By Paul Easton | December 26, 2009When financial woes hit a married couple the unfortunate outcome is often a divorce. Of course, this means the division of assets, along with the usual amount of bickering over that division. But if those assets are in a trust, what happens?
The Creation of the Trust
For the property investor or any other type of investor, a trust is always recommended for placing assets. Do take some care, however, before creating the trust. An individual’s rights to the assets are affected by this legal structure, so it is a good idea to consult a lawyer.
Property Relationship Agreement
In the case of a married couple, the two parties should also enter into a Property Relationship Agreement (PRA). This component is essential for laying out exactly what happens to the property in the future, particularly in the case of separation. The PRA prevents the parties from having to go to court and argue the disposition of assets.
The PRA covers such matters as who owns what assets before they are placed in the trust. Additionally, the disposition of those assets upon separation is laid out in exact terms, such as provisions for sale of property and using the assets to repay outstanding loans.
The agreement is implemented by lawyers if the necessity arises. Any amounts outstanding after payment of liabilities and proceeds from sale are divided between the parties, who each now have their own private trusts.
Two Trusts Are Better Than One
Another option for the married couple is to create two individual trusts right away, one for each spouse. This allows each spouse to transfer property that was owned before the marriage into a private trust, such as family heirlooms or inherited property.
Often, the couple will each get half the value of the family home added to their private assets. The trust should also include a PRA that specifies disposition of the home upon separation.
Any additions to the trust do not have to have the spouse’s approval, provided that they are not named co-trustee. Property that is inherited during the marriage can be added to the recipient’s private trust. As well, each spouse can designate the assets they bequeath to beneficiaries – a great option for couples who have children outside of the current relationship.
Paul Easton works in marketing for Mathew Gilligan – an accountant and partner at Gilligan Rowe & Associates Ltd (GRA). GRA is a Chartered accountant firm specialising in property in New Zealand. Search Engine Optimisation by Digitalawol.com
