What Happens To Trust Fund Assets During Divorce

Trust funds add serious complications to divorce cases. Whether you’re the beneficiary of a family trust or you established one yourself, understanding how California courts treat these assets can make a massive difference in your settlement. At Attorney Bernie, we’ve handled plenty of high-asset divorces involving trusts, and the outcome depends heavily on what type of trust you’re dealing with.

Revocable Trusts Usually Get Divided

Revocable trusts are exactly what they sound like. You can change them, cancel them, or take assets out whenever you want. Because you maintain complete control over a revocable trust, California courts typically treat the assets inside it as available for division.

If you created a revocable living trust during your marriage using community funds, those assets are community property. Your spouse has a claim to half. It doesn’t matter that the assets are technically titled in the trust’s name instead of yours personally. The court looks at the substance of ownership, not the legal formality.

Even if you created the trust before marriage, any contributions or growth that happened during the marriage might be subject to division. Community property laws in California are broad, and courts will trace what portion of the trust came from marital efforts or funds.

Irrevocable Trusts Are Different

You can’t change an irrevocable trust. Once it’s established, you’ve given up control over those assets. This fundamental difference matters enormously during divorce.

If someone else created an irrevocable trust that benefits you, those assets typically stay separate property. Your great aunt left you a trust that pays out monthly? That’s probably yours alone. Your spouse doesn’t get half just because you received the money during the marriage.

But the income from that trust? That’s where things get murky. Distributions you received during the marriage might be considered community property depending on how you used them and whether they got commingled with other marital funds.

When Trust Assets Become Community Property

Certain situations turn trust assets into community property even when you’d expect them to remain separate:

• You transferred community property into a trust during marriage
• The trust was funded with income earned during the marriage
• You commingled trust distributions with joint accounts
• Both spouses acted as if the trust assets were shared property

Our Alameda County high-asset divorce lawyer can trace the source of trust funding and how distributions were used to determine what’s actually subject to division.

Discretionary Trusts Add Another Layer

Some trusts don’t give you guaranteed payments. Instead, a trustee decides whether and when to distribute money to you. These discretionary trusts create unique problems during divorce because you don’t have a legal right to demand payments.

California courts can’t force a trustee to make distributions just because you’re getting divorced and need assets to divide. If the trustee chooses not to distribute anything, there might not be any trust income to split. However, if the trustee regularly made distributions during your marriage, courts might consider the pattern and potential future income when calculating spousal support.

Trusts Created To Avoid Division

Sometimes a spouse tries to move assets into a trust right before or during divorce to keep them away from their partner. Courts see right through this. If you created a trust specifically to hide assets or avoid fair division, a judge can unwind that trust and bring the assets back into the marital estate.

Timing matters here. A trust created years before anyone mentioned divorce carries more weight than one established three months before filing. Intent matters too. Did you have legitimate estate planning reasons, or were you just trying to protect assets from your spouse?

Spendthrift Provisions And Protection

Many trusts include spendthrift provisions that prevent creditors from reaching the assets. These clauses also make it harder for an ex-spouse to claim trust property. If a properly drafted irrevocable trust has strong spendthrift language and you’re just a beneficiary, not the person who created it, those assets often stay protected.

But spendthrift protection isn’t absolute. Courts will still consider trust income when calculating spousal support obligations. You can’t claim poverty while receiving $10,000 monthly from a trust.

Documentation Makes The Difference

Proving whether trust assets are separate or community property requires serious documentation. You’ll need:

• The original trust agreement
• Records of all contributions and funding sources
• Distribution histories
• Bank statements showing how you used trust income
• Evidence of who controlled the trust

Not having proper documentation makes claims much harder to prove. Therefore, the sooner you start keeping these records, the better. Especially if you suspect that divorce is inevitable.

Getting The Right Guidance

Trust-related divorce issues aren’t DIY territory. The interplay between California community property law, trust law, and tax considerations gets complicated fast. Our Alameda County high-asset divorce lawyer works with financial professionals to trace trust assets, determine their classification, and protect your interests throughout the divorce process. If you’re facing divorce and either you or your spouse has trust assets, get in touch with our team to discuss how these holdings will be treated and what strategies make sense for your situation.