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The Matrimonial StrategistLJN NewslettersNewsSections

Using Trusts in a Divorce

By Lynne Strober
March 18, 2004

As part of estate and tax planning, individuals can place their assets in a trust. These include joint assets acquired during a marriage, pre-marital assets, or marital assets in one party's name. There are personal trusts for designated purposes, for example a trust imposed over real estate, such as a Qualified Personal Residence Trust (QPRT). A married couple could use a QPRT to place a jointly owned home in a trust and name the wife as the beneficiary and the child as a contingent beneficiary. Other trusts can serve as mechanisms for sheltering assets from taxation or can serve as a way to exclude assets from an estate or to protect assets. In a divorce case where a trust exists, it is possible to terminate the trust, with the agreement of all the parties, to utilize the proceeds to meet the needs of the parties in effectuating equitable distribution. Bear in mind that the termination of a trust can only be achieved by agreement and therefore such a goal cannot be achieved in a litigated matter. As part of a divorce settlement, certain types of trusts can be created for funding education expenses or covering medical expenses. These trusts would provide a mechanism for meeting support obligations.

During the negotiations in a matrimonial case, it may be beneficial to your client to utilize the asset or assets that were placed in a trust as part of the final equitable distribution plan. For example, if a husband owns a business and owes money to the wife as and for equitable distribution of her interest in the business, and a QPRT was created for the house, the value of the house in a QPRT may be able to be used to satisfy the spouse's equitable distribution claim. If the trust is terminated, the asset could be turned over to the wife, rather than utilizing notes, security and a payment plan to satisfy the equitable distribution obligation. The husband would then be able to receive the business outright without having it encumbered to satisfy his equitable distribution obligation to his wife.

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