What Happens to Trusts During a Divorce in Arizona?

During divorce, everything you own will be divided into two categories:

Marital property (commonly referred to as community property) refers to everything either spouse earned throughout the marriage. Even if you kept your paychecks in a separate account, by law your spouse is entitled to half of everything. This includes cash, investments, property, assets, etc.

Separate property is property that belongs only to you or your spouse. The most common examples of separate property include:

  • Property owned by one spouse before the marriage
  • Property bought during the marriage using your own personal funds, in your name, and never used for the benefit of the other spouse
  • Inheritances received before and during the marriage
  • Property that is agreed to in writing that will be kept separate
  • Gifts received by one spouse before or during the marriage

Arizona does not divide separate property in a divorce, so the only thing you need to worry about dividing is your marital property. However, Arizona is a community property state. This means that any property acquired during the marriage is, no matter whose name it is in, is viewed as community property and is equally owned by both spouses.

How the Court Considers Trusts in a Divorce

Every Trust is set up differently, which makes it difficult for there to be a set rule regarding how to deal with one in a divorce. Because they can’t have a general rule, the court uses a test to determine whether the trust should be considered community (marital) property.

The test involves:

  1. Is future acquisition certain? This question is determining how easily accessible the funds are for the beneficiary. Some trusts have many stipulations regarding how a beneficiary can remove money from the trust and the more difficult it is for the beneficiary to withdraw funds the less likely it is to be considered marital property. However, just because it is not considered marital property does not mean that the court will not consider it as an income for that spouse and help determine spousal support and the “equal” division of assets.
  2. Is it subject to present valuation? This question helps in determining just how much the beneficiary is benefited by the trust.
  3. Is the interest too speculative? If the interest in the trust is not a guaranteed payout, then it will have less weight in the determination process.

Classifying Trust Property

These questions simply help the judge to understand the trust and how it could benefit either party. Each state is governed by their own set of laws regarding divorce so Arizona was able to decide that they wanted to be a community property state and that means what you need to prove to keep your trust in a divorce is that it was not community property.

This is typically fairly simple as it is a personal gift that is in your name only. If you know your spouse will fight to receive part of your trust fund, it is highly recommended that you hire an attorney that will know exactly how to keep that asset separate and not included in the community property to be divided.

The best way to determine if your trust will be considered community property is by going back to original documents creating the trust. These documents will likely layout the process in dispersion and answer all the questions your attorney will need to know about the trust. As this is a complex analysis and there is likely a lot of money on the line, having a knowledgeable attorney on your side can help you keep your assets in your divorce.

If you feel inclined to try and represent yourself, be warned that if there is a large sum in the trust then your spouse will likely work extremely hard to get any piece of it that they can. It is your money; protect it.

Learn More About Separation of Assets

If the judge determines that your trust is in fact NOT community trust, the trust will still have an impact on the separation of assets. While the money in the trust won’t be touched, its benefit to you will be considered in determining many factors of the divorce settlement.  The trust will be used to weigh how well off the spouse will be after the divorce. If you have an interest in a trust and your spouse does not have many assets or a small income, then you will likely have the trust factored into spousal maintenance payments, child support, and the division of assets.

This is common as it is still money that you will have access to at some point; if there is current interest in the trust, then it will hold a higher weight because of your immediate access to the funds. If you are the beneficiary of a large trust, then your spouse will likely be awarded a larger portion of the marital assets.

While this all may seem unfair that your own separate trust that a family member or friend created to benefit you can be taken away by your soon-to-be ex-spouse, this is the reality of divorce. All community property will be divided equally between the two spouses in the state of Arizona. There is no set answer of whether or not your money in the trust will be shared with your spouse, but you and your attorney can fight to make sure that it does not get included as community property.

Keep in mind, if you and your spouse agree to an uncontested divorce then you will not have to go to court to reach a divorce agreement. You have the right and ability to try and divide assets on your own with your spouse, without the court’s input. This will allow you to potentially not even have the trust considered at all, or at least insure that it will not be divided.

Call the Family Law Team at (480) 467-4348 to discuss your case today.

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