Of the various types of property to be divided between spouses in a California divorce, property held in trusts can create particular complications. But the fact that property is held in the name of a trust - as opposed to being legally held by one or both of the spouses - does not mean that the other spouse has no right to access that property and receive at least some portion of it in a California divorce.
To be clear, a trust is a legal entity formed for the purpose of owning property, and the property held in the trust is controlled by a trustee. That trustee is not the owner of the property (remember, the trust itself is the owner), but the trustee will manage the property held in the trust on behalf of the beneficiaries who financially benefit from the trust, according to the terms of the trust.
Thus, while a spouse might legitimately say that he or she does not have ownership of the property in the trust (because, again, the trust is the legal owner), that is not the end of the story, and the other spouse may have some right to the property in the trust.
Does the Trust Contain Separate or Community Property?
The first question to ask regarding trust property - which is often the first question with regard to any property at issue in a divorce in California - is whether the property is separate property or community property.
Separate property is broadly defined in California as property that was earned or acquired by a spouse before the marriage, or which was given to one spouse individually as a gift or inheritance, and not to be owned jointly with the other spouse. Separate property stays with the spouse who owns it in a California divorce.
Thus, if the spouse who created the trust transferred only property that was earned before the marriage or via gift/inheritance into the trust, then that is separate property and will stay with him or her. Note, however, that the fact that a trust may have been created before the marriage does not make the property inside of it separate property if that property was community property at the time it was transferred to the trust.
Which brings us to the question of what community property includes. Community property is any property that either spouse earned during the time of the marriage (defined as the period between the wedding and the date of separation), or acquired with earnings from that time. Community property is split 50/50 between the parties in a divorce.
Thus, if a spouse created a trust - whether that trust was for the benefit of himself or a third party - and filled it with community property, that property may be accessible by the other spouse during a divorce.
Is the Trust a Revocable or Irrevocable Trust?
Here is where things get tricky, however. Some trusts are revocable, which means that the creator of the trust can transfer the assets back out of the trust and into his or her own name. Other trusts are irrevocable, meaning that the creator of the trust has set up the trust in such a way as to prevent his being able to transfer the property back to himself (this is done for various reasons, such as protection from creditors and tax issues).
Generally, revocable trusts present fewer complications for another spouse trying to retrieve that trust property. With an irrevocable trust containing what was once community property, there will be a number of issues to look at in determining whether the property therein can be brought into divorce proceedings. For example, if you and your spouse jointly agreed to transfer community property into an irrevocable trust, a court may consider that property no longer part of the marital estate.
With all property distribution issues, speak to an experienced California family law attorney for advice pertaining to your particular situation.
Get Answers to Your California Family Law Questions
At Kearney | Baker in Pasadena, we represent spouses through all aspects of the dissolution/divorce process. Our partners, Brian A. Baker and Gary W. Kearney, are both Family Law Specialists, as certified by the California State Bar. To schedule a consultation regarding any questions about family law in California, contact one of the family law attorneys at Kearney | Baker today at 626-768-2945.