When divorce involves inherited wealth and family trusts, the complexity multiplies—particularly in contentious divorces. High-conflict divorces can involve more aggressive discovery processes, greater scrutiny of financial histories, and more arguments over what constitutes marital versus separate property.
A contentious spouse may challenge the separateness of inherited assets, claiming commingling or intent to share. Judges may also be more inclined to consider equitable (as opposed to equal) distribution in light of each spouse’s behavior during the marriage, especially if misconduct (like hiding assets or financial abuse) is alleged.
Becoming familiar with the treatment of inherited assets and trusts by family law courts can help divorcing individuals navigate proceedings and safeguard their wealth.
Are Inherited Assets Protected from Divorce?
In general, inherited assets—including cash inheritances, stocks and bonds, real estate, jewelry, art, and collectibles—are considered separate property and are not automatically subject to division in a divorce. However, the protection of these assets depends heavily on how they are handled during the marriage.
For example, if a spouse receives an inheritance and keeps it in a separate account under their name, it’s likely to be shielded from division. But if that money is deposited into a joint account, used for marital expenses, or used to purchase a shared asset (like a marital home), it may be considered commingled and subject to division.
Are Trusts Protected from Divorce?
It depends on the type of trust, the timing, and the terms. Like inherited assets, if the trust was created before the marriage and never used for marital purposes, it’s more likely to be viewed as separate property.
However, if trust income was used to support marital life or if the trust was altered during the marriage to benefit both spouses, it could be subject to division.
Courts will often look at a spouse’s beneficial interest in the trust. This meaning whether they regularly receive income or distributions from it. If so, a judge may factor that into spousal support or consider it a marital resource.
Can a Trust Protect Inheritance from Divorce?
Establishing a trust to hold inherited assets—particularly before or shortly after receiving them—can help maintain their separate status. You can also create a trust with clear intentions to separate personal wealth from marital resources. However, courts will likely examine whether the trust was created to defraud a spouse or unfairly withhold assets.
The type of trust is important to consider. Here are a few types of trusts and how they are typically treated in divorce:
- Revocable Trusts Revocable trusts offer little to no protection in a divorce. The grantor can alter or revoke these trusts during their lifetime. Since the grantor retains control, assets in a revocable trust are usually considered available to them and may be included in the marital estate.
- Irrevocable Trusts Once established, these trusts cannot be altered. Since the trust legally owns the assets (not the individual), they are usually beyond the reach of divorce settlements. However, if the trust appears to have been created in bad faith or was used during the marriage to benefit both spouses, it may still come under legal scrutiny.
- Discretionary Trusts These give trustees the power to decide when and how to deliver assets to beneficiaries. Because beneficiaries have no guaranteed rights to the assets, these trusts may offer more protection during divorce.
It’s best if the trust is irrevocable, as this structure removes the assets from your legal ownership and places them under the control of a trustee.
Can I Put My House in a Trust Before Divorce?
Yes, but timing and intent are crucial. If you place your home in a trust shortly before filing for divorce, the court may view this as an attempt to hide assets. That could lead to the trust being disregarded or even dissolved. It’s best to consult a skilled divorce attorney and make such transfers long before divorce is on the horizon—or, at the very least, with full disclosure.
8 Tips for Protecting Inheritance and Trusts in Divorce
If you’re facing a contentious divorce and have inherited wealth or family trusts involved, here are some legal tips to help protect your assets:
- Maintain Separation: Keep inherited assets in separate accounts. Avoid using them for marital expenses or combining them with joint property.
- Document Everything: Keep records showing the origin of the inheritance or trust, how it was used, and who benefited from it. This can be vital in proving separate ownership.
- Consider a Prenup or Postnup: Prenuptial and postnuptial agreements can specify how inherited assets and trust interests are to be treated in a divorce.
- Create a Trust Early: If you’re planning to receive a significant inheritance, setting up a trust before marriage or divorce is a strategic way to insulate those assets.
- Don’t Transfer Assets Hastily: Transferring property into a trust or to another party right before divorce may look suspicious and could be reversed by the court.
- Review Trustee Discretion: If you are the beneficiary of a discretionary trust, make sure the trustee understands the legal risks and is prepared for scrutiny during litigation.
- Be Transparent: Hidden assets or undisclosed trusts can lead to penalties or an unfavorable settlement. Honesty—paired with solid legal representation—is your best defense.
- Hire a Divorce Attorney: Especially one with experience in high-conflict or trust-heavy divorces. They can help navigate complex financial structures and protect your rights.
Inherited wealth and family trusts can create significant friction in divorce proceedings, especially when the relationship is already combative. While the law offers avenues to protect these assets, the effectiveness of those protections depends on timing, transparency, and proper legal planning. Contact our office today if you have any questions at 212.682.6222 or online.