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When a third-party trust is considered shared property

On Behalf of | Feb 13, 2017 | Property Division

Since California is a community property state, most assets acquired during marriage are considered marital property to be divided in the case of a divorce. However, there are a few exceptions to this rule, including inheritances. To maintain an inheritance as separate, the beneficiary should not commingle that money with jointly owned assets.

If the inheritance is set up as a third party trust, it might be considered a marital asset. Therefore, unless the people who created the trust were specific about its uses, the beneficiary’s former spouse could be entitled to half of the trust assets. This works two ways. A third party trust can also be created to support both people in a marriage. An example of this might be if parents have a child who is ill or has substance abuse issues. The parents may have a good relationship with the child’s spouse, and they might want to ensure that this individual is also taken care of if the marriage dissolves.

Ultimately, if the language in a third-party trust is not specific, there could be a dispute over the property. It is important that people who create third-party trusts consider contingencies.

Couples might have a dispute about other issues as well, including other types of property. In a high-asset divorce, this might include collections, real estate in other countries and investments. Under community property law, the division of these assets is not necessarily 50/50. The aim will be to make an equitable division of marital property. Spouses may also negotiate an agreement outside of court that suits them better than a judge’s decision might.