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Divorces involving a significant amount of finances and assets are never simple. Texas law allows residents to create trusts for various financial planning and tax reasons, and these trusts might complicate a divorce process if spouses argue over the assets contained within.

The Katy asset division attorneys of Adams Law Firm have guided individuals through complicated divorce proceedings for over three decades. Contact us today at (281) 391-9237 or through our website for a consultation with a talented member of our team. Our goal is to get you the most favorable terms for your asset division agreement possible, given your specific situation.

Table Of Contents

    What Are Trusts?

    Trusts are a financial agreement or arrangement between 2 or more parties fulfilling distinct roles. These roles are:

    • Trustee
    • Trustor
    • Beneficiary

    The trustee is the individual responsible for maintaining the assets or properties within the trust. Depending on the type of trust, they might have absolute control or share control with other trustees and trustors.

    Trustors are the ones who create the trust and fund it with assets. Under Texas law, trustors can only make a trust if “trust property” is present. Trust property refers to more than real estate property. It is any asset that the trustee controls with a fiduciary responsibility on behalf of the beneficiaries.

    Beneficiaries are the people who benefit from a trust. Trusts vary wildly in terms and restrictions, but trustees will eventually give the assets under their control to the trust’s beneficiaries upon the trust’s expiration or the conditions for trust dissolution being met.

    By giving up control over their assets to a trust and a trustee, the trustor can lessen their tax burdens, provide a clear legal and financial safety net to family members, and simplify the process of dividing assets after their death.

    What is Probate?

    Probate is the legal process the state undertakes when a person dies and leaves behind assets. In order to ensure that the deceased’s estate pays any outstanding taxes and debts, courts can appoint a representative to oversee the management and disbursement of funds to affected parties and descendants.

    Understanding probate and its implications is essential for understanding why trusts are attractive to many people. By organizing a trust and placing a large number of assets under the control of a trustee, a financial agreement outside of the state court system immediately has the authority to distribute assets in the way the trustor has set up.

    Common Types of Trusts

    Texas residents can create trusts for many reasons, but the most common trusts are:

    • Living Trusts – Living trusts allow the creator of a trust to benefit from and add to a trust while they are alive and still distribute assets to beneficiaries after their death.
    • Testamentary Trusts – Trustees gain complete control over these trusts after the trustor’s passing and use it to divide assets among beneficiaries, usually children and family members.
    • Charitable Trusts – Charitable trusts will distribute assets to non-profit charities and any other beneficiaries you designate. Charities can be all of the beneficiaries or only a small percentage.

    Trusts are also classified into irrevocable trusts and revocable trusts.

    Revocable trusts allow you to name yourself as the sole trustee and take control of your assets while alive. These trusts do not give as many tax and estate planning benefits as irrevocable trusts. Some trusts, like living trusts, are almost always revocable.

    Irrevocable trusts disallow the trustor to add or remove assets from their trust during their life and also disallow changes to the agreement without going through a lengthy process. These trusts help limit estate tax liability and are useful for those with a lot of assets under their ownership.

    Trusts, Property, and Asset Division In Texas

    So, how do these different trust definitions affect asset division during Texas divorces?

    The division of trust assets will depend on the type of assets used to fund the trusts and whether or not the trustor created them before the marriage.

    Texas divides property into two distinct categories under Texas community property law,  community property and separate property. Spouses jointly own most property they acquire throughout their marriage, no matter who earns it. Examples of this community property include:

    • Income from either spouse
    • Investments
    • Real Estate
    • Settlements of civil lawsuits not intended as compensation for injuries, i.e., punitive damages

    As opposed to community property, separate property is most property owned before marriage. Spouses can argue that some forms of income, like personal injury settlements and inheritance, are separate property even if they acquired it during the course of the marriage, but courts generally have the final say.

    Funding Assets With Community and Separate Property

    Because most or all of the income earned by either spouse in a marriage is community property and jointly owned, one party funding a trust during a marriage with community property allows the other party to argue that they jointly own the trust assets contained within. Complications arise when one marriage partner creates an irrevocable trust using community property. As parties involved cannot easily change the financial agreements of irrevocable trusts, it can be harder to acquire money tied up in these financial black holes owed to you during a divorce.

    Should I Contact an Asset Division Attorney?

    Spouses deserve the community property that they earned while married. Determining how your former spouse funded trusts or whether or not your trust from before marriage is safe as separate property is complex. Attorneys can help establish a clear timeline of trust funding to maximize the benefits and assets you can receive following a divorce.

    Reach Out to a Katy Texas Trust Asset Division Attorney

    You should never leave money that you rightly deserve on the table. If your marriage’s financials include complicated trusts, contact Adams Law Firm to learn how our Katy asset division lawyers can help you recoup community property or protect your separate property located in trusts. Contact us today at (281) 391-9237 or through our website.

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