Beware of Trusts in High Asset Marriages!

Consider the legal consequences of Trusts regarding the characterization of marital property, especially Trusts created by separate property prior or after marriage.  A Trust can be a creative and useful tool depending on the perspective and actual need of the parties.  To a spouse owning substantial separate property, an irrevocable Trust may be a safe haven that will guard the separate property and potentially the income from the separate property against property divisions in a Divorce Court.  On the other hand, in some cases, a spouse that has no separate property may be defrauded by the other spouse.

The Texas Courts have indicated that separate Trusts created prior to marriage, that are irrevocable spendthrift Trusts are a valid means to shelter separate property of the marriage and the income from the trusts are not subject to division during the divorce proceedings.  The beneficiary of the separate Trust (the spouse with the separate trust or beneficiary of a separate trust) do not have a present possessory right to any asset within the corpus of the Trusts.  If the spouse is granted a present possessory right to any portion of the trust in the trusts, then the income from the Trusts may be divided in a Divorce Court as community property.

This is an area of concern to the other spouse. If you are married to an unsavory spouse, where separate property assets owned prior to the marriage are put into an irrevocable spendthrift trust, take measure to insure no money or other property acquired during the marriage is siphoned into those separate Trusts. One spouse may siphon community property throughout the marriage into separate Trusts in order to deplete the community estate. This constitutes fraud on the community estate and the innocent spouse may seek adequate compensation.

It is important to hire an experienced attorney that understand the intricacies of Trusts and the part Trusts can play in sheltering community funds from a spouse during the marriage. Many wealthy men or women may abuse the Trust formation to defraud their spouses from fair community property allocation.  Wealthy spouses may use irrevocable or discretionary Trusts created prior to the marriage for asset protection instead of using prenuptial agreements or post marriage property agreements. The case law is still not completely settled in Texas regarding irrevocable Trust as they pertain to divorce and it is important to hire an attorney that can help guide you through these complexities and insure you are not being defrauded or taken advantage of in a divorce proceeding.

Invalid Pre-Nuptial Agreement: Attacking Pre-Nuptial Agreements

Modern High Asset marriages commonly  involve Pre-Nuptial agreements to preserve and protect each spouses‘ property. If one spouse takes advantage of the other and the Pre-Nuptial is unconscionable, it may be attacked as invalid as a matter of law. There are a few considerations you should make sure of before determining if a Pre-Nuptial is valid:

  1. Did you sign the Pre-Nuptial voluntarily?

OR

  1. Were you given fair disclosure of the property or obligations of the other spouse?
  2. Did you waive the right of disclosure in writing?
  3. Did you have adequate knowledge of the property or financial obligations of the other spouse?

If you answered “NO” to either (1) or all of (2)-(4) then you may be in a position to contest the Pre-Nuptial agreement. It is difficult to show that a Pre-Nuptial agreement is unconscionable. The Courts have made it clear that “unfairness” which is short of unconscionability does not make a Pre-Nuptial unenforceable. Determining whether a Pre-Nuptial agreement is valid or not is in large measure a question for the judge and not for the jury. This means that a judge will make the determination if your spouse has forced you to sign a Pre-Nuptial in an unconscionable way.

For high asset divorces, Pre-Nuptial agreements are more common. If you are a spouse that was pushed into signing a Pre-Nuptial without fair disclosure or without adequate knowledge of the property or obligations enforced in the agreement you may have a claim. Depending on the circumstances, invalidating a Pre-Nuptial agreement may be time consuming and costly, so an experienced attorney must be consulted.

Assess your situation at the time you signed your Pre-Nuptial. Did your spouse muscle you into signing the Pre-Nuptial, thus possibly invalidating the Pre-Nuptial? Once you have answered these questions find an experienced attorney that is familiar with contesting or setting aside unconscionable or unenforceable Pre-Nuptial Agreements.

Julian Nacol, Attorney
Nacol Law Firm P.C.

Trust Busting in a High Asset Divorce

One the most complicate and transparent ways an individual may defraud a spouse during a marriage is with the use of a trust.  A trust is an entity that separates equitable and legal title of all property or money placed within it. Prior to, during, or after marriage, a spouse may create a trust and name the children of the marriage or others, as the beneficiaries.  The spouse then may start siphoning community property and separate property into the trust removing the property from the community. This is a tactic commonly practiced when a spouse has failed to sign a pre-nuptial agreement.

Circumstances like this happen in High Asset Divorces because a trust may be used to protect properties from the other spouse. Attack the trust as a party of the case and request an accounting.  It takes an experienced lawyer to understand which trusts can be attacked and which trusts are impenetrable.

Trust busting consists of complex and arduous litigation depending on the circumstances. The circumstances of a trust are important in divorce cases. Here are a few questions you should ponder when assessing any trusts during a divorce:

  1. Determine when the trust was created;
  2. Determine if the trust is revocable trust  or irrevocable trust ;
  3. Determine who the beneficiary of the trust is;
  4. Determine who the trustee of the trust is;
  5. Determine who the settlor of the trust is;
  6. Determine the type of property or money that is placed within the trust; and
  7. Determine when the property or money was placed in the trust.

These are just a few inquiries you should make prior to meeting with your lawyer. It will save you time and money. Depending on the answers to the seven inquires stated above, an experienced lawyer may be able to bust the trust opening the property and monies for the final hearing in a divorce case. There are many defenses and unsettled law in connection with trust busting and an experienced attorney must be sought.

 

Julian Nacol, Attorney
Nacol Law Firm P.C.