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.