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Trust Property in Divorce

In Colorado, Courts will divide and transfer marital property between spouses equitably in a divorce proceeding, see /blog/2016/10/marital-property-division-in-colorado.shtml. Prior to the mid-1980's, Colorado along with many states applied the title rule, which was that whomever had title to property would receive that property upon a separation. As a result, trust assets were generally not included in the division of marital property. In the interest of avoiding unfair property distributions, Colorado has expanded the pool of assets Courts must divide to include all assets, regardless of title.

A trust can be a complex package of present and future rights, powers, and interests which are not necessarily fixed. A court must first determine if an interest in trust constitutes a "property interest." A trust is not considered a property interest where it is merely an expectancy that may or may not occur. For example, an interest in a revocable trust does not create a property interest to a party in Colorado because a third party grantor may have the ability to revoke the trust or change the beneficiary at any time. It would not be fair for a court to assume a party owns an interest in a trust when that party can be divested of that interest in the future. An interest in a trust asset is considered a property interest if the beneficiary has an enforceable right to receive some benefit from the trust. Generally, this occurs when the beneficiary has a "guaranteed" interest such as a vested remainder in an irrevocable trust or an income beneficiary of a nondiscretionary trust.

After a court determines that a party's interest in a trust constitutes a property interest, the court must determine if it is marital or separate. If the trust is marital, the Court will include the value of the party's interest in the marital property division. If the trust interest is separate property, which it often is, the court will determine whether the trust (or the assets contained in the trust) have appreciated in value during the marriage. If a trust asset is included in the pool of divisible assets considered by the court in a divorce proceeding, the trust instrument must be interpreted, its' various assets quantified, and the value divided.

The division of trusts is complex; often because there are other parties - such as family members of a spouse - involved. Protect your future net worth. Seek guidance from an experienced family law attorney when making these decisions.

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