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Property Divorce – Trust
A trust is a legal entity that can hold title to a particular property and which may benefit more than one person. If your spouse has set up a trust or is one of the beneficiaries of a trust, and you are concerned about your rights, you should get the advice of an attorney.
Dividing a trust in divorce can be complex knowing that your spouse may not be the only beneficiary of the trust. Even if he is the only beneficiary, it is important to classify the property in a trust as either marital or separate, because you can only divide marital property in divorce. Typically, you cannot be successful at dividing assets in a trust that a third party owns, whether an individual or another business entity.
Interests in Trusts as Marital Property in Divorce
Courts give similar treatment to trusts that are used as a general purpose, such as a gift or inheritance. However, trusts are sometimes used for purposes other than the two mentioned so that courts may treat it as a different case and may also have a different outcome.
What you can do
If you are initially concerned of your legal rights with your spouse’s trust benefits, talk to your lawyer or entire divorce team and ask them to conduct a careful review of the trust documents. You can also ask your finance advisor to help locate your trust documents if you are a beneficiary of a trust. Notably, only entities which indeed constitute a tangible “property” are classified into marital property. Divorce cannot divide entities that do not quantify as property, such as educational degrees or the expectancy of receiving a future gift or inheritance.
Property Divorce – Family Limited Partnerships
It can be difficult to untangle family limited partnerships (FLP) because of the nature of this type of investment. Knowing that a FLP ownership can involve several family members, what you and your divorce team can initially do to equitably divide this asset is to first establish a standard of value.
What are the possible complications in dividing Family Limited Partnerships (FLP)?
1. In most cases, a child’s ownership of limited partnership shares will not get affected by a divorce action between a child and his/her spouse. However, your family can help protect your ownership in the FLP by taking steps to provide additional insurance.
2. Since shares in FLPs are given as gifts, and children have no voting power in FLPs, the child’s shares will not be considered part of marital assets but will remain his/her sole property. You must ensure, though, that your share in the FLP was never formally part of the marital property.
3. In the event that you spouse persuades a court to believe your shares in the FLP are part of the marital assets, the general partners (who have the voting powers over the partnership) have the option not to distribute income to you (the limited partner). In this scenario, though, the limited partner will assume the tax responsibility without receiving any income from the FLP.
On the other hand, what your soon-to-be ex-spouse can possibly or will likely do is hire a financial expert to apply a “fair market value” approach on assessing the value of your FLP share. After which, your assets in the FLP will be substantially devalued from its present market value. Protect your family’s assets by asking your divorce team to prepare counterarguments and your version of valuation.
Property Divorce – Corporate Executive
Dividing property with a regular employee can be simple but it is not quite so if your spouse is an executive at a Forbes 500 Company or even a start-up company. Corporate executives likely have a complex compensation package which can consist of (on top of the basic salary) bonuses, equity-based compensation, perquisites, and even a long-term incentive plan. If you want to know the real deal, make sure to understand the details in the package.
The equity-based component of many executives can constitute more than 80 percent of their annual income. In order to receive child support or alimony after the divorce trial is over you may need to prepare a historic analysis of the entire compensation package of your spouse. Such an analysis can help prove equity-based compensation package, and that they will likely occur after divorce. Additionally, you and your attorney can use this information to include this in your spouse’s source of income.
Meanwhile, it can help to ensure both parties (you and your spouse’s) will define income in the separation agreement to prevent future misunderstandings and at the same time protect what financial assets you have.
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