Trusts in Divorce

Texas Law and Property Division in Divorces

Texas follows the community property law, which mandates the division of all community property in the event of a divorce. Community property generally refers to any property that either spouse acquires during their marriage, except for certain items such as damages awarded in personal injury cases, gifts and inheritances, and property that remains separate property due to a prenuptial agreement. Community property is jointly owned by both spouses, whereas separate property is owned by only one spouse. Typically, separate property includes assets owned by either spouse before marriage, including trusts. However, in certain cases, a portion or all of the income from a trust may be classified as community property, leading to a just and equitable division by the court during a divorce.

Revocable and Irrevocable Trusts in Texas Divorces

The determination of whether property in a trust or trust proceeds are community property is generally dependent on the trust's creation date, the nature of the property placed into it, and the trust's terms. For instance, if an irrevocable trust was established by a settlor before marriage and a spouse is named as a beneficiary without the right to possess trust assets, the trust assets are likely considered separate property. However, if the irrevocable trust was created after marriage, the community or separate property designation depends on whether one or both spouses are beneficiaries.

In Texas, regardless of whether trust assets are considered community property in a divorce, income received by a spouse from an irrevocable trust may be considered community property. Whether income from a trust is deemed community property depends on factors such as whether the beneficiary has a current or future right to the trust's assets and whether the beneficiary has exercised that right. A divorce attorney can help determine whether the trust income is community property.

Another issue arises when dividing trust property in a divorce where one spouse creates a trust for the benefit of a third party during the marriage. If the trust is revocable, and marital assets fund it, the trust's assets will likely be deemed community property because the settlor retains the right to cancel or amend the trust.

Speak with an Experienced Divorce Attorney

Dividing property can be a complex task when individuals with significant wealth go through a divorce. If you or your spouse have a trust that you created or benefit from, it's advisable to seek legal counsel to understand the possible financial ramifications of the divorce. At Wilson Whitaker Rynell, we are dedicated to assisting you in achieving a beneficial asset division outcome. Our firm represents clients in divorce cases in various Texas cities, including Dallas, Austin, Houston, Fort Worth, and all cities within Dallas County, Tarrant County, Collin County, and Denton County.