California is one of nine community property divorce states in which the“community” of two created during the marriage becomes dissolved in a divorce, requiring equal distribution of the assets acquired by the marital community. There is a lot to consider during this process, including discerning what assets are each spouse’s separate assets and which ones belong to the marital community.

Another consideration for some spouses is a living trust created by one or both spouses during the marriage, or inherited by one spouse before or during the marriage. What happens to the assets in the trust also depends on whether or not they are marital assets or separate property.

Revocable Trusts During Divorce

The most common type of trust is a revocable living trust. This places assets into a trust for a beneficiary but allows the trustee to access the funds or dissolve the trust at any time. Often, divorcing couples must dissolve a joint revocable trust they created during the marriage in order to claim their separate assets and divide their marital assets since many spouses place both types of assets into the trust.

For example, a revocable living trust created during a marriage might contain the marital home purchased by both spouses during the marriage, but also a financial account inherited by one spouse before the marriage. In this case, the spouses must dissolve the living trust so one spouse can keep their inherited financial account and the marital home can be sold to divide the equity or profit equally between both spouses.

In many cases, even a separate living trust becomes subject to division if the spouse who is the trustee commingled the assets in the trust by allowing a spouse access to the asset or because financial sums added to the assets held in trust during the marriage are community property.

What Happens to an Irrevocable Trust During a Divorce?

Assets placed into an irrevocable trust cannot be touched. Many high-asset individuals use an irrevocable trust as a tax shelter to hold assets that will pass to a beneficiary after the trustee’s death. Assets placed into an irrevocable trust for a beneficiary no longer belong to the marital community so they are not subject to division during a divorce—just as the trustee can no longer dissolve the trust or access the assets placed into the trust, a judge cannot do so either.

However, if one spouse creates an irrevocable trust without their spouse’s signed permission after separating or filing for divorce in order to prevent the spouse from gaining half of the assets in the divorce, a judge may order the spouse who created the trust to reimburse their spouse if any of the assets placed into the trust were marital assets.

What if One Spouse Inherited Property in a Trust?

Any assets one spouse inherits before or during their marriage remain their separate property, not subject to division during the divorce. This includes property held in a trust and then inherited by one spouse. The only exception to this rule occurs when the spouse who inherited the property held in trust commingles the assets with their spouse during their marriage. For example, if one spouse inherited a family home in a trust, but the other spouse invested money or time into making improvements to the property, they have a valid claim on the property as community property.

The Importance of an Attorney During a Divorce Involving Living Trusts

Untangling estate planning and the division of marital assets during a divorce with one or more trusts becomes complicated. It’s important to hire a seasoned Los Angeles divorce attorney with experience in navigating this special area of divorce law.