Divorce Involving Trusts

Irrevocable Trusts

An irrevocable trust is a different matter. Once assets are transferred into an irrevocable trust, the grantor relinquishes control. They cannot modify the trust or reclaim the assets. Because the assets no longer belong to either spouse personally, they are generally not subject to division in divorce. This makes irrevocable trusts a meaningful asset protection tool, and one that high-net-worth individuals frequently use for tax planning and generational wealth preservation.

The protection is not absolute, however. If an irrevocable trust was funded with community property without the other spouse's consent, a court may find that the non-contributing spouse retains rights to their share of those assets. And as discussed below, a spouse who creates an irrevocable trust during the divorce process to shield assets from division may face serious consequences.

Third-Party and Family Trusts

Many high-net-worth individuals are beneficiaries of trusts created by parents, grandparents, or other family members. These may be dynasty trusts, family wealth trusts, or generation-skipping trusts designed to preserve and transfer wealth across generations. These trusts were not created by either spouse and are funded entirely with third-party assets.

Under California Family Code § 770, assets received by one spouse as a gift or inheritance are separate property. A beneficial interest in a third-party trust generally falls into this category. The assets held in such a trust are not community property and are not subject to division but, as discussed in the spousal support section below, the income those trusts generate is a different question.

Commingling: When the Lines Blur

Commingling is one of the most litigated issues in trust-related divorce cases. It occurs when separate property trust assets become mixed with community property in a way that makes them difficult or impossible to distinguish.

Common commingling scenarios include:

• Trust distributions deposited into a joint marital account and used for household expenses
• Marital funds used to improve or maintain property held in a separate property trust
• One spouse contributing labor or services to a trust-held business during the marriage
• A separate property trust used as collateral for a loan that benefited the marital community

When commingling occurs, the separate property character of trust assets can be partially or fully lost. The burden falls on the spouse claiming separate property status to trace the assets and demonstrate, by clear and convincing evidence, that the commingled funds can be distinguished. Forensic tracing is frequently required in these cases, and the quality of financial records maintained during the marriage plays a significant role in the outcome.

Trust Income and Spousal Support

Even when trust assets are clearly separate property and not subject to division, the income those trusts generate can still be relevant in divorce, specifically in the context of spousal support.

California courts consider all sources of income available to each spouse when calculating support. A spouse who receives regular distributions from a family trust, or who holds a beneficial interest in a trust that generates consistent income, will have that income factored into the support analysis regardless of whether the underlying trust assets are divisible. This matters for both sides:

• A non-earning spouse with substantial trust income may receive less support than they would otherwise
• A high-earning spouse whose standard of living was supported in part by a partner's trust income may find the post-divorce financial baseline looks different than expected
• Significant trust income on either side of the equation requires careful analysis and, often, expert financial testimony

Discretionary trusts present their own challenges. Where a trustee has authority to determine whether and when distributions are made, courts cannot compel a distribution. However, where a pattern of regular distributions existed during the marriage, courts may consider the likelihood of continued distributions when assessing a spouse's overall financial picture.

Fraudulent Transfers Into Trusts

California law prohibits spouses from taking unilateral action to dissipate or conceal community assets during divorce. Under California Family Code § 721 and the Uniform Voidable Transactions Act, transfers made with intent to defraud a spouse of their community property interest can be unwound by the court. Red flags that may indicate a fraudulent transfer include:

• Assets moved into a newly created trust shortly before or after separation
• A spouse establishing an irrevocable trust during the pendency of the divorce
• Trust transfers that reduce the community estate without the other spouse's knowledge or consent
• Patterns of distribution or retitling inconsistent with prior practice

In contested cases, forensic accountants and financial investigators can trace the movement of assets and establish the timeline of transfers relative to the date of separation or the filing of the petition. Courts take these issues seriously. Consequences for a spouse found to have concealed or fraudulently transferred community assets can extend beyond the assets themselves to attorneys' fees and sanctions.

Frequently Asked Questions

Is a Trust I Created Before Marriage Protected From Division?

Generally yes, provided it was funded with separate property and the assets were not commingled with marital funds during the marriage. A trust created before marriage and consistently maintained as separate property will typically be treated as such. However, any appreciation or contributions attributable to marital efforts or community funds may have a divisible community property component, and tracing will be required to establish the boundaries.

What Happens to a Joint Revocable Trust We Created Together During the Marriage?

Joint revocable trusts created during the marriage are typically funded with community property and treated as community assets. In most cases, the trust will need to be dissolved as part of the divorce so that the underlying assets can be characterized and divided. The dissolution process requires careful review of what went into the trust, when, and from what source.

My Spouse Is a Beneficiary of Their Family's Trust. Can I Claim a Share of It?

The trust assets themselves are generally not divisible, a beneficial interest in a third-party family trust is typically separate property under California Family Code § 770. However, distributions that were deposited into marital accounts and used to support the marriage may have become community property through commingling. Additionally, regular trust income will factor into any spousal support analysis.

Can a Trustee Be Compelled to Make Distributions During a Divorce?

Not directly. California courts do not have authority to order a trustee of a third-party trust to make distributions to a beneficiary spouse. However, courts can consider the likelihood of future distributions when assessing a spouse's financial resources for support purposes. Where one spouse has demonstrated influence over a trust, such as serving as both trustee and beneficiary, courts may look more closely at whether distributions are being withheld strategically.

What If My Spouse Transferred Assets Into a Trust After We Separated?

Transfers made after separation with the intent to reduce the community estate available for division can be challenged under California's voidable transaction laws. If community assets were moved into a trust after the date of separation or after the divorce petition was filed, those transfers may be unwound. Early legal intervention is important. The sooner the transfer is identified, the more options are available for addressing it.

Trust Issues in Divorce Reward Early, Experienced Counsel

The intersection of trust law and California community property rules is genuinely complex. Characterization questions, commingling disputes, spousal support implications, and potential fraudulent transfers all require analysis that goes beyond standard property division work. The earlier an experienced attorney is involved, the better positioned a client is to protect or assert their rights.

Call (415) 805-9069 or reach us online to speak with an attorney about your case.