Family Trusts in High Net-Worth Divorce Cases
Married couples with substantial wealth often establish family trusts as a means of preserving assets, supporting future generations, or funding charitable giving. These trusts can provide structure, continuity, privacy, and financial protection. However, when a marriage ends, the legal and financial questions surrounding the characterization and division of trust assets can become extremely complex. The court must determine whether the trust—or any portion of it—should be considered separate property, marital property, or a combination of the two.
Generally, if a family trust is deemed the separate property of one spouse, the other spouse may still have a claim to a portion of the increase in value during the marriage, especially if the appreciation resulted from marital contributions, active management, or efforts by either spouse. Many high-net-worth individuals also enter second or subsequent marriages with preexisting trusts already established for children from prior relationships, long-term estate planning, or asset protection goals. In these situations, prenuptial agreements and carefully drafted estate planning documents often play a significant role in determining what happens to trust assets in the event of divorce.
However, prenuptial or postnuptial agreements may become the subject of litigation if a spouse argues that:
The trust’s value increased due to marital labor or financial contributions
Trust assets were commingled with marital assets
The agreement was invalid or unenforceable
The terms of the agreement insufficiently protected or improperly classified the trust property
These issues make family trusts one of the most intricate components of high-asset divorce.
Dividing Trust Accounts in Divorce
If a family trust is part of the marital estate in your pending divorce, it is critical to work with an attorney who has extensive experience in high net-worth property division laws. Trusts are unique in that they may involve complex financial structures, layered asset holdings, independent trustees, and beneficiaries who are not part of the divorce. Some trusts may restrict transfers, limit distributions, or require trustee discretion—all factors that influence how the court analyzes the trust during dissolution.
Since 2007, Stange Law Firm, PC, has been dedicated to providing sophisticated, intelligent representation for high-net-worth clients facing divorce. Our attorneys understand the interplay between trust law, family law, and estate planning. We work closely with financial experts, trust administrators, and valuation specialists to ensure that your interests are fully protected.
Complex Financial Issues Involving Family Trusts
The division or characterization of a family trust in divorce may require a multifaceted analysis, including:
1. Transmutation and Asset Characterization
Courts must determine whether the trust—or contributions to it—became marital property through acts such as:
Adding a spouse as a beneficiary
Using marital funds to supplement the trust
Treating trust income as marital income
Intermixing trust assets with marital accounts
Characterization often requires expert tracing and detailed financial review.
2. Tax Considerations
Trusts may carry tax obligations or benefits that influence settlement negotiations. Issues may include:
Capital gains tax upon liquidation of trust assets
Gift tax implications
Tax consequences associated with distributions
The structure of irrevocable versus revocable trusts
Proper analysis is essential to avoid hidden financial consequences.
3. Inheritances
Inherited assets placed in or paid out from a trust must be evaluated to determine whether they remain separate or have become part of the marital estate through commingling or contribution-based appreciation.
4. Appreciation of Trust Assets
Even if the trust itself is separate property, the growth in value during the marriage may be partially marital if:
The increase resulted from active efforts
A spouse managed or contributed to the trust’s assets
Marital funds were used to support trust assets
Courts differentiate between passive appreciation (market forces) and active appreciation (effort-driven increases).
5. Litigation of Prenuptial and Postnuptial Agreements
Trust-related provisions in marital agreements may become disputed if:
A spouse challenges enforceability
The agreement failed to protect newly added assets
The terms regarding trusts were ambiguous or incomplete
These disagreements often require nuanced legal arguments and a deep understanding of both family and trust law.
Contact Our Diligent Trust Divorce Attorneys
Contact our property division lawyers online or by phone to schedule a confidential consultation at one of our convenient locations.
