Some people, while married, place their family home or other valuable assets in a living trust, with no idea that they might eventually divorce. Assets in a trust are placed outside of personal ownership. But what happens to community property in a trust if you divorce?
What is a living trust?
A living trust is an estate planning vehicle that can protect property for your heirs. You place assets in the trust, which transfers ownership of the property from you to the trust. Living trusts can be revocable or irrevocable. Revocable trusts can be managed by you as the trustee and can be modified during your lifetime. Irrevocable trusts are managed by a third-party trustee and cannot be modified during your lifetime.
Trusts are useful when it comes to estate planning. Assets in a trust are protected from creditors and judgments. Assets in trusts also do not go through the time-consuming and complex probate process. This can preserve your trust assets for your heirs.
What happens to property in a living trust if you divorce?
In California, all property obtained while married or paid for with money earned while married is considered community property. This means that both spouses have a right to an equal share in it if they divorce. Community property in a living trust is still community property. Therefore, it is subject to division in a divorce. This is true whether the living trust is revocable or irrevocable.
The rules can differ if a living trust is only funded with separate property and the separate property has not commingled with community property. Still, it is good to know the entire extent of your marital estate, which could include community property placed in a trust. This knowledge can help ensure the property division process is equitable to both you and your spouse.