David R. Hartwig, ESQ.
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Of Trusts and Divorce -- Trusts as potential marital property.

Many people in Utah create trusts to control property or avoid probate. Sometimes people create a family trust. However, sometimes people fail to fund or use their trusts correctly.
    A recent Utah Supreme Court case appears to require the joinder of trusts in a divorce action. That case is Dahl v. Dahl.1 The rationale for joinder is that as trust assets may include marital property, the trust must be joined as a party to the divorce action. Property Division, and Using Trusts
     
    Now, what does all of this have to do with divorce? That question goes to when the trust was created, the purpose of the trust, how the trust is funded, and who the beneficiaries are.
    When people divorce, the courts review the marital estate and decide what is, or is not, marital property. In essence, whatever is created or received during a marriage is marital property. (There are some exceptions, but they are beyond the scope of this explanation.) Marital property usually includes:

    •    Wages earned during a marriage, as well as the things purchased or improved with those wages.
    •    Increases in property value that occurred during the marriage.
    •    Contributions to, or increases in the value of, retirement, or other investment accounts using funds earned during the marriage.

    Marital property might also include any of the following:

    •    A trust that was created during the marriage, especially if marital property was used to fund it.
    •    A trust was created to benefit the grantor's family, especially if the spouse is included.
    •    A trust, if the trust property has been used by the family or spouse, or there have been transfers of property into and out of the trust during the marriage.

    In a divorce, the trial court must be able to make fair and reasonable decisions about the marital estate, including children, property, debts or obligations, so that the decision will be fair and reasonable to all concerned. In making an equitable division of the marital assets, the court needs flexibility to decide upon the evidence whether any property, including property transferred by one spouse into a revocable trust, should be included within the marital estate.2
    While that matter specified only a revocable trust, Dahl has expanded the application to irrevocable trusts as well. This is an argument that I successfully used to join an irrevocable trust  in a divorce action.
    If you have a trust and you think its assets are not marital, you might be wrong. If you are involved in a divorce or are thinking about a divorce, , it would be prudent for you to review your trust, or any ideas you have for creating a trust, with an appropriate family law counsel, particularly one who is familiar with Dahl.
    If you do become involved in a divorce and you either know, or suspect, that a trust exists, any counsel you retain to help you should also know about joining the trust in the divorce so that you will be able to divide the marital estate equitably.

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1 345 P.3d 566; 2015 UT 23
2 Knickerbocker v. Cannon (In re Estate of Knickerbocker), 912 P.2d 969; 1996 Utah LEXIS 14; 285 Utah Adv. Rep. 3

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