Trusts serve a unique position at the intersection of estate planning, wealth preservation, and tax strategy, and frequently involve complex family dynamics. Often viewed as tools designed to protect assets across generations, trusts can become a focal point in divorce proceedings, particularly in high-net-worth matters where substantial wealth may be held outside traditional ownership structures. While trusts are intended to create certainty for families, divorce can introduce an opposing legal objective—fairness—which requires courts to often weigh competing principles: ensuring equitable distribution of assets between spouses while also respecting valid asset protection planning. After all, family law courts are “courts of equity,” not “courts of law” —meaning judges have broad discretion to prioritize fairness and prevent irreparable harm to either party when making rulings.¹ In contrast, “courts of law” adhere to strict legal rules and precedents, often without regard to the financial consequences of verdicts or rulings, regardless of whether the implications of those decisions are ultimately “fair” or not.

When courts analyze these competing principles in divorce proceedings, the inquiry extends far beyond asking whether an asset sits inside a trust. The court must consider all the facts: the trust classification, terms of the trust, when the trust was created, whether a spouse exerted control over the trust creation and/or if he or she breached their fiduciary duty to their spouse, if the trust was created specifically in connection with divorce planning, and whether the spouses or spouse still have control of the assets. Even when trust assets remain outside the marital estate, they can still influence financial outcomes relating to the divorce.

What is the trust classification?

The first inquiry to consider in any divorce involving trusts is the trust’s classification: whether it is revocable or irrevocable. Whether trust assets are subject to division often depends on the type of trust at issue, governing law, and the circumstances surrounding its creation and administration. For revocable trusts, the grantor generally retains the ability to amend or revoke the trust during their life and, therefore, is distinguishable from irrevocable trusts.

Does the trust transmute property or override preexisting agreements?

One of the next inquiries is whether the trust changes the character of the community or marital property or overrides the terms of preexisting agreements. Revocable or not, trusts raise issues when they include provisions transmuting the character of property transferred into the trust without one spouse’s explicit knowledge or consent or ability to secure independent counsel in connection with the transfer. Further issues may arise when provisions of the trust are inconsistent with, or seek to override, the terms of spouses’ marital agreements (for example, a prenuptial or postnuptial agreement), whether known or unknown by the parties.

When such issues arise, courts must look at the intent of the parties, whether they intended for the trust to modify or override other enforceable agreements, and if both parties were represented by independent counsel at the time they executed the trust documents—particularly when the character of the assets is modified from their original form and removed from the marital estate. The court must also consider what interest, if any, do(es) the spouse(s) continue to possess, and what was their intent at the time they executed the trust documents.

Did a spouse breach his or her fiduciary duty to the other spouse?

When the character of assets is modified from their original form or transferred outside the estate, courts must also consider who controlled the family finances. When one spouse exerts control over the family finances, the court must consider whether that spouse breached his or her fiduciary duties to the other spouse by taking deliberate actions to impair the claimant’s spouse’s interest in the community or marital estate.² When that same spouse also acts as trustee of the trust, the analysis extends beyond just the marital estate. The court must also consider whether that spouse, acting as trustee, also breached their fiduciary duty as trustee. This may result in the need for further litigation in the probate court, outside of the family court’s jurisdiction.

When was the trust created?

Trust planning also faces strict scrutiny when implemented close to the parties’ separation, especially when community or marital assets are transferred to an irrevocable trust for the benefit of third parties, including minor children. While inheritance and tax planning are legitimate objectives of many families, divorce often raises questions regarding the intent, timing, and benefit of those transfers since the removal of assets from the marital estate can have rippling financial consequences. The courts may consider all facts and circumstances of the transfers, including the timing of the transfers, whether the assets remained under the control of one of the spouses, and the marital state at the time of the transfers.

Does a spouse still control irrevocable assets?

In divorce proceedings, courts may also examine practical control. Even where a spouse does not technically own the trust assets, courts will frequently examine whether that spouse exerts sufficient influence over the trust (including irrevocable trusts) to justify treating it differently in divorce proceedings or taking it into consideration in their assessment of the parties’ finances. The court may consider whether the spouse serves as trustee, whether distributions are made at the spouse’s request, whether the assets are treated as property of the estate (irrespective of its title), and whether the trust funded the marital lifestyle. This may arise, for example, when a spouse claims trust assets are inaccessible while simultaneously freely using those assets to purchase residences, vehicles, pay for expenses, and maintain their lifestyle.

Can assets outside the marital estate still influence support?

Even when trust assets remain outside the marital estate, they can still influence financial outcomes relating to child and spousal support, ability to maintain marital standard of living, and/or expenses on behalf of the children, such as school tuition, and available resources to pay for professional fees in the proceeding. Courts may consider the terms of the trust, the historical distributions and/or expenses paid by the trusts, and cash flow available to the spouse(s) as a result of the trust assets.

When shielding assets goes wrong.

A further consideration in dissolution proceedings is when spouses agree to transfer assets to third parties for asset shielding. When parties during their marriage transfer assets to third parties, and then separate, the assets are no longer part of the marital estate, absent said third-party transferring those assets back. The court must examine whether these transfers were fraudulent, which often creates greater issues for the parties, not to mention an inquiry into their credibility. Further, if the spouse who held the relationship with the third party dies, the dispute becomes subject to the probate or civil courts, often outside the jurisdiction of the family law proceeding.

* * *

At the end of the day, family law courts are courts of equity, and judges must weigh the totality of the facts and circumstances when making decisions that impact a party’s access to assets and income. This does not mean every trust created during marriage is improper. Rather, divorce often forces courts to ask whether a trust operated as a true transfer of ownership, or simply as a mechanism to reduce the estate while still preserving access. That distinction can materially alter outcomes in the divorce proceeding. While sophisticated trust planning is important, trust disputes in divorce teach us that it is imperative to know what it is you are agreeing to when placing marital assets in trust, always seek independent legal counsel before signing, and make sure all of your legal documents operate together rather than in independently or in conflict with other agreements.

1. California Code, Family Code - FAM § 2128; New York Domestic Relations Law § 236.

2. See California Family Code section 1101.