In New Mexico, divorcing couples must address a range of financial assets, including any trusts either spouse may have. The classification of a trust as either community property or separate property can have a significant impact on the divorce settlement. While it’s important to seek guidance from a divorce attorney, we’ll break down some key issues surrounding trusts and divorce and explore strategies for protecting assets in a New Mexico divorce.
How Trusts Are Handled in a New Mexico Divorce
New Mexico follows community property laws, meaning that most assets acquired during the marriage are divided equally between spouses. However, trusts don’t always fit neatly into these rules. The classification of trusts as either marital or separate property depends on several factors, including when the trusts were created and where the funds came from.
Here’s a breakdown of how trusts are classified:
- Separate Property: If the trust was set up before the marriage, or acquired as part of an inheritance, and kept entirely separate from any marital funds, it is typically considered separate property and won’t be divided in the divorce.
- Marital (Community) Property: If the trust was created during the marriage or marital funds were added to it, the trust may be treated as community property and subject to division in the divorce.
To ensure you’re protecting assets in a New Mexico divorce, it’s important to understand how these classifications work. Additionally, the type of trust also influences whether it will be considered separate or marital property. Knowing how different types of trusts are treated can help you understand what’s at stake during the divorce process.
Types of Trusts and How They Affect Divorce
Not all trusts are the same, and how they are handled in a divorce depends on the type of trust involved. Here are the two main types of trusts and how they impact the division of assets in a divorce:
Revocable Trusts
Revocable trusts are one of the most common types of trusts. A revocable trust allows the grantor (the person who created the trust) to manage their property and finances throughout their lifetime and specify which beneficiaries will inherit the assets after their passing. A key benefit of a revocable trust is that the grantor can modify or revoke the trust at any time. This flexibility also means a revocable trust is generally considered marital property if it was created during the marriage or funded with income earned while married.
As a result, the assets in the trust may be divided between both spouses in a divorce, just like other marital assets. However, there are ways to designate community and separate property assets in a revocable trust if both parties are on the same page, in order to preserve their designations in the event of divorce or for AB Trusts. AB Trusts are sometimes selected for blended families to protect the children of either or both spouses.
Irrevocable Trusts
In contrast, irrevocable trusts are a type of trust where the grantor transfers assets to a beneficiary, and once established, they generally cannot be modified or revoked, even by a judge. Typically, the only way changes can be made is with the consent of the beneficiaries (those who benefit from the trust), and sometimes not even then depending on the purpose of the trust. Since it’s much more difficult to alter, an irrevocable trust is typically protected during a divorce, especially if it was created before the marriage or funded with separate, non-marital assets. Assets in an irrevocable trust are less likely to be divided in a divorce. Sometimes trusts that are inherited are a type of irrevocable trust.
Knowing whether a trust is revocable or irrevocable is usually key for protecting assets in a New Mexico divorce.
Is Inherited Property from a Trust Protected in Divorce?
If you or your spouse inherited property, either directly or through a trust, it’s usually considered separate property during a divorce. This means it stays with the spouse who inherited it, even if it was received during the marriage. However, there are exceptions where separate property can unintentionally become marital property due to certain actions taken during the marriage.
For example, if you inherited a house and added your spouse’s name to the deed, or if you put inherited money into a joint bank account with your spouse, a judge might decide that the inheritance has become shared, and that is now marital property. In this case, the assets could be divided in the divorce. A divorce lawyer can help you identify which inheritances may be at risk and provide guidance on protecting assets in a New Mexico divorce.
What to Do If Your Spouse Created a Trust Without Your Consent
Discovering that your spouse created a trust without your knowledge or consent can be unsettling. If the trust was created using marital assets, it could impact how those assets are divided. In New Mexico, marital property is usually split equally during a divorce, so even if assets were placed in a trust without your consent, they may still be subject to division.
The first step in protecting assets in a New Mexico divorce is consulting a divorce attorney with experience in handling trusts. They can determine if the trust was funded with marital property and if you have grounds to challenge it. If your spouse used marital assets to establish an irrevocable trust without your knowledge, the court might order them to reimburse you or adjust the division of the remaining assets to ensure fairness.
If you’re concerned that your spouse is using the trust to hide assets or reduce your share of marital property, it might be worth hiring a forensic accountant. They can help trace where the money originated from and figure out if anything was transferred improperly. Taking action sooner rather than later will help you with protecting assets in a New Mexico divorce.
The Key to Protecting Assets in a New Mexico Divorce
Trying to understand how trusts and other assets will be handled in a divorce can be tricky, but knowing your rights under New Mexico law is key to protecting your future. Taking the right steps early on can make a big difference in ensuring that marital property is divided fairly and your assets are protected during a New Mexico divorce. If you’re considering setting up a new living trust after your divorce, it’s also smart to consult with an estate planning attorney to ensure your future assets are managed properly.
If you have any questions about how your trust or other assets will be treated in a divorce, it’s a good idea to get professional advice. The divorce and estate planning attorneys at New Mexico Legal Group are here to help. We have the experience to guide you through the process of protecting assets in a New Mexico divorce. Reach out to us today to set up a consultation and get the answers you need.