How are Trust Funds Treated During Equitable Distribution Proceedings?

In Separation & Divorce, Wealth by Elizabeth Stephenson

Trust funds are a financial mechanism in which money or property are legally owned by a separate entity (a trust), and proceeds are distributed in accordance with the intentions of whoever created the trust. Trusts are one way that families distribute wealth amongst younger generations. If you are the beneficiary of a trust, or your spouse is a beneficiary of a trust, then the following question may interest you greatly: How are trust funds treated during equitable distribution proceedings?

Trust Funds are Generally the Separate Property of the Beneficiary Spouse

Generally speaking, the answer is that trust funds are considered the separate property of the beneficiary. Under North Carolina’s laws of Equitable Distribution, “separate property” is defined as “all real and personal property acquired by a spouse before marriage or acquired by a spouse by devise, descent, or gift during the course of the marriage.” This means that even if a spouse begins receiving trust funds during the course of a marriage, it is their separate property so long as they are solely named as the beneficiary of the funds. And even if the beneficiary spouse buys property for herself or himself with those funds, that acquired property is still considered separate property.

Did the Beneficiary Spouse Gift or Co-Mingle Funds?

An exception to this rule, however, is if the spouse receiving the funds puts the funds into a joint account with the other spouse. If the other spouse also contributes to this same account and both spouses have access to that account, then these co-mingled funds may be treated as a gift to the marital estate.

Further, if the spouse receives funds and uses them to purchase property which is explicitly gifted to the other spouse, then that property is no longer separate. An example would be buying a car for a spouse, with that spouse’s name on the car’s title.

New Direction Family Law

If you are in the process of a separation, it is critical to speak with a family law attorney today. You have important property rights, which an attorney can help you protect and preserve. The attorneys at New Direction Family Law are intelligent, experienced, and highly effective when it comes to property division. We take a thorough, thoughtful approach, with full awareness of the financial stakes for our clients. Let us fight for your rights. Call New Direction Family Law at (919) 719-3470 to schedule an initial consultation, or contact us through our website.