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Is income from a trust subject to equitable division in divorce?

In recent decades, trusts have become a popular estate planning tool in Minnesota. In a trust, the person who creates the trust places assets in the hands of a trustee to be administered in the interest of trust beneficiaries. In a typical trust, a beneficiary will receive income generated by the assets in the trust, and the trustee will have discretion to make payments of principal according to standards set forth in the trust.

The widespread use of trusts in estate planning means that there are many Minnesota residents who receive income from trusts. An individual may receive income from a trust established by a parent, grandparent or other relative, or may receive income from a trust they created themselves. In some cases, this income is substantial.

Whether income from a trust should be considered marital property and therefore subject to equitable division in a divorce proceeding can be a complicated legal issue. Its resolution will depend in part on the language of the trust itself and the extent to which that language indicates an intent to protect trust assets and income from creditors - including a soon-to-be ex-spouse.

If the trust contains a "spendthrift" provision to protect trust assets from seizure or attachment by creditors, it will likely not be considered marital property in Minnesota. Trust income can also be protected if the parties agree in a prenuptial or postnuptial agreement that trust income is not considered marital property.

Determining whether or not trust income is marital property can have a significant effect on the property settlement in a divorce. A Minnesota resident going through divorce can benefit from consulting an experienced family law attorney if they or their spouse receive trust income.

Source: Forbes, "What Divorcing Women Need To Know About Protecting Third-Party Trusts," Jeff Landers, Oct. 8, 2015

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