Transferring Homes into Trusts and the Impact on Your Florida Divorce and Equitable Distribution

Sometimes, the intervention of a divorce can create some serious wrinkles in the estate plans two spouses created while they were married. Other times, the couple’s estate plans can sometimes create wrinkles in an equitable distribution plan. In the case of one southwest Florida couple, that is exactly what happened. When they divorced, one of the pieces of property that the Collier County trial court distributed was a home in California. The Second District Court of Appeal threw out that distribution because, prior to the divorce, the couple had transferred the home into an irrevocable trust, so it was outside the reach of their divorce’s equitable distribution.

R.N. and his wife, L.W., purchased a home in Palm Desert, California while they were married. At first, after buying the house, the couple titled the home in both of their names. At some later point, but while they were still married, the couple transferred the Palm Desert home to an irrevocable trust that was set up for the benefit of the wife and her descendants. Irrevocable trusts are used in some estate plans as means to accomplish certain goals, such as beneficial tax treatment. In this couple’s case, the husband set up this trust to protect the home from potential claims by his heirs, should he die before the wife.

Unfortunately for this couple, the marriage did not last. During their divorce litigation, the trial court identified the Palm Desert home as a marital asset that was subject to equitable distribution.

The wife appealed this ruling and won. The house undeniably was a marital asset when the couple bought it during the marriage and titled it in both of their names. However, as soon as the couple transferred the house from the couple’s ownership to ownership by the irrevocable trust, it immediately ceased being a marital asset. When that happened, the home could not be subjected to equitable distribution as part of the divorce. Placing the home in the trust’s ownership put it “beyond the trial court’s reach for purposes of equitable distribution.”

This is because many irrevocable trusts are like corporations or partnerships in that they are independent legal entities with their own sets of rights. When the trial court in this couple’s case distributed the Palm Desert home, it “impermissibly adjudicated the property rights of a nonparty to this dissolution proceeding,” with that non-party being the trust.

A trial court in a divorce case might be allowed to modify or terminate a trust, or to distribute a trust-owned asset, in some situations, but the necessary triggers required to do so were not present in this case. For example, if the trust’s settlor (creator) and all of its beneficiaries consented to modification or termination, such an action might be allowed. In this case, though, neither the wife nor her daughter consented, so there definitely was no unanimous consent upon which the court could rely.

Whether your divorce case’s equitable distribution is seemingly relatively straightforward or involves several obvious complexities, it always advisable to have skilled divorce counsel looking after your interests. The South Florida property division attorneys at Sandy T. Fox, P.A. have been handling equitable distribution issues for years and are equipped to help you with yours. Contact our attorneys online or by calling (800) 596-0579 to schedule your confidential consultation.

More blog posts:

Abolition of ‘Special Equity’ Law Wipes Out Unequal Distribution in Favor of Florida Wife, Fort Lauderdale Divorce Lawyer Blog, Nov. 23, 2016

Using Marital Funds to Pay Down a Mortgage on a Non-marital Property and Its Impact on Your Florida Equitable Distribution, Fort Lauderdale Divorce Lawyer Blog, Sept. 22, 2015