How A Trust Can Benefit You And Your Children After Divorce

The Centers for Disease Control reports that in 2000, for every 1,000 people, there were 8.2 marriages and 4.0 divorces, which is roughly half of marriages ending in divorce. The same report shows that in 2022, for every 1,000 people, there were 6.2 marriages and 2.4 divorces, indicating that only about one-third of marriages ended in divorce that year. While divorce may be declining, it is still a tough reality for many couples. When those couples have children, divorce becomes even more difficult and complicated. One significant complication can occur when you want to protect assets for yourself and your children after divorce.

Understanding how trusts can benefit you and your children, when to create a trust, and how to protect it from a former spouse who may not care as much about preserving those assets for your children or from your child’s own potential divorce in the future can be crucial to ensuring that the trust serves its intended purpose. A knowledgeable estate planning attorney with Harrison Law, PLLC may be able to assist you in establishing a trust that protects you and your children for decades to come. Call (480) 320-2310 for a consultation to learn more about the protections a trust can offer post-divorce.

What Is a Trust?

A trust is a legal fiduciary agreement used to protect property and assets from probate and potential legal threats, such as divorce or creditors. A trust is a separate legal entity from the person who creates it (called a grantor), which is managed by another person (called the trustee), and for the benefit of a third party (called the beneficiary). Grantors can also be the trustee and a beneficiary on some trusts.

The trustee holds all the trust assets and property until it is time to distribute them to beneficiaries, which is usually when the grantor has died. However, trusts may also be created to remain open for various periods, such as multiple generators, until the trust’s purpose has been fulfilled, or even in perpetuity (typically for a charitable trust). While there are a number of trust types, such as special needs and charitable, they can all be categorized in one of two ways: irrevocable and revocable. The primary difference between revocable and irrevocable is the ability to change or amend the trust after creation.

How Are Trusts Impacted During and After Divorce?

How a trust is impacted by divorce depends on several factors, including what type of trust it is, when the trust was established, and whether it was funded with marital or separate property. Individuals should take note that if they want to establish a new trust for themselves or their children to benefit from after divorce, but their divorce is not final yet, they may want to consult with an attorney to ensure that the trust will not be considered marital property.

Subject to Division

If a trust is established during the marriage or is funded with marital property, it is considered marital property and subject to division. Joint marital property trusts are dissolved as part of the divorce settlement, with each spouse retaining their separate property from the trust and the marital assets being divided equitably without regard to marital misconduct, per A.R.S. §25-318. However, while the divorce is ongoing, each spouse is treated as if they have predeceased the other. This means if one spouse dies before the divorce is final and the trust is dissolved, half of the community property and all of the separate property of the spouse who dies is distributed to the beneficiaries of the trust.

Not Subject to Division

Any trust established prior to the marriage and/or with separate property is considered separate property in the divorce and not subject to division. However, individuals may wish to speak with an attorney before establishing a trust with separate property during their marriage to ensure it is properly created to avoid the possibility of it being declared marital property and subject to division later. Former spouses are disqualified from being either potential trustees or beneficiaries on separate property trusts.

Irrevocable trusts are also generally protected from divorce unless marital funds are used to fund them. The assets held in an irrevocable trust are no longer owned by the trust’s grantor, which means they are not considered marital property. If marital funds were used to fund the trust, the trust was used to benefit the marital estate, or the trust was created in an attempt to hide assets prior to the divorce, a court may find that an irrevocable trust is marital property and dissolve it to divide the assets.

How a Trust Can Benefit You and Your Children After Divorce

Aside from simply protecting assets, trusts can benefit individuals and their children in many ways after divorce. Particularly in instances where a parent remarries and families are blended, trusts can ensure that the inheritance a parent intends for their children goes to their children. A trust can also ensure that this inheritance is not considered marital property in the event that a second or subsequent marriage does not work out, as long as the trust is created before the marriage.

Other benefits of a trust after divorce for parents and their children include:

• Putting assets in a trust keeps them out of the former spouse’s reach and completely separate from marital finances
• The right to name the trustee, ensuring that the former spouse has no control over the assets
• The right to determine how the beneficiaries use the inheritance from the trust, such as indicating they must use it to pay for college, buying a home, or other specific purposes
• The right to choose the beneficiaries, which ensures that only those the grantor names can have access to this legacy
• Protection from court opinion or the former spouse’s whims on how to use the money or assets
• Removes doubt regarding who handles a child’s inheritance if the parent dies before the child is an adult, eliminating concerns over guardianships or conservatorships
• Protects the child’s inheritance against their own potential future divorce
• Can direct life insurance, retirement accounts, investment accounts, and other assets to the trust by naming the trust as the beneficiary, per R.S. §14-7416
• Avoids probate, saving beneficiaries money such as legal and court fees and time

How to Establish a Trust to Benefit Your Children During and After Divorce

A properly structured and funded trust offers many benefits and protections to an individual and their children during and after divorce. However, even small mistakes have the potential to render a trust invalid and leave the assets in it vulnerable to division in a divorce. Fortunately, there are several things a parent can do to ensure that their trust is properly structured and funded so that they can relax, knowing their assets are protected for their own and their children’s benefit after divorce.

Timing Matters

The timing of establishing a trust makes a significant difference in whether it is considered marital or separate property. In fact, sometimes the timing of setting up a trust may make it appear as though the individual is attempting to hide assets from their spouse. Therefore, it is crucial to make sure the trust is being created at the right time. Ideally, this would be prior to marriage, but that is not always possible. If an individual is considering creating a trust to benefit themselves and their children after divorce, they may want to consult with an estate planning or trust administration attorney at Harrison Law, PLLC to learn more about when and how to create a trust to ensure it is not considered marital property later.

Consider a Marital Agreement

Sometimes people do not realize they want to establish a trust for their children until they are married. They may receive an inheritance or win a lottery after they are married. In those cases, a marital agreement such as a prenuptial or postnuptial agreement may help ensure the trust is not considered marital property later. A postnuptial agreement can be used once a couple is married. A prenuptial agreement may be beneficial for couples who have not yet married but one party is aware that they will receive an inheritance at some point in the future.

These agreements allow the spouses to agree that a trust created during the marriage will be considered separate property, even if it otherwise would be considered marital property. These agreements must be specific and freely signed, so individuals may want to consult with an attorney to ensure they have a well-crafted and legally binding agreement.

Use Separate Property Only

Trusts created with separate property are generally considered separate property in a divorce. Therefore, if a parent uses only separate property to fund the trust, they reduce the chances of the trust being considered marital property in a divorce. However, they must be extremely cautious to ensure no marital property is included and that they have clear evidence of their separate ownership of the assets included in the trust.

Select a Trustee Carefully

The trustee will oversee the assets in the trust, handling distributions as well as potentially deciding how those assets may make income for the trust. Therefore, when parents are setting up a trust to benefit themselves and their children after divorce, they should carefully select who the trustee will be. While the grantor can also be the trustee, they will still need to select a backup trustee who can take over when the original trustee is no longer able to perform their duties.

This selection must be carefully made to ensure the trustee is trustworthy, understands their role, and has the skills and knowledge required to carry out their duties as trustee. Additionally, parents will want to ensure the trustee is not someone with a close connection to their former spouse or who could be easily swayed in their decisions.

Consider Irrevocable Trusts

Irrevocable trusts offer the strongest protections against many potential threats, including an adult child’s spouse making claims against the assets in the trust during a divorce. If a parent is certain about the assets they want to include, the beneficiaries they wish to name, and the terms they want to put on the trust, an irrevocable trust may provide the most peace of mind for everyone involved. However, if a parent may want to add or remove assets later, add or remove beneficiaries, or change the terms of the trust, then a revocable trust may be a better option. Additionally, parents should note that upon the grantor’s death, revocable trusts become irrevocable.

Think About Allowing Trustee Discretion

Many times, parents place assets in a trust, and then structure the trust so that assets are directly given to their children. Instead of giving children a direct asset, such as a piece of artwork, a car, or the proceeds of a life insurance policy, consider giving the trustee discretion in how to handle assets and when and how to make distributions.

By doing this, the child’s spouse would not be able to make a claim on any of the assets in the trust. The trustee can use discretion to provide cash distributions instead of distributing a specific asset that the child may then commingle with marital assets. Even if the child co-mingles their cash distribution with marital finances, the assets themselves are still protected by the trust.

Use Clear Language Indicating Intentions

Another way to ensure a trust is protected after divorce is to use clear language in the trust terms. Use clear, simple language that states that the assets in the trust are intended to be separate property and not part of the beneficiary’s marital estate or community property. Parents may find it beneficial to consult with an attorney to learn more about the language that should be used to best protect the trust.

Educate Children About Keeping Inheritance Separate

While young children will not be able to understand, as children become older teenagers and young adults, parents can educate them regarding keeping their inheritance separate from marital finances and assets. Parents should explain the importance of keeping their inheritance separate from marital property, how to accomplish that, and what happens if they fail to keep their inheritance separate. By educating their children about this matter, parents give their children the best protection against losing their inheritance in a divorce: knowledge.

How an Arizona Estate Planning Attorney May Be Able to Assist You

Divorce is difficult under any circumstances, but it can be particularly problematic when you have children. Whether it is your first marriage and you and your spouse both want to provide an inheritance for the children you have together, or a subsequent marriage and you are trying to separate a blended family and protect your own children’s inheritance, knowing how a trust can benefit you and your children after divorce can be an important step toward protecting that inheritance. A skilled Arizona estate planning attorney with Harrison Law, PLLC may be able to help you determine when and how to establish a trust that will benefit you and your children post-divorce. Call (480) 320-2310 to schedule an appointment and discuss your trust needs.

© 2025 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.