Family Trusts During Impending Divorce in Minnesota
If you’re dealing with family trusts during an impending divorce, it’s important to understand the basics of how Minnesota law treats these trusts in divorce scenarios. Being well informed will help you to protect your assets and ensure a fair division. Please note that this article is general in nature, and it’s important to seek professional financial and legal advice when going through a divorce.
Mike Rogers is a fiduciary financial advisor with over 30 years of experience in the financial services industry as an investment advisor, wealth manager, and financial planner. He founded 360 Financial in 1995 and holds series 7 and 63 security registrations with LPL Financial.
How does a divorce affect a family trust in Minnesota?
Navigating the complexities of a divorce can be challenging, and understanding the interplay between family trusts and divorce proceedings in Minnesota can add another layer of intricacy.
Before we dig into the details, please note that this post isn’t a substitute for professional advice. We recommend you speak with an attorney about your trust. In addition, please make sure you have a financial advisor who can help you through this difficult financial transition.
Table of Contents
- How do I protect myself in the division of assets in a Minnesota divorce?
- Is my spouse entitled to my inheritance in Minnesota?
- What are non-marital assets in a divorce in Minnesota?
- Navigating Family Trusts and Assets During Divorce in Minnesota
Navigating the Complexities of a Divorce Can Be Challenging
Marital or Non-marital Property
In Minnesota, a family trust’s susceptibility to divorce proceedings largely hinges on whether the trust’s assets are categorized as marital or non-marital property. Generally speaking, family trusts that were established before marriage and funded with assets owned before the marriage (or with gifts and inheritances received individually during the marriage) are typically considered non-marital. This means they often remain untouched during a divorce.
However, if marital funds or assets were contributed to a trust during the marriage, then those contributions and any growth associated with them might be considered marital property. In such cases, they could be subject to division during the divorce process.
Who Controlled the Trust May Matter
Another crucial factor is the discretion and control over the trust. If one spouse has significant control or discretion over the trust’s distributions or operations, a court might look more closely at its assets, even if it was originally intended as a separate property trust.
It’s also worth noting that, in some situations, the income generated by a trust (even if the trust itself is considered non-marital) could be considered when calculating spousal maintenance or child support obligations.
Given these complexities, it’s essential for individuals in Minnesota facing a divorce to consult with an attorney well-versed in both family law and trusts. They can provide guidance tailored to one’s unique situation, ensuring the most equitable and fair outcome.
How do I protect myself in the division of assets in a Minnesota divorce?
Protecting your interests during the division of assets in a Minnesota divorce involves both understanding the state’s laws and adopting proactive strategies.
Here are 7 ways you can safeguard your assets before you get divorced:
1. Understand Marital vs. Non-Marital Assets
In Minnesota, assets acquired during the marriage are generally considered marital property and are subject to division. However, assets acquired before marriage or received as gifts or inheritances during the marriage are usually deemed non-marital and typically remain with the original owner. Familiarizing yourself with these definitions can help you identify which of your assets may be at risk.
2. Maintain Clear Documentation
Keeping clear and thorough records of your assets is vital. This includes documentation that proves when and how you acquired an asset, especially for those you consider non-marital. Bank statements, purchase receipts, or inheritance documents can serve as valuable evidence.
3. Avoid Commingling of Assets
If you have non-marital assets, try to keep them separate from marital assets. For instance, if you inherit money, avoid depositing it into a joint bank account. Once non-marital assets are mixed or “commingled” with marital assets, distinguishing them can become challenging, and they may become subject to division.
4. Prenuptial and Postnuptial Agreements
If you’re already married and didn’t sign a prenuptial agreement, it’s not too late to consider a postnuptial agreement. These legally binding documents can specify how assets will be divided in the event of a divorce and can offer significant protection.
5. Engage a Knowledgeable Attorney
A seasoned family law attorney, particularly one familiar with Minnesota’s specific regulations, can be your most valuable asset. They can offer tailored advice, ensure you don’t overlook any critical details, and represent your interests during negotiations or court proceedings.
6. Stay Transparent and Honest
While it’s natural to want to protect your assets, attempting to hide or undervalue them can backfire significantly. Courts do not look favorably upon dishonesty, and you could end up in a worse position if caught.
7. Consider Mediation
Mediation, where a neutral third-party assists the couple in reaching a mutually satisfactory agreement, can be a constructive way to address asset division. It often results in more personalized solutions and can be less adversarial than traditional court proceedings.
Is my spouse entitled to my inheritance in Minnesota?
In Minnesota, inheritances are generally viewed through the lens of marital and non-marital property distinctions.
Typically, an inheritance received by one spouse, whether before or during the marriage, is considered non-marital property. This means that it is usually not subject to division during a divorce and remains the sole property of the spouse who received it.
However, there are situations where this clarity can blur:
1) Commingling of Assets: If the inheritance is mixed or “commingled” with marital assets, its designation as non-marital can be jeopardized. For instance, if you deposit your inheritance into a joint bank account or use it to purchase joint property, it might become difficult to distinguish it from marital assets, and it could then be subject to division.
2) Contribution to the Marital Estate: If your inheritance was used in a manner that benefits both spouses or the marital estate such as renovating a jointly-owned home, it might be argued that at least a portion of the inheritance has become marital property.
3) Growth and Income from the Inheritance: While the principal amount of the inheritance (the initial amount) might remain as non-marital property, any income or growth generated from it during the marriage might be viewed as marital, depending on how it’s managed or invested.
To ensure your inheritance remains protected in a divorce:
- Keep thorough and clear documentation of the inheritance’s source and any related transactions.
- Consider keeping the inheritance separate from marital assets.
- If you wish to use the inheritance for joint purposes, consider discussing it with an attorney to understand potential implications.
- Regularly consult with a knowledgeable family law attorney in Minnesota, especially if you foresee potential disagreements or complications regarding the inheritance during divorce proceedings.
What are non-marital assets in a divorce in Minnesota?
In Minnesota, as in many states, the distinction between marital and non-marital assets plays a pivotal role during divorce proceedings, determining how property is divided between the spouses. Here’s a breakdown of what constitutes non-marital assets in the context of a Minnesota divorce:
1 – Pre-Marital Ownership
Any asset that a spouse owned before entering the marriage typically remains that spouse’s non-marital property. For example, if you had a savings account or a piece of real estate before marrying, those would be considered non-marital assets.
2 – Inheritances
Assets that one spouse inherits, whether before or during the marriage, are generally considered non-marital property. This remains true as long as the inherited assets are kept separate from marital assets.
3 – Gifts
Gifts given to one spouse, excluding gifts between spouses, usually fall under non-marital assets. For instance, if a friend or a family member gifted you a piece of jewelry or a sum of money, it’s typically considered your non-marital property.
4 – Exclusions Defined by Agreements
Prenuptial and postnuptial agreements can specifically define certain assets as non-marital. These agreements, when legally sound and valid, can be powerful tools in keeping specified assets outside the marital pool.
5 – Certain Personal Injury Settlements
If one spouse receives a settlement for personal injuries, the portion meant to compensate for pain, suffering, or personal losses (rather than lost wages or medical expenses) may be considered non-marital property.
6 – Property Acquired After a Legal Separation
If assets are acquired after a couple legally separates (but before the divorce is finalized), those assets might be deemed non-marital, depending on the specifics of the legal separation agreement.
A significant point to remember is the potential for non-marital assets to become “commingled” with marital assets, making them difficult to distinguish and potentially transforming them into marital property. For instance, if you deposit an inheritance (a non-marital asset) into a joint bank account, it can become commingled with marital funds.
To protect the status of non-marital assets during a divorce in Minnesota, it’s crucial to maintain clear documentation and separation of these assets from the marital pool. Consulting with a Minnesota family law attorney can provide insights tailored to your situation, ensuring a fair and clear division of assets.
Navigating Family Trusts and Assets During Divorce in Minnesota
Protecting yourself and ensuring a fair division of assets during a Minnesota divorce might seem overwhelming.
The key is understanding your rights and being well-prepared. One approach is to maintain clear records of your financial assets and contributions. Legal counsel is invaluable in these circumstances, providing insight into the state-specific nuances of asset division. It’s beneficial to be proactive and consult an attorney early on to avoid potential pitfalls.
In the realm of divorces in Minnesota, the term “non-marital assets” carries significant weight. These assets, in general, remain with the original owner after the divorce is finalized. However, it’s vital to maintain documentation proving the origin of these assets, as challenges can arise. Instances where non-marital assets get mixed with marital ones can complicate matters, making their clear distinction all the more crucial.
Remember, every situation is unique, and having expert guidance can be invaluable in navigating the complexities of inheritance during a divorce.
Connect with a Financial Advisor
If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.
360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch.
About the Author
Mike Rogers is the founder and president of Minnesota-based financial advisory firm 360 Financial. As the founder, Mike’s priority is that 360 Financial always serves the clients with empathy, integrity, and honesty. This customized, client-centric approach allows the firm to help clients decipher between the things they can control and what truly matters.
In other words, Mike understands that money is not the end-all-be-all; instead, it’s the “how” that fuels the “why” to the question: “What’s important to you?”
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This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.