subject: What Happens To Assets Without A Trust During Divorce? [print this page] For the married couple, it is truly essential that an estate is properly structured, legally protected, and the disposition of assets in the case of separation clearly defined. If you have not yet started a trust for your assets as a property investor, perhaps this scenario will convince you of the need to do so.
The Case of the Trust-Less Divorce
In most cases, divorce is a messy matter. It is highly unlikely that the two parties will be able to reach an amicable agreement as to the disposition of assets. Even with a trust, in the absence of a Property Relationship Agreement a legal battle may ensue because there is still the issue of what to do with the assets in the trust.
Of course, the first step will be hiring a lawyer for each side. As we all know, legal fees can quickly add up to thousands of dollars. Consider the property investors who have a $500,000 house listed as an asset. Is a combined $100,000 in legal fees worth the argument? It may not make much sense, but this is what many couples end up doing - paying money to fight over a property that is still mortgaged.
Then again, during a divorce few people are going to act rationally. More often than not they are hurt, and those hurt feelings cause them to fight. Because legal issues can take months or even years to resolve, this must makes the pain last longer. The lucky couple engages a trustee who can help calm them both down and move them toward some agreement. The unlucky couple has no one to advise them thusly, or chooses to ignore attempts at resolution.
If an agreement cannot be reached, the next step is to go to court. It will be up to the court to decide the disposition of assets.
The Importance of a Property Relationship Agreement
If there is a trust in place without a Property Relationship Agreement, then the court must also review the terms of the trust, including how it was set up, how it has been run since its inception, who is in control of it, what assets have been transferred to it, and the amount of outstanding financing that is secured by the trust's assets. Obviously, this could take some time.
Following the review, the court will set out its orders. Another individual could be put in charge of the trust, as trustee. The court will have to decide how much money is awarded to each ex-spouse. No matter what happens, someone is likely to be unhappy about the outcome.
The best way to avoid this scenario is for the property investor to create a trust where the assets are placed immediately. Following that, the creation of a Property Relationship Agreement which designates disposition of the assets is essential. A married couple may even want to consider creating two trusts, one for each spouse.
The time to protect your property is now.
by: Paul Easton
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