Planning for Divorce When Drafting a Trust

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Feb 27, 2015

Marriage can be wonderful, but it can also be hard.

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Like many of you, I was at the Heckerling Institute on Estate Planning in Orlando, Fla. last month.

Two statements were made relating to divorce that inspire me to comment.  The first was that a trust should be drafted to remove a spouse automatically in all capacities upon divorce.  The second suggested that the spouse should be removed not just upon divorce, but upon the filing of a divorce action.

In recent years, I’ve spoken a bit on the topic of planning for divorce and have had the opportunity to reflect on some of the realities of marriage and divorce and my own view of best practices.  I’ve personally seen and heard stories about situations in which a machete approach of treating a spouse as immediately deceased upon the filing of a divorce action has backfired and ultimately frustrated the settlor’s true wishes.

The reality is that marriage can be wonderful, but it can be hard.  Some couples go through tough times in their relationship, from which they may not recover.

Approximately 50 percent of couples in America divorce, but the rates are lower for a couple when the wife has completed college.  Only about 20 percent of women who complete college end up divorcing.  Using education as a proxy for wealth, this can mean that rates for divorce for our affluent couples probably are much lower than national averages in most parts of the country.

Moreover, not all divorces are acrimonious.  People divorce for many reasons.  Divorced couples sometimes remain close and continue to raise their children together.  Sometimes they want to provide for each other above and beyond what’s required by the divorce order.  Sometimes they’re divorced for some years and then remarry each other.

Even when there’s acrimony, leaving the trust assets on the table during negotiations can enable the parties to make beneficial deals that can protect family business interests or other assets from division.  If a spouse is immediately deemed predeceased and cut out of an instrument upon the filing of a divorce action, this limits flexibility.

Along the same lines, not all divorce filings lead to divorce.  A number of filed divorce petitions are withdrawn each year.  So if the instrument removes a spouse upon the filing of the action, there needs to be a method for restoring the spouse if the action is withdrawn and the couple decides to remain married.

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Friday, February 27th, 2015 EN

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