Trust distributions could be divided in divorce

Money distributions that a husband receives each year from a trust could be divvied up at divorce, the South Carolina Supreme Court recently decided.

During their marriage, the husband used some assets to create a “charitable remainder trust.” This is a type of trust that pays annual income to the donor, with the trust assets going to charity when the donor passes away. (There are a number of tax advantages to this type of trust.)

In this case, each year the trust paid 7% of its assets to the husband. When the husband dies, the trust will pay 7% of its assets each year to the wife. When she dies, the assets will go to charity.

A divorce judge ordered the husband to split his 7% annual payment with the wife.

The husband objected, arguing that the trust was a separate entity that wasn’t “owned” by either spouse, and therefore the judge had no authority to divide it.

The Supreme Court agreed that the trust itself wasn’t marital property.  But it said that the annual trust distributions were marital property, and therefore the judge could order them to be divided.

This was particularly true because the trust distributions were originally intended to provide support for the couple.