Marriage dreams and promises may not always end with a happily ever after. In fact, sometimes couples decide to separate or file for divorce. During the complex divorce process financial considerations must be taken into account. If a trust document is part of the estate plan an experienced attorney should advise you on what to expect regarding asset distribution.

When a couple’s wealth is tied up in a trust, legal advice becomes necessary. So, a divorce attorney with estate planning knowledge provides necessary expertise to guide you through the asset division process.

 

Michigan Asset Division Laws

Some states are community property states. In those states, everything is split 50-50 in a divorce. However, Michigan is NOT a community property state. In fact, Michigan divides marital property according to the principles of “equitable distribution.” Simply put, Michigan law dictates that marital assets, including trust assets, be divided fairly between spouses after a divorce. Marital assets include anything obtained during the marriage except an inheritance.

Each spouse may keep an inheritance IF they kept that inheritance separate from marital accounts. In other words, the inheritance property must remain in one spouse’s name and all inherited monies should be in a separate account NOT a joint account. Basically, once a couple puts inherited funds in a joint account, the monies become marital property.

Another item that may not be considered part of the marital estate would include any property someone owned before they were married. If that property remained separate throughout the marriage, it is not subject to division with your soon to be ex-spouse. However, there are always factors that may change this situation. So, consult a family law attorney for guidance on this matter.

 

Equitable Division in Michigan Divorce

Courts look at a variety of factors when determining how to divide trust assets. Some may include:

  • Length of marriage
  • Age of each spouse
  • Health of each spouse
  • Financial situation of spouses
  • Earning abilities
  • Age of children
  • Future earning capability
  • Contribution to marriage and raising children

Michigan Law MCL 552.19 states that assets are subject to equitable distribution. Assets may include: bank accounts, retirement plans, pensions, businesses, homes, cars, furniture, and others. This applies to certain types of trusts.

 

Equitable Division in Revocable vs. Irrevocable Trusts

Trust assets held in revocable trusts may become part of the marital estate. As a result, they are considered marital property and may be divided in a divorce. In Reeves v. Reeves, 226 Mich. App.490 (1997) the Michigan Court of Appeals held that trust assets may be considered part of the marital estate if they were used during the marriage. In other words, the assets are subject to equitable division if used to support the marriage or if the assets contributed to the couple’s standard of living.

On the other hand, some assets held in irrevocable trusts may not be part of the marital estate.  In Polk v. Polk, 233, Mich. App. 581(1991) the court looked at an irrevocable trust established before marriage. The court ruled that this particular trust was a pre-marital asset and never co-mingled with marital funds. Therefore, it was excluded from property division during the divorce.

 

Domestic Asset Protection Trust/Pre-Nuptial Agreements

In 2017, Domestic Asset Protection Trusts (DAPT) became legal in Michigan. This irrevocable trust may be useful for wealthy individuals, even successful business owners needing to protect their businesses from creditors. An experienced attorney must establish this type of complex trust for you. If your estate has a DAPT, make sure your divorce attorney is aware of this situation. Also, if you signed a pre-nuptial agreement that definitely impacts how assets are divided in your divorce. In summary, navigating trust assets remains a complicated process. As a result, contact an experienced divorce attorney familiar with estate planning.

 

Trust Assets in Other States

Michigan’s approach to asset division in divorce cases, particularly with trust assets, differs significantly from states like Florida. Florida is a “pure” equitable distribution state, similar to Michigan, but there are important distinctions in how each state handles marital property, trust assets, and inheritance.

For example, both Michigan and Florida reject the community property model, where assets are automatically divided 50-50. Instead, they follow equitable distribution, where courts consider factors such as the length of the marriage, the financial situation of each spouse, and contributions to the household when determining what is fair. However, Florida’s courts tend to favor more precise definitions of marital property, while Michigan’s flexible approach allows for broader interpretations, particularly concerning trust assets.

In Michigan, assets held in revocable trusts that are used during the marriage are typically included as part of the marital estate and subject to division. This mirrors Florida law, where revocable trusts may also be subject to division if they contribute to the couple’s lifestyle during the marriage. However, in both states, irrevocable trusts established before the marriage are generally protected from division, provided they were not co-mingled with marital funds.