Irrevocable Trust in a Divorce Settlement, What Happens?
Missouri gives an irrevocable trust real effect and it is not the wall people assume, and the answer turns on who created it.
A trust you settled with your own assets is treated one way. A trust somebody else created for you is treated another. Getting that distinction right is most of the work in an irrevocable trust divorce, because nearly every article on this subject blurs them.
What If I Created the Trust?
Missouri gives a settlor’s own creditors substantial reach, and the amount depends on whether the trust has a spendthrift provision.
Section 456.5-505.2 RSMo provides that “with respect to an irrevocable trust without a spendthrift provision, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor’s benefit.”
Read the measure. Not what you actually received. The maximum that could be distributed to or for your benefit.
The same subsection adds that where a trust has more than one settlor, the amount reachable against a particular settlor “may not exceed the settlor’s interest in the portion of the trust attributable to that settlor’s contribution.”
What If It Has a Spendthrift Provision?
Then the protection is real and Missouri names two exceptions to it.
Section 456.5-505.3 RSMo provides that with an irrevocable trust with a spendthrift provision, “a spendthrift provision will prevent the settlor’s creditors from satisfying claims from the trust assets except,” and then sets out the exceptions.
The first is the one that matters most in a divorce timeframe. It applies “where the conveyance of assets to the trust was fraudulent as to creditors pursuant to the provisions of chapter 428.”
The second reaches “the settlor’s beneficial interest in the trust assets, if at the time the trust became irrevocable” either “the settlor was the sole beneficiary of either the income or principal of the trust or retained the power to amend the trust,” or “the settlor was one of a class of beneficiaries and retained a right to receive a specific portion of the income or principal of the trust that was determinable solely from the provisions of the trust instrument.”
Section 456.5-505.4 RSMo then narrows things back the other way, providing that where a trust meets subsection 3’s requirements, a settlor’s creditors may not reach the settlor’s beneficial interest regardless of a testamentary power of appointment in favor of appointees other than the settlor or the settlor’s estate or creditors, or “the settlor’s power to veto distributions from the trust.”
That is the Missouri self settled trust rule, and in an irrevocable trust divorce it is more protective than many states. It is also entirely about creditors of a settlor, and a divorce is not a collection action.
Does Any of This Decide My Divorce?
Not directly, and this is the single most important thing on this page.
Section 456.5-505 RSMo tells you what a settlor’s creditors can reach. It does not tell a family court how to classify property.
Classification runs on Section 452.330 RSMo. Subsection 3 presumes property acquired during the marriage to be marital “regardless of whether title is held individually or by the spouses in some form of co-ownership,” and subsection 2 lists the exceptions that overcome the presumption.
A trust is a form of ownership. So a Missouri court looks through it to the property and asks where the property came from. Marital money that went into an irrevocable trust was marital money when it went in.
What If Someone Else Created the Trust for Me?
Then you are a beneficiary, not a settlor, and Section 456.5-505 RSMo does not apply to you at all.
That section governs claims against a settlor. Mixing the two is the most common error in this area, and in an irrevocable trust divorce it changes the answer completely.
Two other things apply instead. Whatever was placed in the trust for you came by gift, bequest, devise or descent, which is a Section 452.330.2 RSMo exclusion from marital property.
And if your interest is discretionary, Section 456.5-504.1 RSMo provides that it “does not constitute an interest in property or an enforceable right,” and bars a creditor or other claimant from attaching present or future distributions, forcing a judicial sale, compelling distributions, “or reach the interest or right by any other means, even if the trustee has abused the trustee’s discretion.”
Section 456.5-504.5 RSMo also limits what a claimant can learn, providing that no creditor or other person making a claim against a beneficiary “shall be entitled to any information relating to the trust’s assets or other trust records if distributions to the beneficiary are solely within the discretion of the trustee.”
Can an Irrevocable Trust Be Changed in a Settlement?
A divorce judgment allocates rights between two spouses. It does not rewrite a third party’s trust.
Where you are the settlor of your own irrevocable trust, whether and how it can be modified is a trust law question governed by the instrument and by Chapter 456, and it is a question for a trusts and estates attorney rather than for us.
Where the trust was created by someone else, a family court is deciding between two people who are in front of it. The trustee is not, and the other beneficiaries are not.
What a settlement realistically does with a trust interest is account for it rather than move it. That can mean adjusting the division of the marital estate, since Section 452.330.1 RSMo directs the court to consider “the value of the nonmarital property set apart to each spouse,” or it can bear on spousal maintenance, which turns on resources and reasonable need.
Does the Timing of When It Became Irrevocable Matter?
Yes, twice over, and the statute says so in terms.
Section 456.5-505.3(2) RSMo measures the settlor’s retained interests “at the time the trust became irrevocable,” so that date is doing real work in any irrevocable trust divorce.
And Section 456.5-505.3(1) RSMo removes the protection entirely where the conveyance into the trust was fraudulent under Chapter 428. Section 428.024.2 RSMo lists eleven factors a court may consider, including whether “before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit” and whether “the transfer occurred shortly before or shortly after a substantial debt was incurred.”
A trust that became irrevocable years before anybody contemplated a divorce is a different object from one that became irrevocable during a rough patch. That is not a technicality, it is the statute. Our FAQ on whether filing for divorce freezes assets covers what can and cannot be moved once a case is open.
What About the Income and Distributions?
Money that arrives is money, and what you do with it afterward is a separate question.
A distribution from a trust that was funded by gift or inheritance carries that character with it. Section 452.330.2 RSMo excludes property acquired by gift, bequest, devise or descent, and also property “acquired in exchange for” such property.
Proving the character of a distribution is still your job. In Blydenburg-Dixon v. Dixon, 277 S.W.3d 815 (Mo. App. W.D. 2009) the Western District stated that “non-marital property must be proven by clear and convincing evidence.”
What frequently causes trouble is what happens after the money lands. A distribution deposited into a joint account and spent on household expenses for eight years is a tracing problem. Section 452.330.4 RSMo helps, providing that separate property “shall not become marital property solely because it may have become commingled with marital property,” and our FAQ on protecting assets during a divorce covers which records carry that weight.
What Should I Do About an Irrevocable Trust in a Case?
Read it, document it, and do not touch it.
Those five steps are the whole practical answer to an irrevocable trust divorce question, and they are all things you can do this week.
- Get the instrument and every amendment. Who was the settlor, when did it become irrevocable, what does it actually say about distributions
- Get the funding history. What went in and where it came from
- Get the accountings and the distribution history
- Trace what you received after it left the trust
- Do not make any transfer, amendment or distribution decision without advice. A step taken during a case is the one that gets examined
What Does an Irrevocable Trust Not Do?
It does not change where property came from, and Section 456.5-505 RSMo is not a divorce statute.
Marital money placed in a trust was marital when it went in, and Section 452.330.3 RSMo says the form of ownership does not answer the classification question.
Retitling separate property into joint names is a separate trap, and Selby v. Selby, 149 S.W.3d 472 (Mo. App. W.D. 2004) holds that doing so raises a presumption rebuttable only “with clear and convincing evidence that the owner spouse did not intend to convert the property to marital property.”
The creditor rules in Section 456.5-505 RSMo answer a different question from the one a family court is asking, and a plan built on treating them as the same thing is built on a confusion. Our FAQ on dividing marital property covers the question the court is actually asking.
And the property division is final. Section 452.330.5 RSMo makes the order affecting distribution of marital property “a final order not subject to modification.”
Who Can Help With an Irrevocable Trust Divorce in Missouri?
The answer here is almost always in the instrument, the funding history and the dates, and it is very rarely what a general article about irrevocable trusts would predict.
Bardol Law Firm practices only family law and handles property and asset division for families in St. Louis County, St. Louis City, St. Charles County and Jefferson County. You can read more about high net worth divorce, about property and asset division, and the rest of our family law questions and answers.
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If an irrevocable trust is part of your case on either side, bring the instrument and the accountings. Contact Bardol Law Firm or call 314.918.0100.
This page is general information about Missouri law and is not legal advice. Bardol Law Firm practices family law only and does not draft, modify or administer trusts, and does not provide estate planning or tax advice. Every case turns on its own facts. The choice of a lawyer is an important decision and should not be based solely upon advertisements.