Trusts have long been a cornerstone of sophisticated estate planning, allowing individuals and families to preserve wealth, protect assets, and ensure financial security for future generations. For business owners, executive professionals, and high-net-worth individuals, trusts serve as powerful tools to separate and safeguard assets. However, when marriage and divorce enter the equation, the legal landscape surrounding trusts becomes complex, particularly in New York, a state that follows the principle of equitable distribution in divorce.

Whether you are entering into marriage, drafting a prenuptial agreement, or facing a divorce, understanding how trusts are classified, protected, or subject to division is crucial. Below, we explore how trusts are handled in New York matrimonial law, the role of prenuptial agreements in trust protection, and the potential risks to trust assets during divorce.

Understanding Trusts: Separate vs. Marital Property in New York Divorce

New York law divides assets into separate property and marital property during divorce proceedings:

• Separate property (not divided in divorce)
  • Assets owned before marriage
  • Inheritances and third-party gifts received during marriage
  • Trust assets created before marriage or received as a gift/inheritance
  • Compensation for personal injuries (except lost wages)
  • Property acquired in exchange for separate property
  • Any increase in the value of separate property unless the increase is due to the efforts of the spouse
• Marital property (subject to division in divorce)
  • Any property acquired during the marriage, regardless of whose name is on the title
  • Business equity, real estate, vehicles, and investment accounts obtained together
  • Retirement accounts and pensions earned during marriage
  • Gifts between spouses
  • Trusts funded with marital assets
  • Increased value of separate property due to spousal contributions

Are Trusts Considered Marital Property?

In most cases, trusts created before marriage or funded with separate assets remain separate property. However, there are exceptions where trust assets become vulnerable to division in a New York divorce:

1. Commingling assets: If a spouse mixes marital funds with trust assets, the court may classify part or all of the trust as marital property.

Example: You inherit stock and deposit it into a jointly owned investment account. Courts may rule it as marital property.

2. Control over trust assets: Courts look at whether a spouse-beneficiary controls the trust, including the ability to make distributions or revoke the trust.

Example: In Autrey v. Autrey, a New Mexico court ruled that assets in an irrevocable trust were not marital property, while assets in a revocable trust were subject to division.

3. Sham trusts: If a trust is created to shield assets from equitable distribution, courts may override its protections.

Example: In Riechers v. Riechers, the court ruled that an offshore trust was created to avoid division, and the court compensated the spouse by awarding them an equivalent value of other assets.

4. Trust income and support obligations: Even if the trust principal is protected, distributions from the trust can be considered income for spousal and child support calculations.

Example: In Tremaine v. Tremaine, the court factored in periodic trust distributions and rent-free housing when determining support obligations.

How Prenuptial Agreements Protect Trusts

For business owners, executives, and professionals with significant assets, a well-drafted prenuptial agreement (prenup) is the best tool for protecting trusts in marriage and divorce. New York courts enforce prenups that are reasonable when signed and not unconscionable at enforcement.

How Trusts Are Addressed in Prenups

A prenup should:

• Clearly identify and classify trust assets as separate property.
• Include a waiver of claims to the other spouse’s trust assets and income.
• Specify how future trust distributions (if any) will be treated.
• Address spousal and child support obligations concerning trust income.
• Ensure full financial disclosure—failure to disclose trust interests could invalidate the agreement (Dahl v. Dahl).

Common Pitfalls in Prenups & Trust Protection

• Failure to list a trust in a prenup may weaken protection, as courts may later consider it an asset.
• Ambiguous definitions (e.g., referring to “my spouse” rather than using a floating spouse clause) can create unintended trust beneficiaries post-divorce (Ochse v. Ochse).
• Failure to plan for business-related trusts—courts may still compensate a spouse if they contributed to business growth during the marriage.

Best Practices for Protecting Trusts in Divorce

If you are considering marriage or facing divorce and have trust assets, proactive legal planning is essential. Here are key strategies to protect your assets:

1. Structure your trust properly

• Irrevocable trusts offer stronger protection than revocable trusts.
• Appoint an independent trustee to limit beneficiary control over distributions (Bridgers v. Cherry).

2. Maintain clear financial boundaries

• Keep trust funds separate from marital accounts to avoid commingling.
• Maintain detailed financial records of trust transactions.

3. Utilize prenuptial and postnuptial agreements

• Work with experienced attorneys to draft airtight agreements that define trust assets as separate.

4. Consider business and estate planning strategies

• If a business is held in trust, ensure clear provisions on ownership and control.
• If a trust benefits children from a previous marriage, set explicit terms to protect their inheritance.

Conclusion: Navigating Trusts in Marriage & Divorce with Expert Legal Counsel

Trusts are powerful tools for wealth preservation, but they can become vulnerable in divorce if not properly structured and protected. Whether you are a business owner, high-income professional, or someone entering marriage with substantial assets, it is critical to work with experienced legal counsel to ensure your wealth remains protected.

At The Glennon Law Firm, we specialize in high-stakes divorce, business litigation, and trust & estate disputes for New York’s business owners, executives, and professionals. We understand the complexities of trusts in matrimonial law, and we work aggressively to safeguard our clients’ assets.

If you are facing concerns related to a similar issue or if you have questions about your Matrimonial situation, please feel free to contact us here. We have many years of experience handling such matters and will be able to assist you in resolving the dispute. You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.

This post is not intended as legal advice, but rather for educational purposes.