Does a Trust Protect Assets From Divorce? (2025 UPDATE)

UPDATED FOR 2025 INDIANA ESTATE LAW CHANGES

Protecting Your Assets in a Divorce: The Role of Trusts in Indiana

Divorce can leave assets vulnerable, making Wills and Trusts essential for maintaining control over your estate. At Webster & Garino LLC, we provide strategic estate planning to safeguard your financial legacy before, during, and after divorce. Many overlook how divorce affects estate plans, leading to unintended distribution. Our team ensures your estate remains secure and aligned with your goals, offering clarity and professional guidance.

A trust is a legal arrangement that allows you to manage and distribute your assets according to your wishes, both during your lifetime and after your death. It involves three primary parties:

• Grantor: The individual who creates the trust. This person establishes the trust by transferring ownership of assets into it, with the intent of protecting and efficiently managing these assets for their intended recipients. Whether you are using a trust as a tool to safeguard wealth, minimize estate taxes, or protect assets during a divorce, the grantor’s role is pivotal in ensuring that the legal framework is structured correctly. At Webster & Garino LLC, our estate planning attorneys assist clients in determining whether a will, trust, or a combination of both is the best solution to protect their financial interests in a divorce.
• Trustee: The person or institution responsible for managing the trust assets. A trustee has a fiduciary duty to oversee the assets within the trust and ensure they are distributed in accordance with the grantor’s wishes. This role requires diligence, financial expertise, and sometimes legal guidance, particularly when dealing with complex estates or in cases where a divorce could impact asset distribution. Appointing a professional trustee can be a wise choice to maintain impartiality and uphold the trust’s integrity.
• Beneficiaries: Those who will receive the assets from the trust. Beneficiaries may include spouses, children, relatives, or even charitable organizations. In cases of divorce, it is essential to review and, if necessary, modify beneficiary designations to ensure that ex-spouses do not unintentionally receive distributions from a trust that was not originally intended for them. Regular estate plan reviews with a legal team, such as the professionals at Webster & Garino LLC, can help ensure that trusts and wills reflect current intentions and protect assets from unintended consequences.

Many individuals opt for trusts to avoid probate, maintain privacy, and have greater control over asset distribution. Wills and trusts also play a critical role in ensuring that divorce does not complicate estate planning, making it essential to seek legal counsel when structuring or modifying these documents.

Understanding the distinction between revocable and irrevocable trusts is essential, especially in the context of divorce:

• Revocable Trusts: These trusts can be altered or revoked by the grantor at any time. Since the grantor retains control, the assets within are typically considered part of the marital estate during divorce proceedings.
• Irrevocable Trusts: Once established, these trusts cannot be easily changed or revoked. The grantor relinquishes control over the assets, which may protect them from being considered marital property, depending on the circumstances.

It’s important to note that if your spouse is named as a beneficiary in an irrevocable trust, they may still be entitled to assets from the trust even after a divorce, unless specific provisions are included to address such situations.

Divorce can significantly impact your financial landscape. To safeguard your assets, consider the following strategies:

1. Establish Trusts Before Marriage

Creating an irrevocable trust prior to marriage can help segregate certain assets from the marital estate, offering protection in the event of a divorce. Placing assets into a trust before marriage can prevent them from being considered part of the joint marital property.

2. Maintain Separate Property

Keep detailed records of assets owned before marriage and ensure they remain separate from marital assets to prevent them from being subject to division. Commingling funds in joint accounts or using marital assets for individual investments can make it difficult to argue that those assets should be protected.

3. Prenuptial and Postnuptial Agreements

These agreements can define the division of assets and protect individual property rights, providing clarity and protection for both parties. A well-drafted prenuptial agreement can specify which assets remain separate property and which will be shared, preventing disputes in the event of divorce.

4. Use Business Trusts

For business owners, protecting a company from being divided during divorce is crucial. A trust can outline successor trustees or management succession plans that allow a spouse to receive income but limit their ability to actively manage the business.

Extended Duration of Trusts

As of March 2024, Indiana extended the rule concerning how long trusts may last to 360 years. This means that wealth and assets can be protected and passed down through multiple generations without facing estate tax at each transfer.

2025 Estate Tax Exemptions

• Federal estate tax exemption: Increased to $13,990,000 per person ($27,980,000 for married couples). However, these exemptions are scheduled to decrease on January 1, 2026, making proactive planning crucial.
• Gift tax annual exclusion: Increased to $19,000 per recipient. This allows individuals to gift this amount per year without affecting their lifetime exemption.

Estate planning, particularly in the context of divorce, involves complex considerations. Working with experienced estate planning attorneys can help you navigate these complexities, ensuring your assets are protected and your wishes are honored.

At Webster & Garino LLC, we are committed to providing clear and effective legal guidance. Our team is here to help you understand your options and implement strategies that align with your goals.

If you have questions or need assistance with estate planning, especially concerning asset protection during divorce, please contact us at (317) 565-1818 to schedule a complimentary case review.

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