What Happens to Your Trusts During a Divorce?

How Divorce Affects Your Trusts and Estate Plans in Texas

Understanding how divorce impacts trusts is essential, especially in Texas where community property laws can complicate ownership and inheritance. Whether you’re the settlor, trustee, or beneficiary, knowing your rights can make a major difference in protecting assets.

Luckily, at Brandi Wolfe Law, we can help you handle both your estate plan updates and your divorce, ensuring your financial future stays protected.

Overview of Trusts in Texas

A trust is a legal vehicle used to manage assets, offering flexibility in how property is transferred, protected, or distributed. In Texas, individuals commonly use trusts for estate planning, financial protection, and wealth management – but not all trusts offer the same level of security, especially in the context of divorce.

There are two main types of trusts in Texas:

• Revocable trusts allow the creator (also known as the settlor) to change the terms, withdraw funds, or dissolve the trust at any time. Because of this control, courts often view assets in revocable trusts as still belonging to the settlor.
• Irrevocable trusts, on the other hand, cannot be modified once established. Assets placed into an irrevocable trust are no longer considered personal property – offering stronger protection against property division in divorce.

Texas courts will closely examine a trust’s structure, purpose, and timeline to determine whether it should be included in the division of assets during a divorce.

Community Property Laws and Divorce in Texas

Texas is one of only nine states that follows community property laws, which means most assets acquired during the marriage are presumed to be jointly owned – even if only one spouse’s name is on the title or account. This legal framework plays a significant role in how trusts and other financial arrangements are handled in a divorce.

Here’s how Texas law breaks it down:

• Community Property: Includes income earned by either spouse during the marriage, assets purchased with that income, and most contributions made to trusts or retirement accounts after marriage.
• Separate Property: Includes assets owned before marriage, as well as gifts, inheritances, and personal injury settlements received by one spouse – as long as these are kept separate and not comingled with marital property.

The court’s job is not to divide community property equally, but to divide it in a way that is “just and right,” which may account for things like income disparity, fault in the breakup, or who has primary custody of children.

How this relates to trusts:

• If a trust was funded with community property (e.g., joint income or assets acquired during the marriage), a court may consider that trust – or a portion of it – part of the divisible marital estate.
• Trusts funded with separate property (such as an inheritance kept separate) are generally not subject to division, although the court may examine whether the other spouse benefited from it during the marriage.

Key point: Even if a trust is titled under one spouse’s name, that doesn’t automatically protect it from division. The origin of the assets and how the trust was used are what matter most.

How Revocable Trusts Are Treated in Divorce

Revocable trusts are popular estate planning tools because they allow the creator – or settlor – to maintain control over the assets. This control includes the ability to modify, revoke, or dissolve the trust at any time. But in a divorce, that same flexibility can become a legal vulnerability.

In Texas, courts look closely at how and when a revocable trust was created and funded. If the trust was established during the marriage and funded with joint (community) assets, it’s likely that at least part of the trust will be considered community property subject to division.

Key questions courts ask:

• Was the trust created before or during the marriage?
• Were community funds used to fund the trust?
• Did both spouses benefit from the trust income or distributions?
• Who has control over the trust assets?

Example scenario:
A husband creates a revocable living trust in the third year of his marriage and transfers their jointly-owned vacation home into it. Although he is the sole trustee and named himself as beneficiary, the home was purchased with community funds. In divorce proceedings, the court may rule that the trust assets – including the vacation home – are part of the marital estate and subject to division.

Even if the trust is in one spouse’s name, Texas courts can trace the origin of the assets. If they are found to be community in nature, control of the trust may not shield them from being divided.

Bottom line: In a divorce, revocable trusts don’t offer reliable asset protection. The court will prioritize ownership and benefit over titles or legal structures.

Impact of Divorce on Irrevocable Trusts

Irrevocable trusts are often seen as one of the strongest legal tools for asset protection – and for good reason. Once created, an irrevocable trust cannot be changed, amended, or revoked without court involvement or very specific provisions. This makes them much harder for a court to touch during divorce proceedings in Texas.

Why they’re usually protected:

• The settlor gives up legal ownership and control of the assets
• The trustee, not the settlor, manages and distributes the assets
• Beneficiaries may receive distributions based on the trust’s terms, not marital status

If an irrevocable trust was created before marriage or funded entirely with separate property (like an inheritance), it is typically considered separate and excluded from division. Even if the trust pays out income to one spouse, that income may be considered community property – but the underlying trust assets usually are not.

Third-party trusts offer even more protection.

For example, if a parent establishes a trust for their child and names them as a beneficiary, that child’s spouse generally has no claim to those assets, especially if distributions are restricted or controlled by a trustee.

When courts may still get involved:

• If the trust was recently created in anticipation of divorce
• If the settlor is also a beneficiary and still receives substantial benefits
• If community property was used to fund the trust during marriage

Pro Tip: Even irrevocable trusts aren’t foolproof. Courts can evaluate whether the trust was used to hide assets or unfairly shift financial advantage during a marriage’s breakdown.

What Happens to Trust Beneficiaries and Inheritances?

Divorce doesn’t automatically remove a spouse from your estate plan – and that includes trusts. If your spouse is named as a beneficiary, trustee, or even a contingent heir in a trust, those designations can remain in effect unless you actively change them.

Here’s what you need to know in Texas

• Revocable trusts can be updated at any time. If your soon-to-be ex-spouse is listed as a beneficiary or trustee, you can remove them before or after the divorce is finalized.
• Irrevocable trusts, on the other hand, often cannot be altered. If your ex-spouse is a named beneficiary in such a trust, you may not be able to remove them – unless the trust document allows it or all beneficiaries and the trustee agree.
• Inheritances received during the marriage are generally considered separate property in Texas – even if they’re held in a trust. But if you commingle that inheritance with community property (like depositing it into a joint account), it could lose its protected status.

Failing to update your estate plan could result in your ex-spouse:

• Inheriting trust assets you no longer want them to have
• Retaining powers like trustee authority or investment control
• Receiving distributions meant for future heirs or new beneficiaries

Checklist: What to update after divorce

• Remove your ex-spouse as trustee, beneficiary, or successor
• Update your power of attorney and healthcare directives
• Notify your estate planning attorney about your divorce decree
• Review related documents like wills, retirement accounts, and insurance policies

Neglecting these updates can lead to unintended legal consequences – and in some cases, court battles among surviving family members.

Court Cases Involving Trusts and Divorce

Texas courts have weighed in on numerous divorce cases involving trusts, and the outcomes often depend on when the trust was created, how it was funded, and who has control over the assets. Reviewing these cases helps illustrate how unpredictable – or protective – trust arrangements can be in family court.

Case Example 1: Trust Assets Reclassified as Community Property
In Browning v. Browning, the husband had created a revocable trust during the marriage and placed various investment accounts into it. Although he was the sole trustee and named himself as the primary beneficiary, the accounts were funded with income earned during the marriage. The court ruled that the trust assets were community property and subject to division. The critical factor? He maintained full control and access to the assets.

Case Example 2: Separate Property Upheld Through Third-Party Trust
In In re Marriage of Smith, a wife inherited a significant sum through an irrevocable trust established by her grandfather. The trust had clear restrictions on access and was managed by an independent trustee. Despite the husband’s claim that he should receive a share due to the trust’s indirect benefit to the marriage, the court upheld the trust as the wife’s separate property. Control and funding source were key to the ruling.

Legal takeaway:

• Courts will look past legal titles and evaluate control, contribution, and benefit.
• Even irrevocable trusts can be challenged if their timing or purpose raises suspicion.
• Clear documentation and careful planning are essential to withstand scrutiny.

How to Protect Trust Assets Before and After Divorce

Whether you’re planning ahead or already going through a divorce, protecting trust assets requires intentional legal steps – especially in Texas, where community property laws may pull certain assets into the marital estate.

Key strategies to safeguard trust property:

1. Use a Prenuptial or Postnuptial Agreement
   These legal agreements can specifically address how trust assets (and their income or appreciation) will be treated during the marriage and in the event of divorce. Courts in Texas routinely enforce well-drafted prenups and postnups.
2. Keep Inherited or Gifted Trust Assets Separate
   Never deposit distributions or trust-related funds into joint accounts. Commingling separate property with community property can blur the lines and cause courts to reclassify assets as divisible.
3. Create or Modify Trusts Before Filing
   If you’re concerned about asset exposure, consult an estate planning attorney to restructure or clarify trust terms before initiating divorce. Timing matters – last-minute changes can look like an attempt to shield assets unfairly.
4. Update Your Estate Plan After Divorce
   Once the divorce is finalized, make sure to:
   • Remove your ex-spouse from all estate documents
   • Appoint new trustees, beneficiaries, and guardians (if applicable)
   • Notify trustees and financial institutions of your updated documents
5. Work with Legal and Financial Professionals
   Coordination between a family law attorney and an estate planning attorney can help ensure your strategy is legally sound from both perspectives. At Brandi Wolfe Law, we help clients navigate both sides – from divorce litigation to estate document updates.

Step-by-Step Guide: Preparing Your Trust for Divorce

1. Review all trust documents
2. Identify the funding sources for each trust
3. Separate any community-connected income or contributions
4. Draft amendments or establish successor trusts (if allowed)
5. Formalize your wishes through legal documentation

Proper planning can make the difference between preserving your financial legacy and losing hard-earned assets in a divorce decree.

FAQs about Trusts and Divorce in Texas

Can a trust protect my assets from a divorce in Texas?
Yes – especially if it’s an irrevocable trust. Texas courts generally treat assets in irrevocable trusts as separate property, particularly if the trust was created before the marriage or by a third party. Revocable trusts, however, offer little protection if funded with community property.

Is my spouse entitled to trust income during the divorce?
If the trust distributes income during the marriage and it benefits both spouses, that income may be considered community property and subject to division. The principal, especially in an irrevocable trust, is usually protected if it’s classified as separate property.

Do I have to disclose my trust during a divorce?
Yes. Full financial disclosure is required during divorce proceedings in Texas. Attempting to hide trust assets – even if you believe they’re separate property – can damage your credibility and hurt your case.

What happens if I don’t remove my ex from my trust after divorce?
If your ex-spouse is still listed as a trustee or beneficiary, they may retain rights to manage or receive distributions from the trust, even after the divorce. Always update your estate documents promptly to reflect your new intentions.

Can a judge dissolve my trust during a divorce?
In rare cases, a court may intervene in a revocable trust if it’s funded with community property and the trust terms impact asset division. Irrevocable trusts are harder to modify or dissolve unless there’s evidence of fraud or improper intent.

What if I inherit a trust during the marriage – is it mine alone?
In most cases, yes. Inheritances are considered separate property under Texas law. But to maintain that status, you must avoid using inherited trust assets to benefit the marital estate or mixing them with community property.

Do prenuptial agreements affect how trusts are treated in divorce?
Absolutely. A valid prenuptial or postnuptial agreement can define how trust income, distributions, or appreciation are handled in a divorce, making outcomes more predictable and protective.

Is it better to revise a trust before or after filing for divorce?
It’s often better to review and revise estate documents before filing. However, timing and intent matter – late-stage changes can raise red flags in court. Always consult with legal counsel before making adjustments.

What if my trust is part of a family business or real estate portfolio?
Complex trusts with business or real estate interests should be carefully evaluated. Even if the trust itself is secure, the income or appreciation might affect property division or support calculations.

Need Help Protecting Trust Assets During Divorce?

At Brandi Wolfe Law, we understand the complex intersection of estate planning and family law – especially when it comes to protecting trusts during divorce in Texas. Whether you’re revising your estate documents, disputing trust ownership, or planning ahead with a prenup or postnup, our team is here to guide you through every legal step.

Call us today at (210) 571-0400 to schedule a consultation and take control of your financial future.