I have represented many clients who faced the possibility of losing a sizable portion of the marital estate to which they were entitled because their spouse diverted assets into a hidden trust.
This practice, often referred to as fraud on the marital estate, is well recognized in Illinois law. The high-net-worth clients with whom I represented stood to lose millions of dollars due to deceptive actions by their spouses. Over the years, my colleagues at Berger Schatz and I have handled numerous cases involving these issues, including several landmark Illinois cases that are frequently cited by the courts. Many of these clients did not anticipate such risks because they either had limited knowledge of their family finances or trusted their spouse to act in good faith. With proactive legal guidance, we were able to address these issues and protect their interests in the marital estate.
Understanding how trusts operate and carefully reviewing any documents you are asked to sign, preferably with an attorney of your choice, before or during marriage can help ensure that you receive your full share of the marital estate.
How Can Trusts Be Used Against You in a Divorce?
A trust is a legal agreement in which a grantor (the person who establishes the trust) transfers assets to a trustee, who manages and distributes those assets according to the terms of the trust agreement. Trusts are commonly used in estate planning to minimize estate tax liabilities, allowing individuals to retain some degree of control over assets without technically owning them.
In divorce proceedings, however, trusts can be misused. A spouse may attempt to use a trust to shield assets that should rightfully be included in the marital estate. Assets may be funneled into trusts to thereafter support the grantor while positioning the trust to ultimately benefit specific beneficiaries, often children.
How Do You Protect Yourself?
Being fully aware and involved in estate planning is one of the best ways to prevent becoming a victim of fraudulent asset transfers. Before signing any estate planning documents or asset transfer paperwork, conduct thorough due diligence. Even if you trust your spouse, participate in estate planning meetings, ask questions and consider retaining your own attorney to provide independent counsel.
Similar to premarital agreements, documents signed during marriage are legally binding. You may assume that all assets are marital property, yet a single signature can impact the division of assets in a divorce. That is why it is critical to fully understand the implications before signing any documents related to asset transfers.
Be proactive about determining the contents of your estate plan and whether your spouse has established any trusts. Identify if those trusts are irrevocable or revocable. Revocable trusts typically present fewer concerns because they can be amended or canceled, and issues only arise if the grantor becomes disabled or dies. Irrevocable trusts are more consequential. Once established, they generally cannot be easily changed or terminated, making it difficult to address them if they are uncovered for the first time during divorce proceedings.
How an Attorney Can Help
Given the complexity of these matters, it’s vital to work with an experienced, knowledgeable attorney who understands trusts, asset valuation and the unique challenges faced by high-net-worth clients.
While mediation may be used to resolve disputes, it has limitations in these types of cases. A mediator’s role is to facilitate agreement between parties and may not prioritize ensuring equitable outcomes. Few matrimonial law mediators possess specialized knowledge in corporate law, estate and gift tax law or other tax matters, which can result in important financial implications being overlooked if you are not represented effectively.
Divorces are inherently stressful, both emotionally and financially, and potential fraud on the marital estate adds a huge layer of complexity. Retaining well-informed legal counsel can help you navigate the process more effectively. Additionally, regularly monitoring family finances and carefully reviewing all financial documents throughout the marriage are the keys to safeguarding your interests in the event of a divorce.