Valuing Trust Interests in Divorce

Divorce process

Many individuals believe that if they put property in a trust, it will protect them from the other spouse getting to the property in a divorce. This overall generalization is false. In Colorado, the proper analysis to determine whether a beneficiary spouse’s interest in a trust is subject to equitable division, there has to be a determination of (1) whether the beneficiary spouse’s interest in the trust is “property” and, (2) whether any part of that interest is “marital property” under the law. 

(1) Is the Interest Property?

A spouse with a beneficiary interest has a property interest in a trust if there is a present enforceable right to obtain distributions from the principal of the trust. Under Colorado statue, only irrevocable trusts create a property interest for a beneficiary. See C.R.S. § 14-10-113(7)(b). This does not automatically mean that an interest in an irrevocable trust is property for purposes of division in a divorce action. There are a number of considerations such as defining the nature of the beneficiary’s interest and whether or not the interest has vested.  For example, if your spouse is a beneficiary of a discretionary trust and your spouse does not hold a remainder interest, the interest will not likely be considered property.   

(2) Is the Interest Marital Property? 

If your spouse’s beneficiary interest is considered property under C.R.S. § 14-10-113, the second step is to determine the marital property portion.  Under Colorado statute, increases to the value of a spouse’s separate property constitutes marital property. The Court will then divide the marital portion equitably.

If it is determined that the interest in the trust does not constitute marital property, it may still be considered in the equitable distribution of property as an economic circumstance by the court. 

To learn more about trust interests in divorce, contact Kalamaya | Goscha.

Kalamaya | Goscha is a Colorado law firm founded by Ryan Kalamaya and Amy Goscha. The boutique mountain law practice specializes in divorce, child custody, and family law. Kalamaya | Goscha has law offices in Edwards, Aspen, and Glenwood Springs. To speak to an attorney call (970) 315-2365.