How Illinois Courts Classify Trusts, Inheritances, and Family Wealth in Divorce
Nonmarital property, as long as there is no behavior such as commingling, generally can include trusts, inheritances, family wealth, and other assets the spouse acquired before marriage. It can also include gifts or inheritances received by one spouse alone, even during the marriage. Property that a valid prenuptial or postnuptial agreement excludes may also be nonmarital, along with certain trust interests before or during the marriage, depending on structure and access.
Illinois presumes that property the spouses acquire during marriage is marital unless proven otherwise. Under this principle, marital property often includes assets the spouses purchased during the marriage with marital funds, income either spouse earned during the marriage, and retirement benefits accrued during the marriage. A spouse who claims an asset is nonmarital must show clear evidence such as financial records, trust documents, or estate paperwork.
Why Trusts May Get a Deeper Look
In Illinois, the median household net worth is $186,733. However, trusts and other multilayered structures can mean a person has access to more assets than it appears on paper.
Trusts often require deeper analysis than, say, inheritance division in Illinois divorce. Some trusts could be separate property because the beneficiary spouse does not control distributions. Others may be marital if the spouse has authority to withdraw funds or routinely uses trust assets for marital expenses. Courts look at factors such as:
- Whether the spouse with the family wealth is trustee or beneficiary
- Whether distributions were discretionary or mandatory
- Whether the spouse used funds for joint expenses
- Whether the spouse added marital funds to the trust
Proper classification can determine whether a spouse keeps millions in inherited wealth or must divide it. This is one reason an Illinois divorce lawyer for trusts and inheritances is important in high asset divorce cases.
When Trust Assets and Inheritances Can Become Marital Property
There are several ways that trust assets and inheritances that began as separate property can become marital.
Commingling
This may occur when a spouse mixes separate property with marital property so thoroughly that tracing the separate funds is not possible. Examples include a spouse depositing inherited money into a joint bank account that the spouses use for household expenses, using inheritance funds to buy a marital home titled in both spouses’ names, and blending trust distributions with marital income.
Courts may treat the entire asset as marital if tracing becomes impossible.
Transmutation
Transmutation occurs when a spouse intentionally converts separate property into marital property. Spouses may do this through titling or gifting, such as adding a spouse’s name to inherited real estate, retitling inherited stock into joint ownership, or signing documents that show intent to share ownership. Courts interpret these actions as evidence the owning spouse intended the asset to belong to both parties.
Contributions by the Other Spouse
Even if property remains legally separate, the other spouse may gain a financial claim if he or she contributed to its value. Suppose one spouse inherits a rental property. The other spouse spends years managing it, renovating it, or paying its expenses with marital funds. The non-owning spouse may have rights to reimbursement or a share of appreciation.
How to Protect Family Wealth During an Illinois Divorce
Family wealth in Illinois divorce can be a tricky and sensitive issue. However, courts want a fair overall outcome. If one spouse keeps substantial nonmarital wealth, the court may award the other spouse a larger share of marital property to balance the financial result.
Keep Clear Records
Document everything, and keep these records. Proving nonmarital status can be difficult without records such as estate distribution statements, trust agreements, bank records showing account history, and proof of original asset value.
Keep Assets Separate
With inherited money, a safe approach is to maintain a separate account. Avoid depositing inherited funds into joint accounts or using them for marital purchases unless you intend to share them.
Seemingly harmless actions, such as adding a spouse’s name to inherited property, can change its legal classification. It is a good idea to consult counsel before retitling or transferring inherited assets.
Sign Prenuptial or Postnuptial Agreements
Written agreements can define how the spouses treat trusts, inheritances, and family wealth if divorce occurs. Courts generally enforce prenups and postnups as long as the spouses entered into them voluntarily and with full disclosure. A spouse who hides assets may try to do so as early as a prenuptial agreement.
Watch for Dissipation or Concealment
If your spouse is hiding assets or transferring money to friends or relatives, there could be legal penalties. Financial transparency is mandatory during divorce. Each spouse must provide sworn financial disclosures. Either spouse concealing trust distributions, offshore accounts, or inherited investments is not OK.
Social media can impact high asset divorce cases, and spouses may show their hand accidentally. Posts, photos, or comments may reveal new assets, unexpected trips, or splurges inconsistent with a spouse’s financial statements.
Use Caution When Dividing Retirement Accounts and Pensions
In many high-asset divorces, retirement assets exceed the value of real estate or business interests. Dividing retirement accounts and pensions may still occur even if inheritances stay separate. Be sure the account contributions before and during the marriage are calculated correctly.
Work With Credible Professionals
A high-asset divorce often involves layered financial structures, including family partnerships, offshore accounts, multigenerational trusts, closely held corporations, and investment portfolios. Individuals may need to work with forensic accountants, valuation experts, financial analysts, and other professionals. They can help with valuation and classification as well as division. For example, one spouse may argue an asset is separate while the other claims it is marital property due to years of joint management.
The stakes are high, and courts expect complete evidence and credible testimony. You risk not coming across as believable if your financial records are inconsistent and if you cannot explain your transfers.
It is not always clear how trusts, inheritances, and family wealth are treated in divorce, and each case is unique. For more insight into your circumstances in Glencoe, contact us today at Silberman Law Group.
FAQs About How Trusts, Inheritances, and Family Wealth Are Treated in Divorce
Are trusts and inheritances considered marital property in an Illinois divorce?
Usually no, but they can become marital if a spouse commingled, retitled, or used them in ways that convert them into shared assets.
Can a spouse claim part of an inheritance that was received during the marriage in Illinois?
Yes, if the inheriting spouse mixed the inheritance with marital property, used it jointly with the other spouse, or the property increased in value due to marital contributions.
How can family wealth be protected from division in an Illinois divorce?
Keep assets separate, maintain records, avoid retitling, and consider a prenuptial or postnuptial agreement to clearly define ownership.
