What are the Benefits of Having Agricultural Property in a Trust in the Event of a Divorce?
A trust is a separate legal entity that is “owned” by the trustee or trustees for the benefit of the beneficiaries designated in the trust. The trust documents themselves will state who the beneficiaries are, as well as how the trust assets are to be managed.
In the case of a ranch that is put in a trust that is to be managed for the benefit of blood relatives, a person marrying into the family owning the ranch will not have a direct legal interest in the trust or the trust property, unless the trust provides such an ownership interest. Assuming that no such interest is provided, in the event of a divorce, the non-family member getting divorced will not have any right to a ranch.
As an example, say John’s family has a long-time ranch, and the ranch and all related assets are placed into a trust. John then marries Sue, and a few years later, John and Sue decide to divorce.
In this instance, Sue will not have a claim to any of the ranch property, because she will not be a beneficiary of the trust (although if John and Sue have children, their children might be entitled to ranch proceeds at some point). As a result, in divorce proceedings, the marital assets might consist of payments that John receives from the trust, and Sue might have some claim on such a distribution or be entitled to some type of payout either when marital property is divided, or perhaps in spousal support. Sue, however, will not have a right to the ranch itself.
This is critical, because if Sue has a right to part of the ranch, she could potentially seek to have the ranch sold so that she could claim her part of the ranch. However, because the ranch itself is not part of their marital estate (since neither she nor John would be an owner of the ranch), Sue does not have the right to cause the ranch to be sold.
Why It Is Critical to Place a Ranch in a Trust Before Marriage, if Possible
No one goes into marriage contemplating that the marriage will fail. However, when it comes to heirloom ranches and real estate, it is critical to consider the possible consequences before marriage so that such property can be protected.
The best course of action will be to place a ranch or other real estate into the trust before a marriage takes place. Placing property into a trust right before filing for a divorce can be problematic.
Suppose in the above instance, John is a part owner of a ranch with other family members, but he then agrees with other family members to place the ranch in a trust for the benefit of the family members as he knows that he and Sue will be divorcing shortly. Sue can then make a claim in a divorce that this was a wrongful transfer intended to deprive her of her interest in the ranch.
A judge may or may not agree with Sue’s claim; however, in any event, this is a situation that can easily be avoided if a trust was created prior to the marriage.
Trusts: Control, Ownership, and Protection
The brilliance of trusts lies in their structure. Legally owned and operated by trustees, these entities manage assets for beneficiaries’ benefit. Typically, these beneficiaries are the original family members linked to the agricultural property and their descendants.
By meticulously structuring the trust, one can ensure that its management benefits the original family – the ones who have nurtured the ranch. This careful delineation keeps assets away from family members who’ve married into the family but aren’t direct beneficiaries of the trust, thereby safeguarding the property from potential divorce claims.
BKBH: Your Partner in Trust Creation
Setting up a trust requires precision, foresight, and an in-depth understanding of legal intricacies. BKBH offers years of trust creation, and we help clients through trust creation to ensure that their ranches and agricultural property remains a legacy for generations to come.
