Community property, separate property, and the benefit of trusts (2 of 2).

December 26, 2013, by

two stacks of coins.pngDid Donna get to keep her separate stock in her divorce, or had she made it community and thus divisible between her and Kelly? Interestingly, the Court of Appeals didn't find it critical whether the shares were separate or community.

The key question in allocating separate as well as community property in a divorce in Washington, is what is fair, without consideration of fault in the divorce. The Court of Appeals was satisfied that the trial court was striving for fairness in making the division, so it didn't matter whether the stock was community or separate. It also discarded Donna's argument she should have had her own lawyer to make an effective community property agreement, declaring this more important in a comprehensive premarital agreement that in a postnuptial one focusing on a single asset.

What lesson can we draw from this case? Well, we can be careful to steer our children's gifts and inheritances into classification as their separate property, to keep them away from their spouses and particularly away from being awarded to their spouses if there is a divorce. But children can make separate property community by agreement, and even if they don't, their separate property is still on the table in a divorce.

However, if the gift or bequest to a child is made to a trust for his or her benefit, rather than outright, the property doesn't belong to him or her. Property not owned by a child is not before the Court to be allocated. It might be considered in the division of other assets, all toward the goal of fairness, but assets in a properly done trust for a child should remain there for the child even if he or she divorces (or is otherwise sued).