What Happens to Assets in Revocable Family Trust During a Dissolution Proceeding

Once either party files for a Dissolution of Marriage and serves a Summons on the opposing party there are certain automatic restraining orders that go into effect which limit both parties’ rights to deal with real property without consultation with the other party including any property which is held by a revocable living trust. (See Also) Under the Family Code both parties are restrained from selling or encumbering any real property with minor exceptions if needed to obtain attorney’s fees for the Dissolution proceedings,

Restraining both parties from transferring, encumbering, hypothecating, concealing, or in any way disposing of, any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life, and requiring each party to notify the other party of proposed extraordinary expenditures at least five business days before incurring those expenditures and to account to the court for all extraordinary expenditures made after service of the summons on that party.

(B) Notwithstanding subparagraph (A), the restraining order shall not preclude a party from using community property, quasi-community property, or the party’s own separate property to pay reasonable attorney’s fees and costs in order to retain legal counsel in the proceeding. A party who uses community property or quasi-community property to pay the party’s attorney’s retainer for fees and costs under this provision shall account to the community for the use of the property. A party who uses other property that is subsequently determined to be the separate property of the other party to pay the party’s attorney’s retainer for fees and costs under this provision shall account to the other party for the use of the property.

(Cal Fam Code § 2040) This provision of the Family Code should be strictly adhered to by both parties and failure to do so can result in the court imposing monetary or other types of sanctions. However, there are exceptions to the general rule as provided by Section (b),

This section does not restrain any of the following:

(1) Creation, modification, or revocation of a will.

(2) Revocation of a nonprobate transfer, including a revocable trust, pursuant to the instrument, provided that notice of the change is filed and served on the other party before the change takes effect.

(3) Elimination of a right of survivorship to property, provided that notice of the change is filed and served on the other party before the change takes effect.

(4) Creation of an unfunded revocable or irrevocable trust.

(5) Execution and filing of a disclaimer pursuant to Part 8 (commencing with Section 260) of Division 2 of the Probate Code.

(Fam. Code, § 2040) Accordingly, if the Parties created a Revocable Living Trust during the marriage which authorized revocation either party can revoke the Trust as long as the required notice is filed and served five days prior to taking effect. Likely, if the Parties have previously consulted with an Estate Planning Attorney, they will each have a Will in addition to the Revocable Living Trust and revocation thereof would also be authorized. Due to the complexity of the financial concerns that are at issue with a Dissolution which includes a Revocable Living Trust you should consult with an attorney to discuss your options and the best possible course of conduct based upon your unique situation. If these are issues that may affect you in a Dissolution of Marriage proceeding, you should contact the Law Office of Sam Walker for a free 15-Minute telephonic consultation.