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Overview of the Tennessee Community Property Trust Act

Many Montgomery County residents would agree that property division between spouses can be a highly contested area of a divorce. Since Tennessee is an equitable division state, it is not a foregone conclusion that a divorcing spouse will receive a 50 percent share of all property. Instead, a judge will decide the equitable division by considering the socio-economic circumstances of both spouses. However, there are state provisions that can ensure an equal division of marital property in the event of a divorce.

The Tennessee Community Property Trust Act went into effect in July 2010. It permits married couples, irrespective of their residential status, to transfer their property into a TCPT. Once the property is transferred to the trust, both spouses have equal rights toward that property. Although it may sound like a risky proposal for some people, transferring property into a TCPT can benefit those spouses who do not intend to fight over property division and wish to have an amicable divorce.

However, it is important to remember that the TCPT does not protect assets as effectively as tenancy by entirety ownership does. If one spouse has accumulated debt before or during the course of the marriage, the person’s share of the property is utilized to cover that debt. In case both spouses accumulate debt before or during the course of the marriage, the entire property in the trust may be utilized to cover the debt. Therefore, it may be a wise decision for couples who have credit issues to avoid transferring property into a TCPT.

When a couple decides to end a marriage and if they have transferred property into a TCPT, the assets are distributed in equal shares by the trustee. If there has to be a departure from the 50-50 division rule, the separating spouses must mutually agree to this. After the property held in the trust is divided, that property is no longer considered community property.

Source: Tennessee Bar Association, “Divorce Planning in Tennessee: Pre-nuptial, Post-nuptial Agreements and Trusts,” Marlene Moses and Jessica Uitto, Dec. 21, 2010


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