The Importance of A Trust Account in Divorce Cases
A trust account is an account that is opened by a law firm which holds money that a client party has given as their retainer for legal services, or is being held on behalf of both divorcing parties pending further agreement of the parties or a court order. However, lawyers are not allowed to add their own funds into a trust account, nor to use such funds inappropriately.
There are 2 types of trust accounts that can be involved in divorce cases:
- Interest On Lawyer trust account – It holds smaller amounts of money or retainers for small periods of time. The collected interest goes to the state bar. It is a creative way to improve access to lawyers for individuals and families that can’t afford a lawyer at the moment.
- Segregated Interest-Bearing Attorney-Client trust account – Larger amounts of money can be stored for a longer time, and the collected interest goes to the client.
Segregated interest-bearing attorney-client trust account importance in divorces
These accounts can be used to hold the earnings gained from selling the residence of the disputing parties. It isn’t always clear on how each party will gain from the sale. Most couples that are getting divorced will divide the money received from selling the property. This isn’t always a good scenario. For example, if each party before separation spend different amounts of money for the property, then how will the money get divided appropriately? One party can claim that they paid for the property evenly, which will result in the unequal division if it hasn’t been proven in court.
A segregated interest-bearing attorney-client trust account is crucial to overall property division. It will help in resolving problems related to funds till the property division has been completed. It also ensures that the client’s money is not used for the wrong purposes. For example, the opposing party can spend the funds of the client, making it harder for the client to get it back later.
Also, it provides flexibility to both parties till the complete division of property. If the parties involved in the divorce cases have financial problems, they can distribute a part of the funds to aid in living expenses as the divorce case advances, and put the remainder of the money in the trust until the property division has been ordered by the judge or settled by the parties.
Getting divorced in California can be complicated. Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.
Modern couples planning their marriage often find that prenuptial agreements are useful tools. They are especially helpful when one or both individuals entering marriage have significant assets to protect. One…