Setting Up a Cook Islands Trust While Married

A married person can set up a Cook Islands trust, but the marital property classification of the assets being transferred determines what each spouse must do. If the assets are marital property, both spouses must consent. If the assets are genuinely separate property, the owning spouse can fund the trust alone.

Getting this classification wrong can undermine the trust entirely. A U.S. divorce court can hold the settlor personally liable for the other spouse’s share even though it has no power over the Cook Islands trustee. The Cook Islands is one of the few jurisdictions with statutory provisions designed for married couples, including a community property preservation clause and a separate trust structure that prevents divorce courts from dividing trust assets.

Marital Property vs. Separate Property

Every U.S. state treats assets acquired during a marriage through either spouse’s earnings as marital property subject to division in divorce. Whether the state follows community property or equitable distribution principles changes how division works, but the core rule is the same: one spouse cannot unilaterally move marital assets into a trust and beyond the other spouse’s reach.

In the nine community property states—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—each spouse owns an undivided one-half interest in all community property. Neither spouse can transfer community property without the other’s consent. Funding a Cook Islands trust with community property without spousal consent is a fraudulent conveyance as to the non-consenting spouse, regardless of where the trust is established.

The case of Riechers v. Riechers, 679 N.Y.S.2d 333 (1998), shows what happens when this rule is ignored. Dr. Riechers established a Cook Islands trust and funded it with roughly $4 million in marital assets routed through a Colorado limited partnership. His wife was named as a beneficiary only in her capacity as “Spouse of the Settlor,” meaning she would lose beneficiary status upon divorce.

The New York court could not reach the trust corpus in the Cook Islands, but it had personal jurisdiction over Dr. Riechers. It ordered him to pay his wife half the value of the marital assets placed in the trust. The trust did not fail in the Cook Islands. It failed in the divorce court because the transferred assets were marital property, the wife had not consented, and the court could reach the husband personally.

Separate property belongs to one spouse alone—assets owned before the marriage, inheritances received by one spouse, and gifts made to one spouse alone. Funding a Cook Islands trust with genuinely separate property does not implicate the other spouse’s rights and does not require consent. The challenge is proving the assets are in fact separate. Commingling separate and marital funds in the same account can convert separate property into marital property under many states’ laws.

When Both Spouses Fund the Trust Together

Married couples who both want asset protection from third-party creditors have two common structuring options for a Cook Islands trust.

A joint trust with both spouses as co-settlors and co-beneficiaries is the simpler approach. Both spouses transfer assets, both remain eligible for discretionary distributions, and the trust deed reflects their shared intent. Joint trusts work well when both spouses face similar liability exposure and want to protect the family’s combined wealth.

Separate trusts for each spouse, each funded with that spouse’s own property, preserve the separate character of each spouse’s assets and provide additional protection if one spouse faces a claim the other does not. Separate trusts are more complex and more expensive: two trust deeds, two trustee relationships, and two sets of compliance filings.

Under either approach, both spouses having independent legal counsel review the trust terms strengthens the arrangement if it is later challenged. A trust funded with marital assets where the non-settlor spouse had independent counsel and understood the terms fares better in court than one where only the settlor was represented.

How Section 13J Preserves Community Property Character

Cook Islands trust law includes a provision that no other major offshore jurisdiction offers. Section 13J of the International Trusts Act provides that when spouses transfer community property to a Cook Islands international trust, the property retains its community property character despite the transfer.

This matters primarily for taxes. Under U.S. tax law, community property receives a step-up in basis on both halves when one spouse dies—not just the decedent’s half. If transferring assets to an offshore trust destroyed their community property character, the surviving spouse would lose this tax benefit on their half. Section 13J prevents that outcome.

Florida married couples who hold appreciated assets domestically can also elect community property treatment through a Florida community property trust, which provides the same double step-up without moving assets offshore.

Section 13J also preserves each spouse’s marital rights. The assets remain community property under the law of the state where they originated, meaning they are subject to that state’s division rules if the marriage ends in divorce. The trust deed governs administration, but community property status is unaffected.

The provision works for separate property as well. A settlor who holds separate property and wants to ensure it remains separate after transfer can include language in the trust deed preserving that classification. Settlors in community property states who fund a trust with pre-marriage assets or inherited wealth frequently use this approach to avoid any argument that the transfer changed the property’s character.

The Relationship Property Trust

A standard Cook Islands asset protection trust protects against third-party creditors but does not necessarily protect against a spouse’s claim in divorce. As Riechers demonstrates, a U.S. court can order the settlor to pay the other spouse a share of the trust’s value even when it cannot reach the trust corpus directly.

The Cook Islands enacted the International Relationship Property Trust Act in 2021 to address this problem. The IRPT is a separate trust vehicle designed for married or cohabiting couples, operating under its own statute rather than the International Trusts Act.

Both partners must be co-settlors of an IRPT. The trust instrument must contain a “relationship agreement” in which both partners affirm, modify, or waive their respective rights to the relationship property settled in the trust. Both partners must have independent legal representation before entering the agreement, and both must provide full disclosure of assets and income.

Once relationship property is settled in an IRPT, the trust instrument—not a family court—governs what happens to that property if the couple separates. Trust assets cannot be divided upon separation or divorce except as the trust deed expressly provides. After separation, only the Cook Islands High Court can amend the trust deed. Foreign judgments that order the sale or division of relationship property against the trust’s terms are unenforceable in the Cook Islands.

An IRPT can also be dual-registered as an international trust under the ITA. Dual registration layers the standard creditor protection provisions, including the fraudulent transfer defenses and the two-year statute of limitations, on top of the relationship property protections. Without dual registration, the IRPT Act alone does not replicate those creditor protections.

How the IRPT Compares to a Prenuptial Agreement

Prenuptial agreements and IRPTs address similar concerns but differ in enforcement. A prenuptial agreement is a domestic contract subject to review by the divorce court in the couple’s home state. If a court finds the agreement was signed under pressure, lacked adequate disclosure, or produces an unfair result, the court can set it aside.

An IRPT operates outside the domestic court system. The Cook Islands does not recognize foreign judgments that contradict the IRPT Act, and a foreign divorce court has no jurisdiction over a Cook Islands trustee. For high-net-worth couples whose asset base justifies the cost, an IRPT provides a degree of certainty that a prenuptial agreement cannot, because enforcement does not depend on a single domestic judge’s determination of fairness.

A prenuptial agreement remains useful alongside an IRPT for domestic assets not transferred to the trust: the family home, retirement accounts, and other property that stays within U.S. jurisdiction.

Practical Issues for Married Couples

Cook Islands trusts established years before any marital difficulty are far less vulnerable than those created when the marriage is already under strain. A court that concludes the trust was created to deprive a spouse of marital assets before a divorce will impose severe consequences regardless of where the trust is located.

Both spouses need to know about the trust’s existence and terms. Concealing a Cook Islands trust from a spouse is practically difficult given U.S. tax reporting requirements and legally counterproductive. Courts treat concealment as evidence of bad intent.

The trust will be treated as a foreign grantor trust, requiring Forms 3520 and 3520-A, FBAR filings for foreign account balances exceeding $10,000, and Form 8938 reporting under FATCA. Married couples filing jointly report the trust on their joint return. IRS reporting obligations for Cook Islands trusts apply to both spouses when both are co-settlors.

If both spouses are co-settlors, both must provide identification, proof of address, source of funds documentation, and tax residency certifications as part of the trustee’s KYC and AML requirements.

Beneficiary designations, distribution provisions, and protective clauses must all reflect whether the trust protects both spouses jointly, one spouse individually, or the family unit including children. These are deliberate drafting decisions made during the setup and application process with input from both U.S. counsel and the Cook Islands trustee.

Married couples where one spouse is not a U.S. citizen face additional structuring considerations, including QDOT coordination and differences in how foreign nationals interact with offshore trust ownership and beneficiary designations.