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MA Court: Husband’s interest in irrevocable trust is marital property

 

A recent court case found that a husband’s interest in an irrevocable trust was subject to division in divorce.

People can go to great lengths in an attempt to protect their assets from a divorce. In some cases, these methods work, in others they fail miserably. A recent article in Forbes discussed this issue, noting that the use of trusts is becoming more common, in part as an attempt to protect assets from divorce. But are these efforts enforceable? According to one case, the answer is no.

The case comes out of Massachusetts and reviews the question of whether or not a husband’s interest in an irrevocable trust could be considered marital property. If found to be marital property, the interest would be subject to division during the property division determination of the divorce proceeding. If not, the asset would be exempt. Ultimately, the court held the asset was marital property, subject to division.

Details of the case

The Massachusetts Appeals Court case, Pfannenstiehl v. Pfannenstiehl, involved a trust established by the husband’s father specifically for the benefit of the husband, his siblings and the husband’s children. The trust contained some rather common provisions, including a spendthrift clause that prohibited the assets from being reached by creditors as well as an ascertainable standard stating the trust assets should be used for the “comfortable support, health, maintenance, welfare and education” of the beneficiaries.

As noted in a recent publication by the Massachusetts Bar Association, a prestigious group of legal professionals from throughout the state, an integral fact in this case involves payment. Payments were made by the trustees to the husband and wife during their marriage from this trust. The husband and wife relied upon these distributions, which totaled $800,000 over a span of two years. This reliance served as one of the deciding factors in the trial court’s ultimate decision to consider the interest as marital property. In response, the husband argued that he did not have a “present and enforceable” right in the trust. He pointed to the fact that the trustees had ceased providing distributions as support. He also stated that the trust’s spendthrift provision further protected it from distribution.

Ultimately, the Appeals Court found the ascertainable standard presented an obligation upon the trustees to provide distributions to the husband, further supporting the contention that it was marital property. In its decision, the court also reiterated that the party’s reliance on the distributions of the trust was “woven into the fabric of the marriage”. Regarding the spendthrift clause, the court held that the provision was not enough to shelter the trust from consideration as marital property. This was supported with previous precedent.

Potential impact of the holding

This case provides an example of the need for an attorney when navigating a family law issue. What may seem like a relatively easy matter, dividing property, can become a complicated issue. An experienced divorce attorney can guide you through this process, discussing your legal options and working to better ensure that your interests are protected.

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