IRREVOCABLE TRUSTS AND DIVORCE

      Until this summer, I would have told you an irrevocable trust could very well be included in your divorce estate and subject to equitable division.  That is because until last month, the relevant case law in Massachusetts awarded to the Wife sixty percent of an irrevocable trust in which the Husband was the beneficiary of a one eleventh share.  The Massachusetts Appeals Court in Pfannenstiehl v. Pfannenstiehl,  concluded that the Husband could support himself well on his greater income and two million dollar interest in his father's trust while the Wife did not have the ability to acquire the additional income and assets necessary to support the lifestyle they had achieved during the marriage. Therefore, the Court awarded more than half of his interest in his father's trust to the Wife.  But in August of 2016, the Supreme Judicial Court, the highest Court in Massachusetts, vacated that Appeals Court decision on the grounds that the Husband's interest in his father's irrevocable trust was too speculative to value.

      The Supreme Judicial Court found the value of the trust too speculative to value for several reasons.  One reason is that the class of beneficiaries is open.  The beneficiaries of the trust are the Husband and his siblings and their children and potentially their children's children.  The current beneficiaries total eleven; however, the number of beneficiaries could increase in the future when and if additional grandchildren are born.  Future generations may also be included.  Thus, the Husband's interest in the trust at the time of termination could be significantly more or less than one eleventh of the trust.  Another reason the trust value is speculative is that there is no set trust termination date and the value could be higher or lower depending on the value of the assets inside the trust when it is terminated.   Additionally, the value of the Husband's income interest is also speculative.  Whether or not the Husband receives income and the amount of income he receives is within the discretion of the trustee who is subject to an "ascertainable" standard.  What this means is that in any given year the Husband may or may not receive income from the trust and he is not in control of whether or not he receives income.

     Until the Supreme Judicial Court's opinion in Pfannenstiehl, Massachusetts law on the inclusion of trusts in divorce was murky at best.  Unlike states with specific statutes excluding trusts, Massachusetts Probate Courts often included and divided trusts as part of an equitable division.  Even if a trust was not included and divided, the value of the trust at the time of divorce was a consideration and factor in dividing and balancing the assets that were included in the marital estate. Now it appears more likely a tightly worded irrevocable, spendthrift trust will not be included in the marital estate, though the Court left open the questions of how the trust would be considered and factored in connection with establishing child support and alimony orders.

        If you are getting divorced and you or your spouse have an interest in a trust, make sure your attorney investigates the terms of the trust and the impact on your divorce.