Are trust interests part of the marital estate?

Photo of Carlos A. Maycotte

The inclusion – or non-inclusion – of beneficial trust interests in the marital estate for purposes of an asset division incident to a divorce is quite often a hotly contested issue. How does one account for a trust interest in a divorce? Did the trustee make any distributions during the marriage? Is the trust terminating anytime soon? If so, for what reason? And if it terminates, what happens to the principal? Is it – or its potential future acquisition – considered property?

 

 

Courts have defined “property” broadly in the context of a divorce – it is frequently considered to be all property to which a party holds title, however acquired. Whether trust interests are included in the marital estate is a question of the particularities of each trust. In many cases, the question hinges on whether the interest is “fixed and enforceable” or “too remote and speculative.” If it is the former, more often than not the trust is likely to be included, in some measure, in the asset division – perhaps even in the support calculation. If it is the latter, the inverse is frequently the case. 

 

 

A recent case from the Massachusetts Appeals Court, Levitan v. Rosen, addressed a unique trust interest. In it, the appeals court overturned portions of a judgment from the trial court. The appeals court ultimately held that, where there is a spendthrift trust where the wife had an annual right to withdraw 5% of her share of the trust principal, the wife’s entire interest in the trust was part of the marital estate for purposes of a division of assets. However, that trust interest needed to be assigned exclusively to the wife because of the nature of the spendthrift provision (i.e. the trust prohibits distribution of income/principal to creditors or third parties, including spouses) of the trust. The remaining assets in the marital estate would then need to be divided at the discretion of the trial judge. The appeals court remanded the case to the trial court to, in effect, determine how the rest of the marital estate is to be divided in light of the fact that the wife’s entire trust interest is part of the marital estate and needs to be retained by her in the asset division.

 

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