Massachusetts High Court to Determine Whether a Spouse’s Trust Interest Can Be Reached in Divorce

On April 5, 2016, the collective eyes of Massachusetts divorce attorneys and estate planners were fixed on the Supreme Judicial Court, where the highly-anticipated oral arguments on “further appellate review” of Pfannenstiehl v. Pfannenstiehl took place.

The 2015 Appeals Court decision received national attention for its potential detrimental impact on the estate planning goals of families who desire to shield trust assets from divorce claims. In Pfannenstiehl, both the Trial Court and the Appeals Court went to great lengths to ensure that the wife would benefit, at least indirectly, from an irrevocable trust established by her soon-to-be-ex-husband’s father even though the husband had no control over the trust and could receive distributions only at the discretion of the trustees. The husband had no present, guaranteed, enforceable interest to receive or use assets or income from the trust. The trustees’ discretion was limited to making distributions under an “ascertainable standard” for a beneficiary’s health, education, maintenance and support. The Trial Court and Appeals Court decisions failed to account for the fact that the trustees did not make distributions to the husband for most of the marriage, and that the husband received distributions only during the final two years of the marriage.

The definition of “marital property” in Massachusetts is extraordinarily broad. In essence, the Court in divorce proceedings may assign any part or all of a spouse’s “estate” to the other spouse. This generally may include premarital property as well as property acquired during the marriage, and may also include vested interests in an estate or trust. However, even with the broad definition of marital property in Massachusetts and the broad discretion of judges to divide it, many believe that the court in Pfannenstiehl went too far because the husband’s interest in the trust was so indefinite that it is not property.

Burns & Levinson’s own Bob O’Regan delivered a compelling argument to the SJC on Tuesday on behalf of the husband and trust beneficiary in this case. He focused on the (perhaps unintended) consequences that the Appeals Court decision could have on Trust & Estate law. Bob encountered a “hot bench” – justices who clearly were well-prepared for this argument and peppered both lawyers with questions and hypothetical situations. Perhaps most on point, not unexpectedly, was Justice Duffly, a former Probate and Family Court and Appeals Court judge, who engaged Bob regarding the permissible ways in which a judge may consider a trust interest such as this in divorce proceedings. In other words, not as an asset to be reached, valued and divided in the divorce, but rather as a potential future opportunity for the beneficiary spouse to acquire assets, which could perhaps justify a disproportionate award of the remaining marital property to the non-beneficiary spouse.

This is a tricky, nuanced and important legal issue. We look forward to receiving the SJC’s guidance.

Hope this helps!
Tiffany