Is a trust interest part of the marital estate? The Massachusetts Supreme Judicial Court recently answered this question in Pfannenstiehl v. Pfannenstiehl. In this important case, the court concluded that the distribution of a trust as “marital property” depends on whether the trust benefit is speculative or sufficiently certain.
We will dive deeper into this analysis. But, essentially, the court must analyze the specific language of a trust in determining if it should consider a benefit due to one of the spouses as part of the marital estate. Generally, if the benefit is so speculative that it is difficult (or impossible) to determine whether the spouse will actually get it sometime in the future, the court probably will not consider it to be part of the marital estate. If, however, the benefit can be determined by some sort of ascertainable standard, then it is more likely it will be part of the marital estate, which the court will divide through equitable distribution.
Case Facts
At the time of the trial, the husband in this case worked for a family business and also had earnings from other part-time jobs. He made about $190,000 a year total. The wife worked part-time as an ultrasound technician, earning just over $22,000 a year. She additionally received just over $7,000 a year in rental income. The parties had two children, one of whom has Down Syndrome. In addition to her work outside of the home, the wife made significant contributions caring for the children. The parties lived an upper middle-class lifestyle during their marriage. The husband’s benefit from a family trust helped support this lifestyle.
In 2000, the husband’s father established a trust. The father’s businesses, life insurance policies, and a cash account funded the trust. The trust was irrevocable. This means the husband’s father was unable to dissolve it and take his money back. The beneficiaries of the trust were a class of people, of which the father was one of 11. Basically, the class was made up of all the husband’s father’s descendants. There were two co-trustees who essentially had complete discretion on distributions. There was also a spendthrift provision. This provision protected the beneficiaries from their creditors standing between them and their benefit.
Supreme Judicial Court’s Decision
In this case, the Supreme Judicial Court found the husband’s trust interest was too speculative to include in the marital estate upon divorce. The court found that because it was within the sole discretion of the trustees to distribute funds to the husband, it was speculative as to whether he would receive anything further in the future. This is significant as the trial court valued the husband’s interest at over $2.2 million.
Notably, the speculative nature did not mean that the lower court could not consider the trust interest in the equitable distribution. It only meant that the court could not distribute that interest as part of the marital estate. The Supreme Judicial Court also found that, although the trial court did not award alimony because of the trust distribution, the trial court could reconsider that issue. So, the trial court could potentially award alimony, considering that the trust interest would not be distributed as part of the marital estate.
Case Implications
What does this all mean in plain terms? It means that if a trust benefit, such as income from a trust, can be determined and defined, it can generally be distributed as marital property. If it’s unclear whether the spouse will receive a trust benefit in the future, it would likely be too speculative to be part of the marital estate. In that situation, the court can still properly consider the interest, including the likelihood of a party receiving it in the future, when the court distributes the rest of the estate. The likely result is that, where it seems likely a party would get a sizable benefit in the future — although it may be speculative — the court would be more prone to give the other spouse more of the marital estate.
The same goes for alimony. A trust interest may be too speculative to give to either party. Yet, the court can consider the likelihood of the expected income in awarding alimony.
This case illustrates the vast discretion of the court in defining the boundaries of the marital estate. Really, the court always considers the overall finances of the family. While the court cannot distribute something that is too speculative, the court can do other things to balance the speculative nature of an interest and whether one spouse will likely receive it.
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