Many people assume that money or other assets held in a trust are protected from an order of property division in a divorce, but that is often not the case. Even where a trust isn’t considered for purposes of actually property division it is often considered income for the purposes of calculating alimony and child support payments. It can also be used by a judge to determine what share of the marital estate each spouse should receive in the divorce.
Massachusetts family courts take a very broad view of what constitutes marital property. The most common types of marital assets include retirement accounts, bank accounts, the real estate and other tangible interests, but it also includes intangible vested and unvested interests, which for the purposes of this blog will refer to trusts.
Trusts come in all different forms, the differences typically relate to how the trust’s assets are distributed to its beneficiaries. A beneficial interest in a trust is either vested or unvested. If a beneficiaries’ interest in a trust is vested that means there are no additional conditions that need to be met for the beneficiary to receive the money. If a trust has not yet vested that means that there is something that must have in the future for the beneficiary to receive the assets of the trust.
Typically when a person’s interest in a trust has vested that means the person has a present ownership interest in the trust assets, and it’s that present ownership that converts a trust into marital property. Unfortunately the analysis of whether a trust is marital property does not end there.
Even when a person has the right to assets or income from the trust there could be other provisions that limit that ownership. A trust could be set up for not just your spouse’s interest, but for that of future generations to benefit from. If this is the case there are usually provisions contained in the trust which allow a person to use the trust assets, but not to sell them. It may also give them the right to receive income generated by the trust assets, but not to use the principal assets of the trust.
The court’s use a fairly simple sounding test to analyze whether a trust is marital property. However, its application is very fact specific and depends on the circumstances of each individual case, which makes it much less simple that it may initially appear. The test is (1) Is future acquisition fairly certain? (2) Is it subject to present valuation? (3) is the interest too speculative?
Even if a judge determines that a trust isn’t marital property that can be divided the judge can still use a person’s interest in a trust as a factor in deciding what share of the marital estate each party receives. Massachusetts is what is called an equitable division state. This essentially means that any division of marital property between the parties is supposed to be fair. Fair does not necessarily mean there should be a 50/50 division, but rather a fair division, and to determine what fair means courts resort to the use a number of factors, which include among others the “estate, liabilities and needs of each of the parties and the opportunity of each for future acquisition of capital assets and income.” M.G.L.c 208, s. 34.
Where one spouse will be in a better financial situation because they will be the beneficiary of a sizable trust or inheritance then the court may decide to award the spouse who does not have this type of access a larger share of the marital estate.
The court’s can also use a present interest in a trust that is determined to not be subject to division in calculating child support or alimony awards.
Whether or not a trust and its assets will be subject to division is heavily dependent upon the facts of each case. The best place to start is to obtain the documents that were used to form the trust. This can be a complex analysis and you should seek the advice of a knowledgeable family law attorney to determine what your rights and interests may be in a divorce.