It started with an "easy" case.
In 1991's Lauricella v. Lauricella, the Massachusetts Supreme Judicial Court (SJC) Court first decided that a trust was not a trust, for divorce purposes. The facts were compelling:
- a simple trust (settled by the husband's father, with only two beneficiaries living, the husband and his sister, until divorce eve amendments diluted the husband's share),
- a single asset (2-family home in Newton),
- inarguable entwinement (the parties' marital home),
- economic dominance of the marital estate (as found, the parties' largest asset),
- a financially vulnerable spouse (a non-beneficiary wife who was both primary caretaker of children and possessor of "a relatively low income capacity"), and
- recent precedent, albeit from a lower court, in the Appeals Court's 1985 Davidson v. Davidson (holding that a remainder interest could be an asset).
In Lauricella, SJC Justice John Greaney made short work of the trial court's finding the trust "not per se" connected to the marriage, thereby excluding of the trust interest from the divisible estate. After all, Massachusetts embraces a broad view of what a "marital asset" is, including the intangible, the unvested, the fractional, the difficult-to-value and the illiquid. In essence, the SJC decided that the equities of the situation -- the demand that the court find "fairness" -- trumped a valid spendthrift clause, which would not stand as a firewall between the settlor's intent and the judicial power of equitable division.
By retrospect, Lauricella was a ripple in the family law pond. After all, the facts made an equities-based decision defensible. The corpus was the family home. Trust restrictions looked illusory. Last minute trustee machinations suggested victimization. Compared to Davidson, the SJC's leap over the spendthrift clause was unsurprising, and in the moment, comparatively benign.
In the interim, we have received a number of consequential trust/divorce cases, including, SL v. RL, DL v. SL, Williams v. Massa; and Rule 1:28 Appeals Court decisions, most notably, Krintzman v. Honig I and II. These cases address how to discern an includible trust interest from one that is too speculative or remote to be termed an asset (the first two), and when circumstances suggest that exclusion is equitably appropriate, as in Williams. Krintzman upheld a trust's inclusion, but vacated an "if and when" economic assignment as illusory, under the facts of that case.
But, none of these cases taught how to place a value on a trust interest, which the Lauricella court, perhaps with unintended irony called, "obviously... not difficult", in its case (focusing on the underlying asset, while begging the question of the husband's shared beneficiary status with his sister).
Until now.
Now, Lauricella may be seen as a ripple turned tidal wave, in the 2015 form of Pfannenstiehl v. Pfannenstiehl, which its critics call the final sublimation of trust law to divorce; where a complex intergenerational trust interest, with an expandable class of 11 living beneficiaries and a discretionary, if ascertainable, standard for distribution, is termed a marital asset, valued as 1/11 of trust corpus market value, and paid out over time to a non-beneficiary.
We know, for certain, that Mr. Pfannenstiehl has asked the SJC to review and reverse the Appeals Court decision. It seems increasingly likely to us that the SJC will accept the challenge, and grant further appellate review.
If they do, this is the time for the high court to look at this issue globally; to create broadly applicable rules for the treatment of trusts in divorce; and modifying or abandoning precedent as necessary, to bring order out of the chaos of this problematic area, which straddles, and mutually hobbles, the family law and estate planning worlds.
In our final (!) Pfannenstiehl entry, we will think through, and speculate a bit, on what the SJC justices might do, if they take the case, as we surely hope they will.
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