Lisa Cukier and Tiffany Bentley will be leading a free webinar, “Dividing assets: What happens to family trusts in divorce?” on October 27, 2020 from 12:00 noon to 12:45 p.m. ET. The webinar is part of an ongoing series sponsored by Burns & Levinson’s Divorce Law Monitor blog.

Q. What are some of the most common issues that you see in divorces with complicated financial portfolios?

Cukier: Asset division during divorce is already challenging for typical couples who own a home, two cars, have a mortgage, credit card debt and modest savings. But division of sophisticated marital estates that include complex trust interests present unique and impactful risks and outcomes. A divorcing spouse’s financial future and long standing expectations of family wealth can be crushed if it is not done right.

Bentley: Broadly speaking, there are three issues at play: how to identify the assets that comprise the marital estate; how to value those assets; and how to equitably divide the assets. Each of these issues becomes more complicated as portfolios grow more complex.

Q. What can be done if one spouse thinks the other spouse is hiding assets?

Cukier: A spouse may attempt to hide assets from you, but likely already reported it in past years to the IRS. So, we scrutinize tax returns first. We look for any inconsistencies in income and asset holdings. We comb through credit card statements and checking account statements and canceled check images. We reveal deposits and withdrawals, purchases, patterns, movement of assets. We can subpoena banks and find money that our client never even knew existed. We can subpoena businesses to determine if compensation is being deferred or bonuses delayed or in kind benefits are being used, in an attempt to position a spouse during the divorce proceedings. And if we can’t trace and locate, we have expert forensic accountant consultants and private investigators who have ways to turn over rocks and shine the light on diverted funds.

Q. How are trusts treated when spouses are equitably dividing assets?

Bentley: It depends on the trust. Some trust interests are considered part of the marital estate, and the value of the trust interest at the time of divorce is subject to equitable distribution. Some trust interests are considered too uncertain or speculative to be included in the marital estate, but that does not necessarily mean they are disregarded altogether. In some situations, a judge could order division of a future distribution “if, as and when received.” Under other circumstances, a judge may award the non-inheriting spouse a larger share of what exists in the marital estate as of today, in recognition that the other spouse is likely receive substantial additional assets in the future.

Q. Can you shield a trust from division in a divorce and why would someone want to?

Cukier: All trusts are at risk for being divided up in divorce. You need savvy counsel to protect it. No trusts are automatically immunized, but there are strategies to shield your trust from disintegration in divorce. You can try to shield your trust from division using spendthrift clauses and advising clients to forbear from mixing trust assets into the fabric of the marriage, and we do this regularly in our practice, but there are no guarantees. Family trusts are intended for asset retention, growth, stewardship, comfort, and enjoyment. If the trust fund is attacked, the assets risk losing value, the family loses control over assets, ex-spouses can occupy control, hold up rights, remove trustees, and force distributions. Whether you are protecting a family trust or asking a court to share one so as to even out what the spouses receive in the divorce, the best protection is still advance planning with a prenuptial or postnuptial agreement.

Q. If a person received a family inheritance during their marriage, is it at risk in a divorce? What about a future expected inheritance that wasn’t received during the marriage?

Bentley: When assets are gifted or inherited during the marriage, those assets will comprise part of the marital estate subject to equitable distribution. This does not guarantee that those assets will be divided 50/50. Relevant considerations would include the length of the marriage, the timing of the gift or inheritance in relation to the divorce, and whether the gifted or inherited assets were commingled with marital assets or otherwise “woven into the fabric of the marriage.” As noted above, future inheritances are less likely to be divided but may factor into the asset division in other ways.

Q. Can a prenuptial or postnuptial agreement limit access to family trust assets or inheritances?

Cukier: If you have any level of assets, own a piece of property, have a familytrust, are entering into a second or subsequent marriage later in life, or are blending families, you should most definitely protect those assets using a prenuptial or postnuptial agreement. It is simply necessary planning if you have anything or anyone worth protecting. Especially if you have children from a prior marriage, use a prenup or postnup to direct two separate paths on how your money will pass: if you divorce versus if you die. Without a prenuptial agreement (signed before the wedding nuptials) or postnuptial agreement (signed after the marriage), your trust and other assets are vulnerable to attack and division in divorce and on your death. A prenup or postnup– that is properly executed and meets all the criteria for enforcement – keeps your assets separate and shielded for the loved ones you want to protect.

Q. What else do people need to know about protecting their assets in case of a future divorce?

Bentley: Plan ahead to the extent possible via either a prenuptial or postnuptial agreement. If it’s too late, and divorce is imminent, arm yourself with a divorce attorney who is well-versed in trusts and estates as well as family law. There are nuanced intersections with very fact-specific arguments to be made in this evolving area of the law.

Q. What is the strangest thing you’ve seen people fight over in a divorce?

Cukier: I have seen people fight for a really old and worn out reclining chair and a dinged up silver gravy tureen. But the fight for club memberships and vacation homes and timeshares and frequent flyer miles is real and not at all strange. When couples divorce, their social circle, friendships and family inclusion opportunities are adversely impacted. Retaining memberships and social engagement opportunities is often very important and worth the fight.

Bentley: The parties weren’t necessarily fighting over it, but I had a client once with some very unique collectibles that were difficult to value. His wife seemed happy enough to leave all of it with him once we attached a fair value to the collection. Shortly after the divorce, my paralegal was surprised to receive a thank-you gift from the client: a stuffed jackalope, from the taxidermy portion of his collection.

Lisa Cukier is co-chair of the Private Client Group at the law firm of Burns & Levinson in Boston and Tiffany Bentley is partner in the group. Both attorneys concentrate their practice on probate and family court litigation in Massachusetts and have many years of experience helping clients through challenging family law matters with a specialty in handling high net worth divorce and high conflict custody/parenting disputes. They can be reached at lcukier@burnslev.com or tbentley@burnslev.com.