The Massachusetts Supreme Judicial Court (SJC) has reversed the appeals court decision which held that assets in a discretionary trust created by a third party are reachable as marital assets. In Curt F. Pfannenstiehl v. Diane L. Pfannenstiehl (2016 WL 4131248, SJC 12031, August 4, 2016), the SJC held that a discretionary trust for the benefit of the settlor’s descendants for their “comfortable support, health, maintenance, welfare and education” was not divisible as a marital asset.
While confirming the longstanding rule that the court is not “bound by traditional concepts of title or property” in reviewing equitable division of assets in a divorce, the court characterized the property interests of the husband as a mere expectancy notwithstanding the standard for distributions. The SJC focused on the trustees having sole discretion to make distributions, and held that the standard in the particular trust was not an ascertainable standard sufficiently certain to create a present certain interest that Curt could enforce by compelling the trustees to make distributions to him.
An important factor in the Court’s review was the fact that distributions to Curt were not the same from year to year, and in fact he received no distributions in some years, as well as the fact that there was an enforceable spendthrift clause. The Court also held his remainder interest in the trust to be speculative. Because the trust was not subject to property settlement, the Court remanded the matter back to the trial court for further consideration of appropriate alimony.
An important takeaway from the case is the Court’s focus on multiple beneficiaries as the trust is what is typically referred to as a spray trust. Had the trust been solely for Curt, or for Curt and his descendants, the outcome may have been different.
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