August 31, 2010
When a married couple divorces, the court generally has broad authority to divide any property acquired during the marriage. Indeed, in all-property states, the court can even divide property acquired before the marriage. But both groups of states agree on one key limitation: The court can divide only those interests that meet the definition of property.
Does a trust meet the definition of property? The answer depends upon the terms of the trust. Revocable trusts are not property, as the power to revoke the trust is equivalent to ownership of the trust assets. E.g., Dorn v. Heritage Trust Co., 2001 OK CIV APP 64, 24 P.3d 886; Lynch v. Lynch, 147 Vt. 574, 522 A.2d 234 (1987).
When the trust is irrevocable, a vested interest in a trust generally does constitute property. Moore v. Moore, 189 S.W.3d 627 (Mo. Ct. App. 2006) (income interest); S.L. v. R.L., 55 Mass. App. Ct. 880, 774 N.E.2d 1179 (2002) (remainder). But future payments under an income interest might be property acquired after the marriage and therefore not subject to division. E.g., Sayer v. Sayer, 492 A.2d 238 (Del. 1985).
An unvested interest generally does not constitute property. E.g., Williams v. Massa, 431 Mass. 619, 728 N.E.2d 932 (2000); In re Marriage of Hoffman, 493 N.W.2d 84 (Iowa Ct. App. 1992); In re Marriage of Beadle, 1998 MT 225, 291 Mont. 1, 968 P.2d 698.
The trust interest least likely to constitute property is a discretionary interest: one which allows the owner to receive value only in the unfettered discretion of the trustee. A recent North Dakota case held as a matter of first impression that a discretionary trust is not property:
A discretionary trust beneficiary has an equitable interest, but the beneficiary cannot force the trustee to pay income or principal unless the beneficiary could establish the trustee had engaged in fraud or an abuse of discretion. In re Jones, 812 P.2d 1152, 1157 (Colo.1991) (citing 2 A. Scott on Trusts § 130, at 409 (4th ed. 1987)). Courts have held that when the trust is so discretionary that the beneficiary has no enforceable right to receive any benefits at all, the income interest is not property. 2 Brett R. Turner, Equitable Distribution of Property, 3d § 6:94 (2009). Instead, courts treat the interest as a mere expectancy that gives no assurance of any future benefit. . . .
. . . The language of the trust indicates that Mark Paulson does not have the power to compel any distributions from the trustees, and the trustees have the power to make no distribution at all to Mark Paulson. Because Mark Paulson's interest in the trust is an expectancy that gives no assurance of any future benefit, we hold that the trial court did not err in excluding the trust from the marital estate.Paulson v. Paulson, 2010 ND 100, ¶¶ 23-24, 783 N.W.2d 262, 272B73; see also In re Marriage of Jones, 812 P.2d 1152 (Colo. 1991).