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  • Writer's pictureSummers Family Law

Untangling the Web of Family Wealth in Divorce

Dividing property equitably in a divorce may require penetrating complex webs of family wealth. A recent Appeals Court decision highlights the challenges judges face when inherited assets become intertwined with the marital partnership.

The case involved a long-term marriage between an affluent couple who enjoyed an upper-class lifestyle. The husband worked as a physician, while the wife had inherited significant wealth from her parents. Her family made substantial cash gifts to the couple over the years, gave the wife interests in various entities, and settled a multi-million dollar irrevocable trust for her benefit.

Relying on this financial security, the couple didn't aggressively save for retirement on their own. They spent lavishly on real estate, travel, education, and other expenditures befitting their station.

When divorce proceedings commenced after many years of marriage, the question arose: how should the wife's inherited wealth factor into the property division?

The trial judge determined that the wife's assets, including her interest in the irrevocable trust, were marital property subject to equitable distribution. But the wife challenged this finding on appeal.

She argued that her trust interest was too speculative to include in the marital estate. As an open-class beneficiary, her interest was subject to change depending on future circumstances.

But the Appeals Court disagreed. Examining the trust language, the court found clear intent to prioritize the wife as the primary beneficiary. She was trustee with broad discretion to distribute funds to herself and held a power of appointment.

The Appeals Court distinguished this trust from those where the primary intent is to benefit multiple generations equally. Here, the wife was the unequivocal priority.

The Appeals Court also noted the couple's lavish lifestyle was enabled by expectations of future support from the wife's family. Excluding her inherited wealth from the marital estate would ignore this economic reality.

Valuing assets also posed challenges. The wife claimed the trial judge over-valued her revocable trust by $1.3 million. She argued those funds were used to buy out the husband's share of the marital home per their agreement.

But the Appeals Court found no clear error in the trust valuation. The buyout funds were meant to be a dollar-for-dollar transfer between marital assets. The husband received $1.3 million for his home equity share, while the wife's trust was replenished for the same amount.

Takeaways for divorcing couples:

  • Inherited assets, once contributed to the marital partnership, often become marital property subject to equitable distribution. Supporting an elevated lifestyle can demonstrate that expectation.

  • Interests in discretionary trusts are not automatically excluded from the marital estate. The court examines intent, trustee roles, and other factors.

  • Valuation disputes require credible evidence. Assumptions may not carry the day, especially with complex asset webs.

  • Seek clarity upfront on whether temporary support payments will be credited against the ultimate property division. Don't assume.

Divorce courts strive to parse complex assets equitably. But when families intermingle inherited wealth into the marital partnership, it rarely is straightforward. Thorough documentation and clear agreements are essential.

Disclaimer: The content provided in this blog is for informational and educational purposes only. It should not be construed as legal advice and readers should not act upon any information provided without seeking professional legal counsel. The author does not guarantee the completeness or accuracy of the information provided. This blog is not intended to create an attorney-client relationship between the author and the reader.

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