Trusts are legal tools that can serve a number of functions. One function is to protect assets from creditors. An interesting case questions whether a spouse going through a divorce counts as a creditor. If so, is it legal for the managers of the trust, the trustees, to transfer funds to protect them from the future ex?
The case, Michael J. Ferri, Trustee, et al. v. Nancy Powell-Ferri et al., involves a couple going through a divorce. During the divorce, trustees of the husband’s trust began decanting funds from the trust into another trust in an effort to protect the funds from becoming subject to division during divorce.
How does property division during divorce work? Essentially, marital property is subject to division during divorce. This generally includes assets that are acquired during the marriage.
A court can take a number of factors into account when determining the proper split. This can include the quality of life each partner became accustomed to during the marriage. This factor can be taken into account when splitting assets in an effort to help ensure that each spouse continues with the same standard of living.
What did the court decide about the shifting of assets in this case? Generally, shifting assets during a divorce is not allowed. However, the facts for this case did not involve a spouse attempting to hide assets. In this case it appears the husband was unaware that the transfers were occurring.
One key point that resulted in this finding was the fact that the husband was not involved in the transfer. The court stated that the decision to allow the transfer was supported by the fact that the husband “took no active role in planning, funding or creating” the second trust. This, combined with the fact that the trustees did not engage in illegal activity and were following the conditions of the original trust agreement, resulted in the court allowing the transfer.
How will this case impact future divorce proceedings in Connecticut? A recent publication by the Connecticut Law Tribune discussed the case, noting it will likely provide guidance for the structuring of trust terms. This could directly impact property division determinations that involve trusts in future divorces in the state.