The 2015 Massachusetts Appeals Court case of Pfannenstiehl v. Pfannenstiehl was so problematic and peculiar that that we published 6 previous blog entries about it. We hoped that the Supreme Judicial Court (SJC) would accept the husband’s request for further appellate review, and it did, on the trust issues only. Happily, it did, and when the SJC issued its decision in August, it reversed the Appeals Court’s split decision.
In the process, SJC furthered our understanding of just when a trust interest is, or is not, a marital asset that is subject to division in a divorce case. In deciding that Mr. Pfannenstiehl’s interest was too speculative to be deemed an asset, the court avoided the equally vexing question of how to value an interest when it is properly found to be an assignable asset; so, that is left for another day.
The SJC attacked the problem from two vantage points:
1. Was the trustees’ authority such that the husband could have a legally enforceable interest?
2. If so, was the husband’s interest, as one of 11 living beneficiaries, subject to expansion by reason of newly birthed issue, sufficiently discernible to call it an asset and assign an interest in it to the wife?
The answer on each was a resounding “no”.
The critical language was that the trustees:
“… shall pay to or apply for…
… any one or more of the Donor’s then living issue…
… such amounts of income and principal and income…
… in [the trustees’] sole discretion…
… in equal or unequal shares…
… for the comfortable support, health, maintenance, welfare and education of [the beneficiaries]...”
The wife, and the Appeals Court, focused on the “shall” and the so-called “ascertainable standard”, i.e., the “comfortable support” clause, to argue that the Husband could plausibly force the trustees to make any distribution to him that qualified under that standard. An enforceable right equals an asset, they reasoned.
The husband, and ultimately the SJC, instead seized on the open class of beneficiaries, “sole discretion” and the “equal or unequal shares” leeway, to undermine the claim that the Husband could really enforce anything. Because the donor vested the trustees with sole discretion, because some beneficiaries could receive less than others – including nothing – and because the husband’s interest could be diluted by the birth of new beneficiaries, the SJC concluded that there was nothing to enforce; hence no asset; but rather a mere “expectancy”, i.e., an economic factor but not a divisible asset under equitable division law.
The facts bore out the high court’s analysis. To the point of the parties’ divorce, only 3 of the 11 beneficiaries had received anything from the trustees. What the husband and his siblings did receive varied year-to-year, heavily dependent on the productivity of the trust res, which was stock in the donor’s company. When divorce hit, distributions for the husband stopped cold. Could they resume? Sure. Was there any legal path for the husband to compel resumption. Not by the SJC’s light.
The substantial history of trust distributions to Mr. Pfannenstiehl constituted an important financial consideration for this divorcing family, which, however, did not make it any more enforceable, the court analogized, than social security. The SJC remanded for reconsideration of the trial court’s decision to not award alimony to the wife, with language that could even justify a reconfiguration of the remaining marital assets, as impacted by the potential quantum of the husband trust expectancy. But, assignable property? No.
The bottom line for practitioners is that the financial history of the trust matters, but trust language really matters. The trial court’s charge is to determine, as nearly as possible, what the donor intended, as gleaned from the trust instrument. By that measure, this was not a hard case.
Now, one of these days, we are going to get a case that tells us something about how to value a trust interest that is a marital asset.