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Are Trust Assets Subject to Division in a Divorce?

Are Trust Assets Subject to Division in a Divorce?

The short answer to whether trust assets are subject to equitable division in Georgia is no. Now for the longer answer…

The first case worth discussing is Avera v. Avera, 253 Ga. 16(1984). In Avera, the wife sought to subject the corpus of her husband's trust to her claims for alimony and child support. She argued the trust was invalid and that, because her ex-husband was the sole settlor, sole trustee, and sole beneficiary of the trust, as a creditor, she should have access to the corpus of the fund. The Georgia Supreme Court has made clear in a string of earlier cases that spouses can be creditors, holding that "a spouse seeking alimony in a divorce action, which is an equitable proceeding, is considered a creditor." See Speed v. Speed, 263 Ga. 166 (1993); see also Carter v. Bush, 216 Ga. 429, 430 (1960).

The Court ultimately found that the husband was not the sole beneficiary of the trust as the remainder was to be divided equally among his children upon his death. The Supreme Court affirmed the lower court's ruling that the 1) the trust is valid; 2) the husband's interest in the net income of the trust is subject to alimony and child support claims by the wife, and 3) the wife cannot reach the principal of the trust.

Avera was followed by Speed v. Speed, 263 Ga. 166 (1993), another Supreme Court case dealing with divorce and assets in a trust fund. In Speed, the husband was injured in a car accident and received a lump sum settlement, which he transferred into an irrevocable trust, naming himself the sole beneficiary. The trust contained a spendthrift clause, which prohibited the involuntary alienation of trust property for the satisfaction of the husband's debts or obligations. The spendthrift clause was found unenforceable because the husband was both the sole settlor and sole beneficiary of the trust. As a result, as a creditor, the wife was able to reach her husband's interest in the trust for purposes of alimony and distribution of property.

Most troubling in Speed is that the Court held that the wife was permitted to access the husband's income from the trust and the principal of the trust for purposes of distribution of marital property. The court held that the reason for invalidating the self-settled trust was to prevent a person from placing his own assets into a fund where he was the sole beneficiary, effectively shifting the settlor's assets from one pocket to another. If parties avoid such obvious self-dealing, then the corpus should be left intact.

Speed was followed by another Supreme Court case, McGinn v.McGinn, 273 Ga. 292 (2001). In McGinn, the husband was the beneficiary and co-trustee of a trust containing stock in a company owned by his family members. The wife argued that because the husband controlled the trust as co-trustee, she ought to be entitled to discover information regarding the value of the stock held in the trust for purposes of alimony and equitable division of marital property.

Because the husband was not the sole trustee, the Court explicitly stated that the trust corpus was not subject to the wife's claims for alimony, child support, or equitable distribution. However, the husband's interest in the trust is one of his assets and is relevant to alimony and child support determination.

It appears clear that the rule of McGinn will hold and that where a person does not act as sole settlor, sole trustee, and sole beneficiary, the corpus of the trust will not be reached in a divorce action. Fortunately or not, depending on your position, McGinn is similarly clear in recognizing a common theme in Georgia cases that a person's income derived from a trust is, however, relevant to the calculation of alimony.

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