Jones Case and It’s Implications
Dear Friends,
As your trusted advisors in estate planning and administration, we strive to keep you abreast of changes in the law that may be of interest to you or your loved ones. We are writing to provide you with information about a September 2023 decision from the Massachusetts Appeals Court called Jones v. Jones. This decision has shifted the legal landscape around how trust assets are treated in divorce proceedings. While this decision is not cause for alarm, it does have some valuable takeaways that may be consequential to some of our clients. Below, we break down what the Jones case was about, what the court’s decision means, and how we should move forward in light of its consequences.
What was the Jones case about?
The Jones case stemmed from a divorce proceeding that was initially filed in 2019. When the couple’s divorce order was issued, the judge considered property the wife received from her mother when deciding how to equitably split the marital estate. The gifted property was held in an irrevocable trust that the wife’s mother established for the wife’s benefit.
On appeal, the wife argued that it was wrong for this irrevocable trust to be counted as part of the marital estate given that her interest in the trust was too speculative to be considered marital property, as she had not received any distributions from the trust and would not receive all of its assets until her mother’s death.
Key facts:
- The Jones family enjoyed a standard of living that they would not have been able to achieve without the financial gifts from the wife’s mother. Although the gifted assets were not actually accessed during the marriage, the whole family benefitted from the existence of these gifts and knowing they existed was central to the family’s financial behavior.
- The irrevocable trust in question was created in Michigan, and the divorce proceedings occurred in Massachusetts.
- The irrevocable trust was controlled by an independent trustee who had broad discretion over whether to distribute trust assets to the wife during her mother’s lifetime.
- The wife held a power of appointment over the trust assets which allowed her to decide where the assets would go if she died before receiving them.
What did the Jones court decide?
The court disagreed with the wife’s arguments, deciding that the irrevocable trust’s assets were properly included in the division of the marital estate. The court held that the gifted assets, including the irrevocable trust, were “woven into the fabric of the marriage” because of how deeply their existence influenced the financial decisions of both husband and wife; therefore, it would be inequitable to not count these assets as marital property.
The wife’s interest in the irrevocable trust assets was “fixed and enforceable,” and therefore considered marital property, because, although the independent trustee could postpone her access to these assets, the trustee could not eliminate the wife’s interest in the trust overall. Pivotally, the wife:
- Was the trust’s sole beneficiary
- Had a right to full disbursement of the trust’s assets upon her mother’s death
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- This disbursement could be postponed only for a “compelling reason,” meaning the wife could sue and enforce her right to disbursement if no compelling reason existed.
- Held a power of appointment over the trust assets which allowed her to direct where the assets would go if she died before receiving them.
Note that the court did not give assets from the wife’s irrevocable trust to the husband; rather, the wife remained sole beneficiary of the trust, but she was ordered to pay her ex-husband a substantial amount of money to offset her interest in the trust assets and achieve equal division of the marital property.
What lessons can we take from the Jones decision?
At its core, the Jones decision is a reminder of the importance of careful drafting and taking a holistic approach when creating an estate plan. There is no one bulletproof way to protect assets from all angles, meaning all circumstances must be taken into account and future changes such as beneficiaries relocating to a different state must be considered.
In order to be excluded from the marital estate in divorce proceedings, a trust interest must be speculative, rather than fixed and enforceable, and this type of trust will not always align with the grantor’s goals. If a trust made for the benefit of one spouse is likely to end up benefitting their whole family (becoming “woven into the fabric of the marriage”), then the safest route is to ensure that a pre- or postnuptial agreement is in place which specifically excludes said trust.
As the Jones case shows, a trust alone may not be enough to protect assets from falling into the marital estate upon divorce. Thus, if protecting your child’s inheritance from divorce is one of your concerns, it may be best practice to include marriage restrictions (i.e. requiring a prenup) in the terms of their trust.
We noted earlier that the Jones decision is not cause for panic, and this is true; however, keeping your estate plan up to date with changes in the law is the best way to ensure that your plan works how you want it to. It is better to be safe than sorry, and in no realm is that truer than estate planning!
If the consequences of the Jones case are of particular concern to you or your beneficiaries, you can reach out to Noah at noah@eckertbyrne.com to schedule a Legal Check Up and ensure that your estate plan documents are fit to achieve your goals.
Sincerely,
Anna Byrne