USA – MASSACHUSETTS Trends and Developments Contributed by: Patricia Annino, Rimon, P.C.
established by a third party may be considered when dividing assets. Even if trust assets are not included in the Massachusetts divisible estate, the trust inter - ests may be considered in a beneficiary’s divorce as an “opportunity for future acquisition income and or assets” – a mandatory factor as noted above. In evaluating this issue, case law now mandates that the opportunity to acquire future income and or assets allows future inheritances to be formally discovered in the divorce. Following a landmark case, Vaughan v Vaughan , attorneys routinely ask the parents of a child in a divorce to prepare what is known as a Vaughan affidavit, providing information that includes their approximate total net worth (plus or minus USD500,000), a general description of their current estate plan and wills and the date, if any, when the estate plan or wills were last amended. If a Vaughan affidavit is not produced, the attorney will customar - ily serve a deposition duces tecum requiring the par - ents to bring to a deposition any and all documents regarding their assets and estate plan. This is the law regardless of any right to privacy and even though the parent has and may change their estate planning in the future. In determining whether gifted or inherited assets are taken into account there is now a large body of case law addressing the factors to consider in determining if an asset is divisible in divorce. Central to the deci - sion is whether the asset is a “fixed and enforceable” property right. In other words, is the interest vested (current and enforceable), or contingent and not yet vested (meaning it may be vested depending on a future event), or vested and not contingent but not yet possessory (meaning it is vested but not yet in possession, eg, a remainder interest in real estate). Even if the interest is not “fixed and enforceable” the court can still consider a right to income interest for the purpose of calculating alimony and child support. When a divorcing party has received an inheritance, the court will typically review the value of the inherit - ance in relation to the entire marital estate, when the inheritance was received (and whether it has been “woven into the fabric of the marriage”), the charac - ter of the asset, whether the value of the asset has declined or depreciated during the course of the mar -
riage and how the asset was used during the course of the marriage. In other words, each party’s role in man - aging the assets, and whether the assets in question were kept separate or commingled with the couple’s jointly owned assets. If the assets are held in a revocable trust established by a divorcing party, they are considered fully avail - able to the divorcing party and are treated as part of the divorce estate. If the trust is irrevocable, it must be determined if the divorcing party is the settlor and if so, then what rights, if any (such as, the right to income, the right to exercise a power of appointment, and the right to decant), are retained in the trust document. If the sett - lor established the irrevocable trust and transferred assets to it in contemplation of divorce, those assets may be vulnerable. If the divorcing party is not the settlor of the irrevoca - ble trust and the trust was settled by a third party such as a parent or grandparent, then other factors come into play. The court will review who is the trustee, who are the eligible beneficiaries (the divorcing party alone or part of a group), whether the standard for distribu - tion is discretionary or subject to a standard, such as health, education, support or maintenance. The court will also review the trust to determine if the divorcing party as beneficiary has the right to compel distribu - tions. Are distributions mandatory? The spendthrift clause will be reviewed. Also important is how the trust has been operated. Are there regular distribu - tions? If the divorcing party has made requests for distributions, are they always allowed? Are they ever denied? What was the settlor’s intent when establish - ing and funding the trust? The uncertainty of how to value the asset (such as a closely held business, vacation home, businesses owned with others, etc) does not exclude a trust inter - est from being a factor in a divorce. Decanting, as addressed in a recent case, may pro - vide a partial solution. In Ferri v Powell-Ferri, the Mas - sachusetts Supreme Judicial Court approved a trust decanting which removed vested withdrawal rights for a beneficiary in an active divorce action (thereby
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