Property or Expectancy: the Division of Trust Assets at Dissolution of Marriage

• Publication year: 2001
• Pages: 63
• Citation: Vol. 30 No. 1 Pg. 63

30 Colo.Law. 1 Colorado Lawyer 2001.

2001, February, Pg. 63. Property or Expectancy: The Division of Trust Assets at Dissolution of Marriage

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63

Vol. 30, No. 1, Pg. 1

The Colorado Lawyer
February 2001
Vol. 30, No. 2 [Page 63]

Specialty Law Columns
Family Law Newsletter
Property or Expectancy: The Division of Trust Assets at Dissolution of Marriage
by Steve Lass, Matt Seidman

This article discusses the issue of trusts in dissolution of marriage cases. The division of property at the time of dissolution of marriage is governed by CRS § 14-10-113. The statute requires the court to identify and set aside each party's separate property and then equitably divide the marital property.1 However, before the provisions of CRS § 14-10-113 become applicable, the court must make a threshold determination that the item under consideration is "property." Although the scope of what may be classified as property has been expanding,2 several Colorado cases have affirmed the principle that "there are necessary limits on what may be considered property."3

Thus, for example, when a divorcing party is the beneficiary of a trust, the court must initially determine whether the beneficiary holds an interest in the trust that can be classified as property within the scope of CRS § 14-10-113 The answer depends on whether the divorcing party who is the trust beneficiary has the authority to require distributions of trust principal and income for personal benefit

In a purely discretionary trust, the beneficiary cannot compel the distribution of trust principal or income to the beneficiary. Instead, the trustee has discretion over the distribution of trust principal and income. When the beneficiary's marriage is dissolved, the court is likely to find that the beneficiary's interest in such a purely discretionary trust is not property within the scope of CRS § 14-10-113. In contrast, if the beneficiary of a completely nondiscretionary trust has the right to compel the distribution of trust principal and income for that person's personal benefit, the court will likely find that the beneficiary's interest in such a trust is property within the meaning of CRS § 14-10-113

Foundational Doctrine

The leading Colorado Supreme Court case on the issue of trusts in a dissolution of marriage is In re Marriage of Jones.4 In Jones, the wife was the beneficiary of a testamentary trust created during the marriage by her mother's will. The trustees were the wife's father and a Colorado bank. The trustees had complete discretion over whether to distribute income and principal from the trust to the wife's father, the wife, or the wife's descendants. The trust was scheduled to terminate on the death of both the wife and the wife's father, at which time the trust proceeds were to be distributed to the wife's descendants, if any, or to the heirs of the wife's mother.

During the marriage, the wife received income of approximately $38,000 from the trust, and the trust corpus increased in value by more than $42,000. At the time of dissolution, the husband claimed that the wife's interest in the trust corpus on the date the trust was created should be classified as the wife's separate property. The husband made that claim in an attempt to classify the income the wife received from the trust during the marriage, as well as the appreciation in the value of the trust, as marital property subject to an equitable division.

The Colorado Supreme Court rejected the husband's argument, holding instead that the wife's future interest in receiving funds from the trust corpus was a "mere expectancy" not rising to the level of a property interest for the purposes of CRS § 14-10-113.5 Because the wife's interest in the trust was not property, the marital appreciation of the trust corpus was not marital property. The income the wife had actually received from the trust during the marriage was considered a gift and, therefore, the wife's separate property.6

The most important factor in the court's analysis was that the...