EX SPOUSES GETS TRUST FUNDS: recent Florida alimony case deals with Florida Trust Code and attack of ex wife on trust assets. Important case for Florida trusts and family (divorce) law

Uncategorized • Jan 1, 2014

A very recent Florida case, decided just weeks ago in Collier County, Florida, demonstrates the overlap of divorce law and Florida trust law.

Specifically, the Florida trust issue which the Florida appeals court addressed was whether an ex-wife can get trust assets for alimony payments from a Florida trust when the husband is a trust beneficiary and has refused to pay alimony. The answer is an absolute yes, but there are some conditions, some “if’s”, and the right of a spouse to get Florida trust assets from a Florida trust of which she is not a beneficiary is limited.

This is a very important Florida trust case for Florida trust beneficiary rights, and rights of creditors to trust assets, including rights of a Florida family to a trust beneficiary’s interest in a Florida trust. This recent trust case involves the interplay between Florida divorce law and Florida trust law.

To put it simply, a wife and a husband were divorced in Florida. The husband was not making certain alimony payments. The husband was a beneficiary of a Florida trust. The Florida trust that a spendthrift provision.

A spendthrift provision is a term or a provision in a Florida trust document which instructs the trustee to not distribute trust funds, or trust money, to creditors of the trust beneficiaries. The idea behind a Florida spendthrift provision, or a Florida spendthrift trust, is the intent of the creator of the Florida trust. A person who creates a Florida trust is often referred to as the “settlor”. The settlor may leave money in a Florida trust according to just about any term or condition, as long as it does not violate the public policy of the state of Florida. Florida even allows somebody to leave money in a trust exclusively for their pet. So-called Florida “pet trusts” have been around for a few years.

So, generally, if you are owed money by a person who is also a beneficiary of a Florida trust, the question becomes: can you, the creditor, who is owed money, attack or pierce the Florida trust to get at the trust beneficiary’s interest in the Florida trust?

What this very recent trust case said was: no, unless the person who is attempting to attack the Florida trust is a trust beneficiary’s child, spouse, or former spouse who has a judgment or a court order against the Florida trust beneficiary for support or maintenance.

This Florida trust beneficiary case, to some extent, merely recited or reiterated what the Florida trust code already says. The Florida trust code is a set of the trust statutes, or trust laws, which govern Florida trustees, Florida trust beneficiaries, in the operation and administration of Florida trusts. The Florida trust code has very specific statutes which address this issue. I am reprinting at the end of this commentary the Florida trust code statutes which are relevant to this issue, and which the Florida appeals court referred to should you wish to read them right now.

This recent Florida trust beneficiaries’ rights case, and the appeals court opinion, also, in essence, restated a prior Florida Supreme Court case, referred to as the Bacardi case, which had very similar facts. The appeals court quoted the Florida Supreme Court and the Bacardi case in its opinion. This is what was said regarding Florida trusts, alimony payments from divorce, and the ability of a former spouse, or an ex-husband or ex-wife , to get Florida trust assets from a trust which they are not a beneficiary of, but of which their ex spouse is a beneficiary of: “The Florida Supreme Court concluded that, in support cases, the restraint of spendthrift trusts should not be an absolute bar to the enforcement of alimony orders. Id. at 222. The court further held that garnishment as an enforcement alternative should be allowed only as a “last resort” and that when traditional remedies available to the spouse seeking to enforce support orders are not effective, “it would be unjust and inequitable to allow the debtor to enjoy the benefits of wealth without being subject to the responsibility to support those whom he has a legal obligation to support.” Id. The court limited the right of garnishment to disbursements that are due to be made or which are actually made from the trust. Id. The court specifically addressed whether a discretionary disbursement is subject to a writ of garnishment and concluded that “[i]f disbursements are wholly within the trustee’s discretion, the court may not order the trustee to make such disbursements. However, if the trustee exercises its discretion and makes a disbursement, that disbursement may be subject to the writ of garnishment.” “

Why does this matter? Well, first of all, it suggests that certain family (spouse, ex spouse, child or dependent) members may get money from a Florida trust even in the face of the trust document terms which prohibit a trustee from paying a creditor of a beneficiary. It also says two other important things about Florida trust law in the alimony and divorce context. First, garnishment, attacking and attaching Florida trust money, is not a first resort of a legal remedy. Secondly, the court distinguishes between trust assets which may be in the hands of the trust beneficiary already, or which must be distributed to the trust beneficiary. It appears that if a Florida trust beneficiary is entitled to certain trust money from the Florida trust, those trust funds may be garnished or attached, or obtained by the former spouse. However if a trustee has discretion to distribute, or not distribute, trust assets for the benefit of the Florida beneficiary, then, in that case the trust may not be pierced. However, the Florida appeals court noted that the Florida trust code statute which deals with this issue does not expressly prohibit a former spouse from attempting to garnish, or obtain, discretionary distributions made by a trustee exercising its discretion. An important trust issue for these types of cases is whether the former spouse is attempting to garnish, or obtain, discretionary disbursements which may be made by a Florida trustee exercising its discretion.

Can you force a Florida trustee to exercise its discretion? While this commentary will not answer that, it is important to note that under the Florida trust code, trust judges in a Florida probate court, have broad discretion and great power, including the authority to order a trustee to do, or to refrain from doing, something, as well as the power to suspend the powers of a Florida trustee or to remove a Florida trustee.

Finally, the Florida appeals court made the following statement about the public policy of the state of Florida and Florida trusts: “Florida has a public policy favoring spendthrift provisions in trusts and protecting a beneficiary’s trust income; however it gives way to Florida’s strong public policy favoring enforcement of alimony and support orders. See Gilbert v. Gilbert, 447 So.2d 299, 302 (Fla. 2d DCA 1984) (“In light of our strong public policy toward requiring persons to support their dependents, we hold that spendthrift trusts can be garnished for the collection of arrearages in alimony.”); see also Bacardi, 463 So.2d at 222 (“We have weighed the competing public policies and, although we reaffirm the validity of spendthrift trusts, we conclude that in these types of cases the restraint of spendthrift trusts should not be an absolute bar to the enforcement of alimony orders or judgments.”).

Here is a reprint of the Florida trust statutes which you may wish to read right now.

736.0503 Exceptions to spendthrift provision.-

(1) As used in this section, the term “child” includes any person for whom an order or judgment for child support has been entered in this or any other state.

(2) To the extent provided in subsection (3), a spendthrift provision is unenforceable against:

(a) A beneficiary’s child, spouse, or former spouse who has a judgment or court order against the beneficiary for support or maintenance.

(b) A judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust.

(3) Except as otherwise provided in this subsection and in s. 736.0504, a claimant against which a spendthrift provision may not be enforced may obtain from a court, or pursuant to the Uniform Interstate Family Support Act, an order attaching present or future distributions to or for the benefit of the beneficiary. The court may limit the award to such relief as is appropriate under the circumstances. Notwithstanding this subsection, the remedies provided in this subsection apply to a claim by a beneficiary’s child, spouse, former spouse, or a judgment creditor described in paragraph (2)(a) or paragraph (2)(b) only as a last resort upon an initial showing that traditional methods of enforcing the claim are insufficient.

736.0504 Discretionary trusts; effect of standard.-

(1) As used in this section, the term “discretionary distribution” means a distribution that is subject to the trustee’s discretion whether or not the discretion is expressed in the form of a standard of distribution and whether or not the trustee has abused the discretion.

(2) Whether or not a trust contains a spendthrift provision, if a trustee may make discretionary distributions to or for the benefit of a beneficiary, a creditor of the beneficiary, including a creditor as described in s. 736.0503(2), may not:

(a) Compel a distribution that is subject to the trustee’s discretion; or

(b) Attach or otherwise reach the interest, if any, which the beneficiary might have as a result of the trustee’s authority to make discretionary distributions to or for the benefit of the beneficiary.

(3) If the trustee’s discretion to make distributions for the trustee’s own benefit is limited by an ascertainable standard, a creditor may not reach or compel distribution of the beneficial interest except to the extent the interest would be subject to the creditor’s claim were the beneficiary not acting as trustee.

(4) This section does not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution.