A recent Massachusetts Appeals Court decision in Jones vs. Jones, will likely have important implications for financial planning, asset protection and estate planning issues related to divorce. In addition, the case strongly suggests that parents who support their married children need to exercise caution and work with their children, who may want to ensure that marital and non-marital assets are clearly defined in a prenuptial or postnuptial agreement.

The Case

In Jones v. Jones (No. 21-P-655, 2023 WL 5729650, Sept. 6, 2023) Dylan Jones and Juliana Jones married in 1998. The couple received significant financial gifts throughout their marriage, which enabled them to maintain a lifestyle that otherwise would have been out of reach. These gifts included an irrevocable trust settled by the wife’s mother and governed by Michigan Law, a Certificate of Deposit, a 99% ownership in an LLC that owned the marital home, and an interest in Michigan real estate. The Court acknowledge that the financial assets were not used during the marriage, but pointed out that the parties only saved minimally for retirement and had not saved anything for their children’s future college education expenses. As a result the court found that these gifts were deemed to be “woven into the fabric of the marriage,” for the purpose of equitable division in the marital estate.

The trust’s discretionary powers were also central to the case, as the wife argued it shouldn’t be considered a marital asset, citing the independent trustee’s control over distributions and ability to postpone distributions to protect them in the case of a divorce. Both the Probate and Family Court and the Appeals Court disagreed, finding the wife’s interest in the trust to be “fixed and enforceable,” thus constituting a marital asset.

Important Takeaways

If inherited money or assets are boosting marital finances, or if parents are supporting married, adult children, the case offers important lessons about employing foresight and planning to prevent future complications.

Out-of-State Real Estate Is Subject to Massachusetts Equitable Distribution Laws

In Jones vs. Jones, the wife’s out-of-state property interests were subject to Massachusetts equitable distribution laws, which indicate that the marital estate may include any property, (such as real estate), however or whenever it is acquired and wherever it is situated. People getting a divorce in Massachusetts should be prepared for the general rule that the marital estate can include anything that the spouses own or hold title to. Despite the fact that the real estate in question was kept separate from other assets, the Court concluded that the existence of the asset was an integral part of the couple’s marital finances, since it provided a financial safety net that allowed them to maintain a lifestyle they wouldn’t have otherwise had access to.

An Irrevocable Trust with Spendthrift Provisions Doesn’t Necessarily Provide Asset Protection

The wife’s argument that the trust should not be includible in the marital estate because there was an independent trustee with power to prevent distributions in the event of a divorce was rejected by the Court, because the wife had an enforceable right to receive the trust assets upon her mother’s death and the wife retained a power of appointment over the assets. Despite these protections, the Court found that the wife’s interest was a “fixed and enforceable” property right. The mandatory distribution clause of the trust indicated that the trustee had to pay the wife the corpus of the trust upon the mother’s death. Additionally, the wife was the sole beneficiary of the trust and had the power to appoint the trust to the beneficiaries of her will if she were to die before receiving the distribution. These facts persuaded the Court that the trust was not speculative, as the wife had claimed.

When factoring trusts into divorce, it’s critically important to be cognizant of the structure of the trust, whether there is a closed class of beneficiaries, and the wording of the trust documents. To be excluded from the marital estate, a trust must be an expectancy rather than a guaranteed benefit where the value of such asset is presently discernable. Since there were no other beneficiaries, and the trustee was compelled to pay the wife upon the death of the mother, the interest in the trust was considered “fixed and enforceable.” If a spouse benefits from a trust funded by relatives or parents, it is better to be safe than sorry and consider making a prenuptial or postnuptial agreement that excludes the trust from the marital estate. The Jones case also highlights how significantly laws differ from state to state regarding division of marital assets. A grantor might think they have sufficiently protected an asset by creating a trust in the state in which they live, but if the grantor’s children move to a state with laws similar to those in Massachusetts, which includes all property, no matter how it is held, in the marital estate those assets may not be as protected as they thought.

While the Court in the Jones case did not have the right to invade the trust corpus they awarded other assets to the husband that were not held in trust and ordered the wife to make additional payments to the Husband over a 10 year period in order to reach and equitable division of the marital estate.

Non-Marital Property must Be Clearly Delineated From Marital Property, Using a Prenup or Postnup If Necessary

If parents intend to substantially fund their children’s lifestyle, a prenuptial or postnuptial agreement is advisable. Jones vs. Jones confirmed that if a married couple relies on money from relatives to fund their lifestyle, these funds can be viewed by a court as “woven into the fabric” of the marriage. The CD gifted to the wife was the reason why the married couple didn’t save for college expenses and were able to splash out on holidays and other activities. Even if the CD wasn’t drawn on during the marriage, it represented the financial security that allowed the married couple to avoid budgeting stringently.

Although specific to Massachusetts, Jones vs. Jones highlights the broader need for meticulous high net worth estate planning and premarital planning, and how important a well drafted prenup or postnup is to anticipate any issues that may arise. It’s critical that all financial documents, including trust and estate planning documents, are carefully reviewed to ensure the success of such an agreement. If you are embarking on a marriage and considering getting a prenup or postnup to distinguish between your marital and separate property, the support of a highly experienced Massachusetts Family Law Attorney can ensure that any premarital or postmarital agreements are successful. Please contact Mansur Law Group to learn more about how our experienced Family Law and Divorce team can support you to get a prenup or postnup, or handle any other complex Family Law matter you may have.