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Interest in a Spendthrift Trust is Not Divisible Marital Property

Article by: Samuel X. Frank

In a Pair of Cases the NH Supreme Court Affirms that Interest in a Spendthrift Trust is Not Divisible Marital Property

The NH Supreme Court issued a pair of recent decisions addressing whether an individual’s interest in a trust containing a spendthrift provision may be considered marital property subject to equitable division in divorce proceedings.  In both decisions the Court held that New Hampshire law, RSA 564-B:5-502(e), expressly states that such interest in a trust is not divisible marital property.

In a decision titled, In the Matter of Jonathan Merrill and Lea Merrill, issued April 20, 2021, the NH Supreme Court reversed a trial court order that included the husband’s interest in shares of a company, owned by a trust subject to a spendthrift provision, as marital property subject to equitable division in a divorce. 

The Court concluded that the relevant provision in the trust instrument created a valid spendthrift trust.  The rationale for this conclusion was that the provision clearly prohibited all transfers of trust assets, whether voluntary or involuntary, in compliance with requirements under RSA 564-B:5-502(a).  The Court then explained, “RSA 564-B:5-502 is clear:  a beneficiary’s interest in a trust that is subject to a spendthrift provision is not marital property.”

In a decision titled, In the Matter of Wm. Michael Earley and Ryanne Earley, issued May 5, 2021, the NH Supreme Court cited its Merrill decision in reaching the same conclusion. 

At issue in Earley was the wife’s interest in a trust created by her parents to govern their life insurance policy.  The validity of the trust’s spendthrift provision was not challenged, so the Court assumed, without deciding, that it was valid and enforceable under RSA 564-B:5-502(a).  The Court cited Merrill in holding the valid spendthrift provision prohibited the interest in the trust from equitable division as marital property in a divorce.

The Court in Earley distinguished the present matter from its precedent established in Flaherty v. Flaherty (1994).  The Court explained that, although factually similar to Earley, Flaherty involved the application of Massachusetts law, which permitted the inclusion of spendthrift trusts as divisible marital property.  New Hampshire law, RSA 564-B:5-502(e), the Court reaffirmed, expressly prohibits the inclusion of a spendthrift trust as divisible marital property.

Click here for the full decision:  In the Matter of Jonathan Merrill and Lea Merrill

Click here for the full decision:  In the Matter of Wm. Michael Earley and Ryanne Earley

 

 

 

Note - Web addresses for hyperlinks:

https://www.courts.state.nh.us/supreme/opinions/2021/2021016Merrill.pdf

https://www.courts.state.nh.us/supreme/opinions/2021/2021020Earley.pdf

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