Cohabitation Facts To Consider – Part 1

By Valerie Jules McCarthy, Esq.
vmccarthy@pashmanstein.com

It is becoming more and more common for couples to cohabitate; that is, live together, in a relationship without the bond of marriage.  Many couples find this arrangement to be a great way to “test the waters” before jumping into marriage.

If you are divorced, receiving alimony from a former spouse and are thinking about “testing those waters,” you should read this article carefully, because your romantic life may have a significant impact on your financial future.  If you are paying alimony, you should be aware of the changes to the law, as they may impact your obligation to continue to pay alimony.

Most divorcees are aware that if they receive or pay alimony, the obligation will automatically terminate if the recipient remarries (in most cases).  Many divorcees also know that if the recipient of alimony lives with their significant other, it may impact alimony.  The new alimony statute, N.J.S.A. 2A:34-23(n) enacted on September 10, 2014 provides clarification to help Courts and practitioners to determine if a party is cohabiting.

A noteworthy addition to the law regarding cohabitation is the Legislature‘s overt recognition that some couples may be cohabitating without living together full-time. The new statute specifically states that a Judge cannot find the absence of cohabitation based on “grounds that the couple does not live together on a full-time basis.” This language certainly changes the game, as many people may have believed that if a couple was maintaining two separate households, that factor would carry the day in defining whether or not cohabitation was occurring. The moral of the story is that a person may be deemed to be cohabiting even if he/she maintains a separate residence from their significant other.

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Holiday Parenting Time: Tips to Survive the Holidays During a Divorce

By Valerie Jules McCarthy, Esq.
vmccarthy@pashmanstein.com

The holiday season brings a mixed bag of emotions.  Some people find it to be a time when they can slow down the normally hectic pace of everyday life, take a vacation, spend time with family, make great memories and enjoy traditions. Others find the holidays to be a time when stress is at its peak, as the holiday season often brings unwelcome guests, an exhausting list of demands; including shopping, parties, baking, cleaning and entertaining, to name just a few. No matter which camp you may belong to, going through a divorce will probably put a damper on the holiday season.

In New Jersey, when couples with children decide to divorce, one of the first issues which must be addressed is custody of their children, at least on a temporary basis until the divorce is finalized. After the parents agree or the Court makes a determination on custody of the child(ren), parenting time and visitation will also need to be determined. In some cases, parents reach a suitable agreement without having to battle it out in court. However, in other instances, a Judge must determine parenting time.

Among the many obstacles parents must overcome when going through a divorce, one of the more difficult challenges is often figuring out how to share time with their children during the holidays. This is particularly difficult if parents have spent years creating holiday traditions and routines, which have to be abandoned or modified when parents no longer live in the same household.   This challenge often leads people to overlook or ignore the issue until the last minute.  However, doing so can lead to even more stress and costly litigation.

As attorneys who practice family law know, the holiday season can be one of the busiest times in the profession. This surge in litigation is often due to last-minute disputes regarding holiday parenting time with children.  In 2013, I had to participate in a telephonic hearing on Christmas Eve to address Christmas Day parenting time for one of my clients.  This type of nail biting suspense is great at the movies, but created an extremely difficult and unpleasant experience for my client, who had to wait until Christmas Eve to find out if she would be able to spend time with her children on Christmas Day.

Unfortunately, these situations occur every year during the holidays, and make it very difficult for parents to plan activities and enjoy the holiday season with their children.   However, proper planning and communication can alleviate these issues and allow people to enjoy the holidays (as much as possible, given the circumstances). Here are my four tips on surviving, and even possibly enjoying, the holidays with your children during the divorce process:

1- Think Ahead-Discuss & Create A Holiday Time-Sharing Schedule With Your Spouse

People often wait until the last minute to make holiday plans.  We are all guilty of procrastination.  But, if you are going through a divorce, you no longer have this luxury. When parents reside in two different households, they must share time with the children and cannot simply make unilateral plans, as they may have done when the family was intact.

Many divorcing couples make the mistake of addressing their general time sharing arrangement when they commence the divorce process, but ignore the holidays, especially when holidays are relatively remote. I recommend that parents address holiday parenting time early in the divorce process, in conjunction with addressing their general parenting plan.  Failing to do so may result in one party enjoying the bulk of the holidays if there is only one general schedule in place.  This scenario leads to last-minute litigation.

If, after discussing holiday parenting time, the parents are unable to agree on a schedule, at least they will still have plenty of time to address the issue.  Parties can seek the assistance of counsel to negotiate a settlement or the assistance of a mediator to resolve these disputes.  If all else fails, they can file an application with the Court and request that a Judge make a final decision.

2- The Child(ren)’s Needs Come First

It is understandable that parents want to spend every holiday with their children; however, the holidays should not become a battleground.  When deciding how to share holiday parenting time, the children’s needs should be the first consideration.  If a parent has extended family coming to visit or a special event has been planned for the holiday, these scenarios should be taken into consideration when determining the holiday parenting time schedule. Placing the children’s needs above the parents’ desires may simplify the task of preparing a holiday time-sharing schedule.

3- Be Flexible and Don’t Focus on the Day

Which parent celebrates Christmas Day and Thanksgiving with the children seems to cause a lot of problems.  It is often recommended by family law practitioners that parties alternate holidays each year; for example, one parent will have Christmas in odd years and the other in even years.  However, the issue of who celebrates a particular holiday with the children during the first year is always a problem.

It may be helpful to view holidays as a season, rather than a particular day.  If there is a dispute over who enjoys Christmas with the children, think about celebrating Christmas (or any holiday) on a different day with your children. Family and traditions make Christmas special, not December 25th.  Once you are divorced, it is likely you will not spend every holiday with your child(ren) every year anyway; therefore, it is beneficial for you to plan ahead and develop alternate ways to celebrate the traditional holidays on different days.  Thanksgiving, Hanukkah and Christmas holidays often coincide with school recess, so there is ample opportunity to celebrate each holiday on a different day with your children.

4- Memorialize a Holiday Time-Sharing Schedule

Once a holiday time-sharing schedule has been agreed upon, it is important to memorialize it in a written agreement or consent order.  If the divorce is mutual and unhostile, it may seem tempting to ignore this tip, but I highly recommend that you do not do so.  Placing the schedule in writing will avoid misunderstandings and will prevent one parent from reneging on the previously agreed-upon schedule out of spite or animus later in the litigation, not to mention saving both parties counsel fees and costs incurred to re-address parenting time in the absence of a written agreement.

Holidays can be a stressful time for “intact” families.  For families going through a divorce or custody dispute, holiday stress can become intolerable.  Consulting a family law attorney to discuss the specifics of a situation can avoid adding additional stress to the holidays. We hope to hear from you so that we may help alleviate your anxiety during the divorce process and assist you in ensuring that you and your children enjoy the holidays.

If you have any further questions on this topic, please email Valerie at vmccarthy@pashmanstein.com.

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Disability Status and Its Effect on Support: Does It Ever End?

As published in the New Jersey Law Journal, October 26th, 2015

This article explores the impact that a determination of disability may have on support obligations, discusses the Social Security Administration’s (SSA) requirement for disability status, surveys the case law, and makes recommendations for practitioners handling such matters.

When an individual is deemed disabled by the SSA, that status creates a rebuttable presumption of a limited ability to work. This reduces the ability of the nondisabled spouse to argue that the disabled spouse should be imputed income commensurate with that spouse’s earnings capability, were he or she not disabled.

For the rest of the article, click here.

Social Security Disability and Alimony

By Robert B. Kornitzer, Esq. and Caitlin Dettmer

The previous blog mentioned that when courts impute income, they consider the earning capacities of each party.  One of the things that can affect the way a court perceives earning capacity is a disability.  If a party has been declared disabled by the Social Security Administration (“SSA”), the court assumes that they are unable to work and will impute a lower income; however, the court allows the other party to challenge that presumption.  Golian v. Golian, 344 N.J. Super. 337, 342 (App. Div. 2001).

Such a challenge can be an important tool for litigants because a declaration of disability does not mean that an individual is entirely incapable of producing income.  The SSA allows disabled individuals to work so long as the work is not “substantially gainful.”  20 C.F.R. § 404.1571.  Substantially gainful activity is defined as work which “involves doing significant physical or mental activities . . . for pay or profit.”  20 C.F.R. § 404.1572.

Proving that a disabled spouse is able to do non-substantially gainful work may increase the amount of income that a court imputes to the spouse seeking support.  For payors whose former spouses are declared disabled, this may lead to paying less alimony.  For payees whose former spouses become disabled, a successful challenge may lead to receiving a lower alimony payment.

Parties whose spouses obtained Social Security disability benefits during the marriage may have a difficult time challenging the presumption that their former spouse is unable to work.  In Gilligan v. Gilligan, the court emphasized that it would be unfair to “permit a divorce litigant to . . . challenge his or her spouse’s disability after (a) having previously assisted the spouse in obtaining [their disability] status, and (b) having previously spent the [disability] funds during the marriage.”  428 N.J. Super 69, 78 (Ch. Div. 2012).

Litigants should also be aware that  Social Security disability status is not necessarily permanent.  The SSA reviews those who receive benefits periodically.  Individuals with disabilities that are expected to improve with time are reviewed more frequently than those whose conditions are not expected to improve.  If an individual’s disability status were changed or revoked by the SSA, this would surely constitute a change in circumstance, as is required to modify alimony awards.

Though highly influential, an individual’s disability status is still just one of many factors which will be considered by a court when imputing income (to both supported spouse as well as supporting spouse) for the purpose of determining an alimony award.

If you would like to speak with an attorney about disability or alimony in New Jersey, please contact Robert B. Kornitzer.

Considerations When Imputing Income to Determine Support

Robert B. Kornitzer, Esq. and Caitlin Dettmer
rkornitzer@pashmanstein.com

Courts consider a variety of factors when determining what amount of alimony is appropriate.  Among these factors are the actual needs of the person requesting the support, the financial wherewithal of each party, and the earning capacities of each of the parties.  N.J.S.A. 2A:34-23(b).  This last factor may require the court to consider what income, if any, should be imputed (assigned) to a spouse who is either not working or underemployed.  This “imputation of income” is important in determining the extent to which the party requesting support can contribute to his/her own support, as well as the ability of the other party to pay support.  For a party seeking alimony, a higher imputed income to her/him may result in a lower alimony award, so this issue is the subject of much litigation.

An interesting illustration of one way the courts approach imputation of income in the unreported (non-binding) 2014Maine v. Maine. This case discusses an alimony request by a spouse who has some vocational training, but who was not employed in that field  during the marriage.  The wife in Maine sought support and explained that during the marriage, her husband had been the primary financial provider, earning $68,000 a year while she earned only $10,000 a year as a part-time custodian.  The husband argued that the wife should have a higher income “imputed” to her because she was capable of earning more money ($32,400 according to the N.J. Department of Labor (“DOL”)), having trained as a medical assistant during their marriage.

The court determined that while it would impute income to the wife, it would not do so without further inquiry and blindly use the average income of a medical assistant as reported by the DOL.  Instead, the court took into consideration the time it may take the wife to find work at the average income level of a medical assistant, due to her minimal work history in the field.  The wife was assigned an income of $23,000 which the court found she could earn immediately if she were to work forty hours a week at her current hourly rate.  The wife was also given four months to demonstrate that she had sought and was unable to obtain employment at a higher income level, before the court would reconsider her imputed income.

While the DOL’s averages provide helpful guidelines for determining what income should be imputed to someone who has training in a particular field, they are not necessarily representative of the income that a court will impute to a spouse who has a spotty work history in that field.  The Court will examine all specific circumstances surrounding the spouse for whom income is sought to be imputed and will not solely rely on a government statistic offered in a vacuum.

The Reality of “Changed Circumstances” and the New Alimony Reform Act

By Robert B. Kornitzer, Esq., and Caitlin Dettmer
rkornitzer@pashmanstein.com

When the spouse paying alimony seeks to reduce his support, the New Jersey Supreme Court requires the lower courts to consider (among others) two factors set out in Lepis v. Lepis, 83 N.J. 45, 157 (1980): (1) whether there is an initial of “changed circumstances” and (2) whether the supporting spouse has the ability to pay what he was previously paying.   Examples of changed circumstances include unemployment of the supporting spouse, changes in the supporting spouse’s income, illnesses, and changes in the dependent spouse’s living arrangements.  Courts will not modify alimony if the change in circumstances is only temporary.  Unfortunately, there is no perfect rule by which to measure when a changed circumstance is severe enough and has endured long enough to warrant a modification of support.

While there is no set amount of time that constitutes changed circumstances, recent changes to New Jersey’s alimony law (N.J.S.A. 2A:34-23) establish that an application for modification of alimony may be filed once a party has been “unemployed, or has not been able to return to or attain employment at prior income levels” for 90 days. The law maintains that factors other than the amount of time a party has been involuntarily unemployed or subject to a reduction of income are to be considered, but in theory, the law now recognizes that changed circumstances may exist after only three months of continued unemployment or inability to return to the level of income that existed at the alimony was set.  This three-month rule was considered to be a major reduction in the burden carried by the supporting spouse.

However, any celebrating by supporting spouses seeking to reduce support may have been somewhat premature.  In the recent unreported (meaning non-binding) case of Beschloss v. Beschloss, the court seemed to place more weight on factors other than length of time being unemployed when considering an application for downward modification of support.  In Beschloss, the Appellate Division upheld the denial of the defendant’s request for downward modification even though his income had been reduced by approximately one-third of his former income and despite a period of unemployment.

It therefore remains unclear as to how meaningful the impact of the revised alimony statute will be in determining future support modification applications.  We can look forward to many new cases continuing to define the issue of what constitutes “changed circumstances.

You Can’t Take It With You, But Can Your Spouse?

When a party in a divorce action dies during litigation, the right to equitable distribution disappears. This is because equitable distribution is specifically awarded upon final dissolution of a marriage. The courts, however, have allowed exceptions to this principle; crafting equitable relief to prevent clearly unfair results, such as to prevent one party (or estate) from being unjustly enriched or to prevent fraud by one party upon the other.

In the 1990 case of Carr v. Carr, 120 N.J. 336, our Supreme Court reviewed the equitable distribution claim of a wife following the death of her husband. Despite the couple having been married for seventeen years, the husband’s will left the entirety of his estate to his children from a prior marriage. Because there was also divorce pending, the wife’s rights to at least a spousal share of the estate were in question. Reviewing the probate and equitable distribution statutes, the court concluded, “the principle that animates both statutes is that a spouse may acquire an interest in marital property by virtue of the mutuality of efforts during the marriage.” It thus held that, “if warranted by the evidence,” a court can act to prevent unjust enrichment where equitable distribution becomes unavailable because of the death of one party prior to the entry of a Judgment of Divorce.

Twenty years later, the Supreme Court revisited these principles in the case of Kay v. Kay, 200 N.J. 551 (2010). In that case, the roles were reversed somewhat, as the deceased spouse’s estate was seeking relief from the surviving spouse, who was accused of having improperly diverted assets. Once again, the court authorized equitable relief to promote fair dealing and to ensure that, “marital property justly belonging to the decedent will be retained by the estate for the benefit of the deceased spouse’s rightful heirs.”

This brings us to the Appellate Division’s recent unreported decision in Beltra v. Beltra, 2014 WL 8096146, decided just last month. In this case, plaintiff-wife filed for divorce after a thirty-four year marriage. She was subsequently diagnosed with a terminal illness and tragically died six months into litigation, and prior to a final hearing. The estate was permitted to substitute in and the parties had a five-day trial to determine equitable distribution. The trial court’s written opinion was scathing in its assessment of defendant’s behaviors. It noted that defendant’s, “non-verbal actions were extraordinary in demonstrating his lack of candor with the court.” It noted he was “evasive” and that his testimony was “inconsistent.” More still, the trial court found he had made substantial deposits of cash generated from his business into foreign banks, purchased foreign assets with cash payments, and had interests in a number of spin-off businesses – much of which remained undisclosed to the wife/estate even after multiple contempt orders for his failure to disclose.

The trial court entered an award of assets and husband appealed. The appellate division vacated the order and remanded the matter for further findings. Following additional argument from the parties, the trial court specifically noted that exceptional circumstances warranting equitable relief existed and reinstated the original order for distribution. The judge further imposed a constructive trust on defendant’s assets.

Defendant again appealed, this time challenging the trial court’s imposition of a constructive trust, and arguing that because the estate failed to demonstrate “the nature or value of the subject assets,” it was error for the trial court to order distribution.

Unmoved by defendant’s arguments, the Appellate Division noted that, “[t]he facts were so flagrant and defendant’s offered explanation so unbelievable, the [trial] judge reported the apparent unreported income to regulatory and law enforcement agencies.” Moreover, the appellate court called out defendant’s extreme bad faith in arguing wife’s inability to ascertain the value of the assets. It highlighted the fact that because of defendant’s efforts to hide assets, plaintiff provided what information she could obtain. Thus, it was unreasonable to place a burden of proof on the party not having access to evidence to support that burden. Finally, the Appellate Division affirmed the use of a constructive trust to remedy the inequity caused by defendant’s clandestine efforts, and to “protect the right to claim marital assets in a matrimonial action.”

This case is an extreme reminder of the complexities that can arise in matrimonial litigation. The conflicting intersection of estate and divorce law clearly shows the potential for clients to be left in a legal “black hole” of sorts. To the extent that case law has developed to limit the possibility of parties being left without recourse, it is instructive that the Appellate Division first remanded the matter back to the trial court for specific findings in support of its imposition of equitable relief. That is, the ability to avoid this possible black hole is not guaranteed. As a practical matter, then, it is important that the right to relief is not simply assumed because of one party’s untimely death.

While death itself may seem to beg the question of inequity, this is clearly not the case. It is, therefore, critical that the court be presented with an explicit basis on which to find that equitable remedies are necessary to avoid injustice. There are a myriad of scenarios where the interests of justice might suggest leaving the parties “as is,” such as insolvency, or where a surviving spouse must continue to care for an unemancipated child, or where the parties each have substantial independent wealth, to name but a few. On the other hand, where one party acts to obstruct discovery, the Beltra court’s understanding with regard to burdens of proof counsels that the other party should not be penalized for being unable to present proofs beyond that to which they had reasonable access.

As is so often the circumstance in matrimonial matters, the specific facts of any given case matter. While Beltra reinforces important guiding principles for a serious, yet infrequently occurring, situation, more than anything it highlights that ensuring fairness between the parties is what matters most.

 

 

 

Litigating Discretionary Trusts in The Afterglow of ‘Tannen v. Tannen’

January 26, 2015 , New Jersey Law Journal
By Robert B. Kornitzer and Kristi L. Terranova

Trusts are often established to protect a beneficiary from third-party creditors, or simply to create a future cash stream for the intended beneficiary. In the context of family law litigation, this form of protection, principally in the form of a “discretionary trust,” is often used to protect the beneficiary from the economic reach of his/her future ex-spouse. This article explores the impact of various forms of discretionary trusts in family law in the afterglow of the New Jersey Supreme Court case, Tannen v. Tannen.

The Tannen court addressed the issue of whether a court can compel distributions from a discretionary support trust and include those distributions as a source of income for the beneficiary-spouse in calculating alimony. While other states previously addressed the issue presented in Tannen, this case was one of first impression in New Jersey.

Discretionary Trusts

A discretionary trust grants the trustee the discretion to determine if, when and how much to distribute from the trust. Pursuant to the Restatement (Second) of Trusts, which is recognized in New Jersey, a discretionary trust exists “if by the terms of [the] trust … the trustee shall pay to or apply for a beneficiary only so much of the income and principal or either as the trustee in his uncontrolled discretion shall see fit to pay or apply.…” Restatement (Second) of Trusts § 155(1); see also, §155(1) comment b. “[T]he beneficiary [of a discretionary trust] c[an] not compel payment to himself or application for his own benefit.” The limited nature of the beneficiary’s rights serves to limit the rights of any “transferee or creditor” of the beneficiary who similarly “[could] not compel the trustee to pay anything to him.…”

In Tannen, the parties married in 1988. In 2000, the wife’s parents settled the Wendy Tannen Trust (WTT), an irrevocable trust with the wife as the sole beneficiary and the wife and her parents as co-trustees. There was no question that the WTT funded a substantial portion of the marital lifestyle, and generated at least $124,000 per year in income for the family.

The creation and wording of the WTT was critical to the court’s analysis. In relevant part, paragraph 3(A) of the WTT provided the trustees “sole discretion to pay out the principal and income for the benefit of defendant’s health, support, maintenance, education and general welfare after taking into account the other financial resources available to defendant.” Tannen, at 264. Paragraph 3(C) provides that “it was the express intention of the grantors that defendant shall not be permitted under any circumstances to compel distributions of income and/or principal prior to the time of final distribution.” Paragraph 14, the spendthrift clause, of the WTT states that “defendant had no ability to alienate, anticipate, pledge, assign, sell, transfer or encumber distributions from the trust.”

The Appellate Division in Tannen noted that N.J.S.A.2A-34-23(b) sets forth a list of factors that the trial court should consider in making any alimony award, including “income available to either party through investment of any assets held by that party.” The Appellate Division narrowed its inquiry as to whether the wife’s beneficial interest in the WTT was properly considered in the alimony calculation. It held that the trust income could not be imputed to the wife in calculating alimony. Accordingly, the wife’s “beneficial interest in the [WTT] was not an asset held by her.” The income that the wife received from the trust could not be looked upon as income to the wife for support, which would have reduced her financial needs.

The Tannen decision affirmed that in New Jersey, “a purely discretionary trust will be honored as giving the trustee unfettered discretion to distribute or not distribute, regardless of the support needs of the beneficiary.” E.g., Martin M. Shenkman, “Recent NJ Case Upholds Protection of Trust,” 30 The Matrimonial Strategist 2 (February 2012).

The court did not fully explore that the trust was partially self-settled by the wife, as the wife gifted the home to the WTT. Arguably, this fact should have opened the door to impute some level of income from the trust to the wife.

The Tannen court points out the importance of the exact language in discretionary trusts. The language used in discretionary trusts varies. The obligations of the trustee and the rights of the beneficiary are affected by such language variations.

Discretionary Trusts and the Reciprocal Trust Doctrine

In certain cases, parents may establish a discretionary trust for each of their children, with siblings serving as trustees for each other’s trust. In theory, this is a discretionary trust because each beneficiary does not have sole authority to require distributions from his own trust. In practice, the beneficiary compels distribution from his own trust by using his discretion over his sibling’s trust to refuse distribution to the sibling if he/she does not cooperate with the beneficiary. In essence, a quidproquo is created, whereby “you will receive your funds only if I receive my funds.” Courts have pierced these trusts through the “reciprocal trust” doctrine. This legal doctrine addresses the establishment of similar trusts and unwinding and/or uncrossing them. Bruce D. Steiner and Martin M. Shenkman, “Beware of the Reciprocal Trust Doctrine,” (April 2012) http://www.trustandestates.com. If the trusts are “un-crossed,” they are treated as a self-settled trust for each sibling. Once treated as self-settled, the income from the trust can be imputed to the beneficiary spouse.

In examining the penetrability of a reciprocal discretionary trust, we need to examine the historical conduct of the parties. For instance: Did the beneficiary select the fund manager? Does he/she dictate the distributions? Have his/her requests been denied? Do all siblings withdraw similar funds for his/her “needs”? As would be expected, the more control the beneficiary exerts over his/her own trust, the less likely that the trust would be considered “discretionary” and out of the beneficiary’s control.

Support Trust

A support trust is a form of discretionary trust that obligates the trustee to make distributions to the beneficiary for her support. In a support trust, the trustee could be required to distribute as much of the net income or principal as is necessary for the beneficiary’s health, education, maintenance or support. N.J.S.A. 3B:11-1. The trustee is obligated to make distributions to the beneficiary for her support; thereby removing the trustee’s discretion over whether such distributions are necessary for the beneficiary’s support. Not only is the trustee’s discretion over these distributions removed, but since the beneficiary of a support trust is entitled to receive these distributions, the beneficiary can compel distributions from the trustee of a support trust to the extent those distributions are necessary for his/her support.

The Tannen case presents an example of a “hybrid trust” because it mixes elements of a support trust with a purely discretionary trust. The practical impact is that by attempting to mix uses of support and discretion in creating certain trusts, the estate planner may have weakened both if there is a challenge to the use of funds from the trust.

Impact of Discretionary Trusts on the Supported and the Supporting Spouse

The impact of payment of alimony/child support when one party is a beneficiary of a discretionary trust falls on the supported spouse as well as the supporting spouse, as illustrated below:

Practical Points If You Represent the Non-Beneficiary Spouse

Review the prenuptial agreement to determine if the parties anticipated that all income from all sources would be utilized during the marriage;

Review the tax returns to determine whether the trust income was included in joint tax returns;

Analyze the usage of the trust to determine if it was utilized for essential needs of the marriage, as demanded by the beneficiary spouse;

Analyze the details of the language of the trust to determine whether it is a discretionary trust, a support trust or a hybrid trust;

Analyze the historical transactions, actions of the trustee and the beneficiary to look for actions inconsistent with the terms of the trust;

Determine whether the trust was funded by a third party or whether it was self-settled (in whole or in part); and

Determine whether the trust can be pierced vis-à-vis the “reciprocal trust” doctrine.

Practical Points If You Represent the Beneficiary Spouse

Review the prenuptial agreement for language clarifying that any use of exempt assets (corpus or income) must be considered a nonrecurring “gift” to the marriage and not a part of marital lifestyle;

Determine whether the trust income was ever included in joint tax returns;

Determine whether the trustee consistently followed the requirements of the trust;

Verify that the beneficiary spouse does not exert indicia of control over the trust; and

Determine whether the trust can be pierced on account of the “reciprocal trust” doctrine.

When representing the nonbeneficiary spouse, it can be a frustrating task to penetrate the wall created by discretionary trusts. However, if one diligently chips at the wall around the various forms of imperfect discretionary trusts, there is opportunity to argue the appearance of complete discretion is a façade and the trust is an asset that is eligible as a source of imputed income to the beneficiary spouse.

Reprinted with permission from the January 26, 2015 issue of The New Jersey Law Journal. © 2014 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.