“Marital Balance Sheet: Trusts & Divorce,” Valuation Podcast

Boyd Collar Nolen Tuggle & Roddenbery co-founding shareholder Robert D. Boyd participated in an October 19, 2021, episode of Valuation Podcast titled, “Marital Balance Sheet: Trusts & Divorce” along with Letitia “Tish” A. McDonald, a partner at King & Spalding.

During the program, hosted by Melissa Gragg of ValuationMediation.com, Boyd explained how the marital balance sheet is used to identify property during a divorce and determine how it was earned.

Types of property include marital property, which is that acquired during marriage; separate property, which is brought into the marriage or that a spouse received through gifts or inheritance; and third-party property, which describes assets that were carved out of a marital estate and put into a trust during the course of a marriage.

Boyd explained that there are several types of trusts that may become established during a marriage, but most often they are created through estate planning to protect the marital estate from taxes.

In our experience, when a divorce is initiated, two common scenarios are the unraveling of an irrevocable trust or a trust that contains marital property another spouse was unaware of. The latter is a scenario that Boyd and McDonald recently tried in court, where one spouse sets up a trust and doesn’t inform the other and the settlor is not the beneficiary or trustee.

The two also discussed what is commonly known as self-settled trusts. This is created by a spouse who serves as both the trustee and beneficiary. If these trusts are funded with marital property, they are typically not off-limits from equitable distribution because there’s “been a merger of legal title, which is what the trustee has, and beneficial title,” according to McDonald.

While on this subject, Boyd and McDonald also detailed a new phenomenon they are facing called Domestic Asset Protection Trust (DAPT) states, where settlors of these trusts can be protected from their creditors.

Also covered during the conversation were the divorce kick-out clause, fraudulent conveyance, the presence of prenuptial or postnuptial agreements with regard to trusts, the increasing frequency of states allowing modifications to irrevocable trusts, and the rise of the breach of confidential relationship theory.

Watch and listen to the full episode.