The trust fund baby: What happens if your spouse put his business' assets in trusts with the kids as beneficiaries?

 
Here you are, in the middle of a high priced divorce, complete with your high priced attorney and your arsenal of “divorce professionals” only to realize, that after 22 years of marriage to a hedge fund manager (and you thought I was going to say Tom Cruise!), who in his hey day raked in billions for investors, that you are not slated to get a dime of his business assets.
To put it another way, he tricked you by setting up the business in such a way that all the money goes into irrevocable trusts for the kids or some other family member, and none of it gets counted in the “marital assets pool.” Worse, the money that has been put in trust does not get touched till the kids turn 25. So that even assuming you got custody of them, you will never touch a dime of that money. Can he do that?
That is a very good question. I do not know the answer to this off the cuff. I would have to research it. But I would think, that, certainly, if the business was commenced during the marriage, then it is marital property. So he basically transferred the marital property into trust funds for the kids – which does not necessarily seem like a big crime.  The only problem is, you are entitled to a portion of that asset, and he basically “robbed” you of your interest in the company by doing that. Sure, it was nice he made the kids the beneficiaries of the trust (he could have named somebody else, the horror!) but something is still not quite right about what he did.  It gets even “wronger” if you are a wife who has been helping him with the business (in a direct way, such as literally showing up to work and running the marketing division or something like that).  If he was paying you a salary, that is good. But what if you weren’t getting a salary so to speak? What if he was just giving you a little stipend for going out for Cosmos with the girls? 
You may not be able to get him to unlock those trusts if that is what you are hoping. But to the extent you contributed to the business – whether directly or indirectly – that may have quantifiable value. So your equitable share of what is left over after this transfer, should be calculated as if the transfer was not made. That would be my argument. What the court actually thinks about this is another matter entirely. There’s a case, Riechers v. Riechers, 679 N.Y.S.2d 233 (Sup. Ct. 1998) The court in that case found that the wife was entitled to one-half of the value of marital assets which the husband “had placed in an irrevocable trust in a foreign jurisdiction.”  Of course, in your case he placed it in trust for the kids. That was pretty slick. But I don’t think it can stand. The court will do some sort of offset or set off, or something where they reduced his share of equitable distribution by taking into account the value of those trusts, and increase your share of equitable distribution so that what you end up getting reflects what you would have gotten if he hadn’t done the transfer to the trust in the first place.
Originally published December 8, 2008