Family Law: Trusts, Estates, & Divorce

Hi Welcome to ValuationPodcast.com - A podcast and video series about all things related to business and valuation.  My name is Melissa Gragg, and I provide online divorce mediation and valuation services based in St. Louis Missouri.

Today we will discuss Marital Balance Sheet: Trusts and Divorce with Robert - Bob Boyd and Letitia A. McDonald from Atlanta, Georgia.

Bob is a co-founder of Boyd Collar Nolen Tuggle & Roddenbery and a leader in family law who has received recognition from his colleagues across Georgia and the nation for his work in high-net-worth divorce litigation and contested custody cases. 

Tish McDonald is a partner in the Trial and Global Practice Group at King & Spalding. She focuses on complex commercial litigation, with an emphasis in fiduciary litigation, trust and estate litigation, litigation involving non-profits, real estate litigation, and litigation involving governmental entities.

Welcome!

1.  Where do you typically see overlay of trusts and estates in family law?
2. What are some of the most common mistakes made with family trusts?
3. What important steps should take in order to properly protect their estate?
4. What are the differences between estates and trusts in high asset couples?
5. How are estates and trusts typically dealt with in divorce litigation?
6.  If a couple is preparing to divorce, what should be done to protect their assets?
7. Do you have any unique stories regarding high asset couples or family estates and trusts?
8. Tell us more about the services you provide!

Melissa Gragg
CVA, MAFF, CDFA
Expert testimony for financial and valuation issues
Bridge Valuation Partners, LLC
melissa@bridgevaluation.com
http://www.BridgeValuation.com
http://www.ValuationPodcast.com
http://www.MediatorPodcast.com
https://www.valuationmediation.com
Cell: (314) 541-8163 

Robert D. Boyd
Phone: (770) 953-4300
Fax: 770.953.4700
Email: bboyd@bcntrlaw.com
https://www.bcntrlaw.com

Letitia A. McDonald (Tish)
Partner | Trial and Global Disputes
Atlanta: +1 404 572 3545
Mobile: +1-404-822-8860
tmcdonald@kslaw.com
https://www.kslaw.com

Transcript

Melissa Gragg: 0:00

Hi, welcome to valuation podcast.com, a podcast and video series about all things related to business and valuation. My name is Melissa Gragg and I provide online divorce, mediation and valuation services based in St. Louis Missouri. Today, we're going to discuss the marital balance sheet trusts and divorce with Bob Boyd and Tish McDonald from Atlanta, Georgia. Bob is a co-founder of boy collar, Nolan, Tuggle, and Roddenberry, and a leader in family law who has received recognition from his colleagues across Georgia and the nation for his work in high net worth divorce litigation and contested custody cases. Tish McDonald is a partner in the trial and global practice group at king and Spalding. She focuses on complex commercial litigation with an emphasis in trust and estate litigation. She also gets involved with litigation for non-profits real estate and government entities. Welcome Tish and Bob, how are you

Bob Boyd: 0:58

Glad to be here. Thanks. Doing great.

Melissa Gragg: 1:00

Thanks. Well, we're going to talk about a topic that I think we see very often in divorce and we have these trust issues, and it's not the normal trust that we're talking about. Like we don't believe each other, but actually estate trust and the complexities involved, but I think we need to step back just a tad bit because, and maybe Bob can help us, you know, when we talk about a marital balance sheet, what is that? And why is that like a central focus first in the divorce?

Bob Boyd: 1:33

Uh, well, Melissa, one of the things that we're trying to do, uh, as part of a divorce is divide the assets and liabilities that the parties have accumulated during the course of their marriage. I mean, that's, for instance, the gist of your podcast typically are about valuation. And why do you do a valuation? Because that's a lot item of an asset that you have to fill in on the marital balance sheet. And the marital balance sheet itself is simply a listing of what they've accumulated real estate, uh, brokerage accounts, uh, retirement accounts, um, whatever it is that they've they've, they've got, um, and typically in a, on a marital balance sheet, we're identifying property because property can take several different forms in a divorce. You have marital property, which are assets or liabilities that have been accrued during the marriage, uh, through someone's work efforts, uh, or whatever, typically in those situations with marital property, how assets title doesn't matter. We're just trying to figure out how was the asset earned. Another category of property that we need to understand is separate property and separate or any assets that someone either brought into the marriage or, uh, acquired during the marriage by way of gift or inheritance from a third party. And in most states, uh, where the state practices equitable division of property, those separate assets are not going to be, uh, divided. It's only the marital property that gets divided. Now, once in a while, we'll run across something called third party property. And those are assets that during the course of a marriage have been carved out of the marital estate and put into a trust. So that's, that's really what we're identifying to establish the marital balance sheet so that we begin the process of unraveling the marital estate, uh, and dividing assets between the parties.

Melissa Gragg: 3:57

Well, and I think that one thing that we're looking at when we're calling this a marital balance sheet and, and really it's just the things that you have and the, the debts that you owe, but cumulatively, everything that you can possibly think about all the bank accounts, all of the property and things like that. But then the next part of that is that you both have to declare what you have, right? And

Bob Boyd: 4:25

You would hope you

Melissa Gragg: 4:27

Hope, right. You have to be truthful and you have to be, you know, clear on what you own. But another piece of it, like kind of the next step is, okay, now this is all the things that you guys have, or, oh, but now is this really the time that we start to talk about separate and marital, or is it some other place and like, why do we care? Is there any difference between separate and marital assets?

Bob Boyd: 4:55

Well, there is, uh, typically a separate property. That is again, what you brought into the marriage or that you received during the marriage through gifts or inheritance from a third party. In most states, those are not going to get divided in a divorce. Now I could digress and start talking about how sometimes it becomes relevant on a child support or alimony calculation, but that that's not really going to help us today. Uh, now the marital assets, that's what you've acquired during the marriage. Uh, usually as I, as I like to say to people through the sweat of your brow, uh, it doesn't matter how it's titled. It just matters how it was acquired. Take for example, a 401k plan. That's going to be titled in the name of the employee, but it is 100% of marital asset if it was earned during the marriage. So that's how it becomes important because we're trying to figure out what it is we have to divide up

Melissa Gragg: 5:58

Well. And I think that this is, this is kind of where we start to see the trusts and family trusts start to enter into family law. And it's the separate, and, you know, it could be a separate and marital issue, but you start to see either trust that the families create internally or even parents and grandparents. Tish, can you tell us a little bit of where you're seeing some of these trusts get that we even have to look at them in a, in a, a litigation situation?

Tish McDonald: 6:33

Sure. Uh, Melissa, in typically when I'm just a litigator, I'm not the family lawyer nor the planner, but when we get brought in is because there is a question about how a third-party property, uh, which is trust property can be properly characterized. And usually the non beneficiary spouse will go, wait a minute. My spouse's interest in a trust ought to be characterized as is marital property, subject to equitable vision. And generally there are two types of situations that you deal with. Of course, this, an irrevocable trust. Let's start with that proposition because if a spouse has set up a revocable trust and has the right to revoke it, then that's marital property because that spouse has control. But where Bob and I come in and start dealing with this type of situation is when it's an irrevocable trust. And to take your example, Melissa, which is a good one, is what happens when a parent or grandparent has left a will, um, and sets up in a revocable trust. Let's say with a bank, as a trustee and leaves property for the benefit of their three children. And let's assume one is getting a divorce. If that trust provides four mandatory distributions of trust assets, for example, please pay the net income to my three children divided three ways, um, quarterly until they die. And it's a mandatory distribution, then that distribution is marital property. Okay. Um, but if the distribution is discretionary with the trustee, and again, assuming it's an independent trustee, the bank is discretionary, meaning they can decide the spouse doesn't decide that that distribution is typically off limits. I will go ahead and mention that a tricky situation, which I've not encountered, but I've heard of is what happens when you have, and again, using this example, you have a trust established under the will by a grandparent or parent. A bank is a trustee they're discretionary distributions, but the trustee has been very consistent over years and years. I'm going to give, I'll give rough example, a hundred thousand dollars a year to the children age. So the divorcing spouse is going to say, wait a minute, is discretionary. That can't be mural property, but the question becomes, could a family court view that, um, or take consideration of the fact that it has been ongoing and part of the support, um, of that spouse for years. Again, I haven't seen that, but I'm aware of a Colorado case where the Colorado court said, well, I'm going to let the family court take that into consideration into validating assets, not necessarily declared that, taking a consideration.

Bob Boyd: 9:34

That's what I was about to be clear on that. If you ended up in court, a judge is not going to say to the non beneficiary's spouse, not going to enter an order that says, Hey, Ms. Trustee, now give divorcing spouse. One half of her. Husband's a distribution from the trust. It doesn't work like that. She's not getting, she's not becoming a beneficiary of the trust. A judge is just going to say, husband, pay her X dollars in child support. I don't care where it comes from.

Tish McDonald: 10:12

Right?

Melissa Gragg: 10:13

Well, and I think that Tish alluded to it a little bit when she started off very professionally saying third party entity or ownership or, or holdings because, you know, in some respect, these trusts are their own free standing entities, right? And, and what's happening is yes, they are created in this estate planning environment, right. And everybody's providing for their children and grandchildren going forward. But then there's a divorce either in the owners, you know, the beneficiaries, the trustees, and all of those terms are very important. And so when we're looking at this and maybe we should shoot it back to Bob, but you know, Tishman said, mentioned one type of trust, but are there other types of trusts that we're seeing more often in divorce because everybody who looks at the trust has to start with those documents. There isn't any, um, easy way to go about, even in this podcast of like certain trusts are clearly over here and clearly over there, but do we see any types of trust consistently in divorce that maybe there are a little bit more guidance that we could provide?

Bob Boyd: 11:34

Let me give just an overview on that. And then Tish can drill down on the specifics of, uh, what we typically see. So here's a, here's the common scenario and it happens in any number of ways during the marriage I trust gets established. And I, and I have to say it's sort of like that I trust gets established for any number of reasons, many of times, it's for good reasons. Uh, it's typically done to, uh, do estate planning and protect the marital estate from taxes. Okay. Perfectly, perfectly valid reason. And, uh, and I, and I don't, I don't mean to be, uh, emphasizing gender here, but I'm just going to talk about husbands and wives. Let's just say that the husband, uh, goes to the wife and says, let's set up a trust so we can beat the government out of some taxes. And what typically happens is he sets up the trust, the wife, and that's an important term tissue it's going to talk about in a minute, becomes the beneficiary of the trust. Sometimes the kids are also beneficiaries of the trust. It's all well and good until one day somebody walks in and says, I hate your guts. And I'm divorcing you. Then what do you do? How do you, how do you unravel a trust when it's an irrevocable trust that that's a typical situation. We see the other one that we see is where marital property gets put into a trust and the same form of fashion I'm talking about. And one of the spouses doesn't know about it, it's done without their knowledge. So just, you want to talk about those self settled trust and carve out.

Tish McDonald: 13:28

Yes. And in fact, just to give a little bit more, um, a definition on what Bob's describing about self settled trust, um, that is when, and yet I'm repeating some of what Bob said, but a little bit more definition is when a divorcing spouse sets up in a revocable trust and names himself or herself as part of a class of beneficiaries. Okay. And is the trustee okay. Uh, got Bob did not have that in his particular example, um, that is commonly known as a self settled trust. Um, the assets of those trusts are usually not off limits. Um, frankly, if it's funded with what would be marital property in the event of a divorce, um, and the reason why is there's been a not to get too technical, but there's been a merger of legal title, which is what the trustee has with beneficial title, which is what the beneficiary has, but they're the same person to some risk in some respects what that spouse gets when he or she set up the trust could be subject to claims from the other spouse. Um, I will tell you, Bob and I, I will, uh, he and I are both dealing with sort of a new phenomenon, and that is, uh, what call the, dealing with the trusts that are set up to what we call domestic asset protection. Trust states, that's where self settled trusts are a okay, and you can be protected if you are a spouse, who's a commonly termed a debtor and you create a trust. And one of these states, it's going to be a good argument, at least in those states that the assets are off limits from creditors. Um, and there are 19 such states. Alaska was the first in 1997. Um, and, uh, Nevada is one where it is very, very, uh, pro pro debtor state. So that's what we're seeing more because for example, Bob and I are both in Georgia. Uh, one question is will Georgia, which is not one of those states honor, um, uh, state, uh, self settled asset protection trust that has been set up in a state, which would be perfectly legal there, Bob

Bob Boyd: 15:52

At our state. And I don't think we know of anybody. That's actually litigated that question. Have we?

Tish McDonald: 16:00

We do not. We do not. Um, and in fact Jordan,

Bob Boyd: 16:06

Because I mean, wealthy people set up these self settled trust all the time, right? And it's, and the times that we've had them in cases, the cases of all we settled, and it's not had to go in front of a judge and rule what happens to the property, but someday it's going to happen.

Melissa Gragg: 16:28

Well, and we talked about, we've talked about, you know, setting up the trust. Um, you talked about, you know, funding the trust. Um, we have beneficiaries and we have fiduciary responsibility. And I think if Tish could TA you know, because when we're looking at these trusts, some is some of the issues in a divorce because most of the time they were created for other reasons, typically not to just protect somebody from getting divorced from getting stuff, right. But there's usually some language about the divorce of a beneficiary or the divorce of somebody else that could be included in that language. But what were the another term that people don't necessarily understand is the fiduciary responsibility of the trustee in some capacity or the control of the beneficiary or the spouse that, you know, people are getting divorced, the control they have over the assets. And those two become very important keys to figuring out who has access to the assets. Right?

Tish McDonald: 17:32

In fact, Melissa, you're hitting on a really important point sometimes. Um, I trust can be set up by one spouse or the other, or both with absolutely solid estate planning reasons for doing so as Bob indicated to keep, uh, on one of somebody's death, the internal revenue service from attacking those as being part of that individual spouse's estate. Sometimes they're very, very valid, um, problems come though. Usually when, um, this is what we see typically it's not so much your tagging, the formation of the trust, the spouse isn't, but they are attacking some sort of contribution that got made. Um, and the allegation is you did this when you were contemplating divorce, you wanted to transfer that asset out of the marital state, into the trust. And the point you were raising, uh, Melissa, I think is, is a good one, which is the identity of the trustee in that situation is very important because, um, there is a doctrine known as a fraudulent transfer fraud conveyance, and there are certain what we call badges of fraud. The court will look at to find out, well, just the circumstances look like the transfer was inappropriate. And the reason why the port looks at badges of fraud is because you're going to rarely have a spouse come in. It's like, you're, I, I transferred this. I meant to, to defeat my, my spouse's claims. Um, and one of the badges of fraud is the most important one is who is the trustee that you transfer this to? Is that person an insider and an insider can be defined as someone that's in your family? Um, it can be a relative, it can be a business partner, but those trustees are absolutely going to be focused on because of the reason that you symbol, this is really is the beneficiary behind the scenes directing, uh, either spouse directing that trustee what to do. So the more independent, the better if you're trying to protect trust assets. Um, I do want to mention cause, um, Bob, and I've seen this situation before, usually the trustee is depose in a certain situation, and sometimes you have one that is just, I'll just use a common word here, clueless. They have not seen the trust instrument. They don't know what they're doing. They can't answer simple questions, but the truth is if that person really is not an insider, it doesn't matter. It's probably going to be protected because you remember from law school, those listeners to this podcast is that a trust doesn't fail for want of a bad trustee will similarly a trust. Doesn't fail for want of a bad trustee, but when Bob and I've litigated, we see this, get it on both sides. We have, we have been very hard on a clueless trustee, but we've also defended trustees that aren't very experienced to get such claims, but that's usually a red hearing if they're truly independent.

Melissa Gragg: 20:32

Well, and I think that also get involved with, um, you'll have a trust. Like we had a situation once where we had a trust, a family trust, you know, very wealthy family for decades. Uh, our generations, I should say, and came in with a trust, but also, um, prenup agreements. Right. And so, you know, there could be nuances and in the prenup agreement and the trust and how they're related. Um, but also in this circumstance, we had a situation where they were allowed to gift things. You know, they were big givers of art, right. And so they were allowed to give things to, and anything that they gave to a person or an entity would then get credited back to the spouse if they left. Right. So they could give away whatever they wanted, but they would still get credit to the spouse if they divorced of that asset being there, which is very, you know, like it's a little bizarre language. Um, but it did kind of start to encounter, you know, some things that we're seeing, which is when you, when you're actually creating trusts in the divorce. And I think Bob, you kind of alluded to this. Um, I've seen where they've created trust and put, put money in it. And everybody thought that we were putting money into okay for the kids, but now we don't have a lot of cash and we're getting divorced and we're like, wait, we put that money in for the kids, but, uh, can we, can we bring it back? And you know, like that, I don't know if I want to do that anymore. We need the cash. And so we'll see different things where even if everybody was on board or kind of on board or, you know, implicit trust of everything going on and they actually want to bring it back. Um, so what types of situations are you seeing where the actual creation of the trust also complicates the divorce and sometimes it's for gifting purposes, right? I mean, that's a lot of the estate planning is how do you move and gift, especially in this time when you can gift 10,$11 million, you know, tax-free, how do you get that into the hands of your kids, but then you get divorced and now what happens, right? So maybe Bob can talk a little bit about some of those complications.

Bob Boyd: 23:05

Um, we recently had a case where a husband had a business and he sold it. They got a lot of money and he and his wife, uh, I believe his wife was a lawyer, as I recall, uh, they decided to set up an irrevocable trust, um, to protect the money from the government in case something happened to them. They got somebody to be the trustee that they agreed on. Um, the wife, uh, was also a trustee, but it had to kick out provision that we talked about that independent of divorce. She was out. So the husband was not a trustee. The husband was not a beneficiary. The wife and the children were the beneficiaries. And so there's, so they're going to get divorced now. And they're just as a place you said, Hey, wait a minute. You know, how do I get my money? Well, you sort of don't. And fortunately, uh, what happened in that situation is that, uh, through some work with their estate planning lawyers, we settled the divorce, Bob, uh, letting the trust, buy certain assets for each of the parents of the children, for the benefit of the children. So to speak, uh, agreed that the trust would pay certain things for the children, uh, agreed that trust would pay certain things for the wife and the husband, uh, so that every so that they actually ended up getting the benefit from the trust that they had originally intended, even though they were divorced. Now that was a good situation, right? Because everybody was sort of, they realized they were in it together. Nobody was trying to cut anybody's heart out. Um, it was, it was okay. Um, so that that's the easy situation. The other one situation you get is the one dish. And I had to try in court for a week where the one spouse sets up the trust. Doesn't tell the other, the city, the set lore is not a beneficiary, is not the trustee. What happens to the money that went into the trust because when they're getting divorced, the wife wants her share of the money. She's not interested in staying in the divorce in the trust. That's where you have problems.

Tish McDonald: 25:36

And one thing, just to point out, when we talk about affectionately, call it the divorce kick-out clause, which says, if you are a, uh, a spousal beneficiary and you get divorced, you're no longer a beneficiary. Um, it litigating these trusts in divorce cases. It always seems people make a big deal over that. Like, that's something weird that that provision is in there. It's very common to have a provision like that in there. Um, especially if a business interest is being transferred into the trust as to which one spouse doesn't have an interest. Um, but people always panic over that. Um, another thing is Bob talked about in the case that we tried, we happen to represent the husband. And again, um, he was not a beneficiary. He set this up for very thrust up for very valid reasons. He needed asset protection. Given the nature of his business, the wife is kicked out. They had one daughter who was going to be the sole beneficiary. And so you would think that the spouse, in this case, the wife would say, well, at least it's going to my, my daughter, at least it's going to go to my daughter and understand that that's not what you see, what you see is you see that spouse saying, look, you can do with your half, what you want to, you can put it in trust, but I want to take my half and make my decisions. And so, um, with divorcing spouses, you sometimes don't always see a lot of, um, how do I put this, um, acknowledgement that at least the kids are going to get it. And in fairness, sometimes the, the spouse that's ends up not being the beneficiary is because there's not a whole lot outside of the trust. And that's when you really also see some tricky parts, right by

Bob Boyd: 27:21

That's where we get into talked earlier about fraudulent conveyance and the spouse it's out of the trust is going to try to go about establishing that this was a fraudulent conveyance. It was set up to beat the marital estate out of property. And, uh, then it's left to a judge to decide whether or not that's true. And that's where the judge goes into the badges of fraud that just talked about, you know, it's, uh, it's, it's a serious piece of litigation when you have to get into all that.

Melissa Gragg: 27:55

Well, and what about, you know, we've seen some cases recently, and I think you'll see this in again, um, wealthy families that have been dealing with generational wealth, where they will have trusts that are set in place to have certain metrics. So either a metric of where it's going to be paid, uh, paid out, uh, after a certain age, maybe they have to reach 35, 40, 45 years old. Um, you know, it could be any age really, um, or, you know, trust that are set up with certain monies and there would be a distribution for reasonable needs. Right. You know, so those become a little bit vet more vague, if you will, maybe not the first one, you know, that the first one might say, well, you get distributions as needed per the discretion of the trustee. Right. And, and neither of the parties or the trustee, and maybe only one of them's the beneficiary, but in those types of situations, I think it, it, it now you're, you're continuing to add layers of complexity and that's where the trusts get, you know, they, these trusts are usually not created to be very simple because they're in there for protection. But when you see some of those metrics involved, what, where do you look at? Or what do you look at Bob, um, or Tish having to do with those trusts? You know, are they really assets of the marriage at that point? If they're not in the name of anybody, they're not a trustee, you know, where does that fall?

Bob Boyd: 29:43

You want to make, maybe that's where you, you talk about Tish about the idea of a spouse being a creditor.

Tish McDonald: 29:51

Right. Okay. So when we were talking about, um, the, the theory Melissa of fraudulent conveyance and fraudulent transfer, um, and just again, the general notion of that claim, and it doesn't just apply to voyage applies to any debt or credit relationship is that as a matter of public policy, almost every state in the union says, you cannot try to transfer an asset in order to, to fake creditors and overwhelmingly. Now, um, states have decided that a spouse is a creditor of the others. That hasn't always been the case, but that is the evolve to that, that way. And so what happens is generally in, in, I think Melissa, to your point is, um, I think I'm interested in your point is that if one spouse, um, is attempting to, um, pull out an asset from the trust as for being a fraudulent transfer, that spouse is going to have to show, um, that again, badges of fraud, that there were things about that transfer, which were inappropriate. And, and really one of the things that not just the insider trustee concept, what is the timing, an example of that would be if, um, they are having major counseling sessions, clearly talk a divorce, then all of a sudden there's, um, a transfer of an asset into the trust. Um, at a time when this is going on, that can be evidence of, of what I would call this inappropriate behavior. Um, and especially if the, again, I'm going to use another term, non moneyed spouse, non beneficiary spouse has no idea. Um, but you mentioned something was thought about in that is the title is in the trustee. That's why this is third-party property. Okay. You can have marital property, you have separate property, which is either one of the spouses in the third party property. The title is the trustee. Um, really these cases focus on, um, is that titling, um, um, appropriate, uh, things of that nature. And that's why you get into analyzing the transfer of the asset. Um, now one thing I thought we might talk about is if this is okay, Bible, we'll talk about what a spendthrift trust is. Do you want to take that or go ahead. Okay. Um, so spendthrift, you noticed spendthrift is someone that has a propensity to just blow money. And so there is, it's now a legal term, believe it or not, um, in a spin for provision in a trust, prevents a creditor of a beneficiary of the trust from reaching that assets. Okay. And traditionally the, the onslaught or the beginnings of spin Spindrift trust or set up by, again, going back to our parents or grandparents, uh, to provide for beneficiaries who may not be the best spenders or they have problems, um, substance abuse or whatever, but it prevents that beneficiaries assets from being attacked and pull out of the trust. Um, these are now widespread, almost every estate planner. I know, says, put these provisions in there. Um, you know, of course, Bob can speak to this. Um, they have little usefulness sometimes in connection with child support payments, uh, or alimony payments. I know that, for example, in Georgia, there's an exception it's been through provisions will not protect those types of obligations. Um, but those trusts have been, um, uh, completely become very widespread and coerced the spouse. Who's the beneficiary is going to say, all right, but I, as a matter of property division, that's different from Elena and child support property division, the spin threat of trust ought to protect me. And again, every other situation, there are exceptions, generally, an exception in most states, I believe is if that spouse has made a contribution to the trust. Like the one that just described the contribution can come out. Um, if there are of course, other indications of fraud.

Melissa Gragg: 34:13

Well, and, and I think that, that those types of trust and any type of trust that I've seen in divorce and high net worth couples, there's who, whoever has the trust. And it could be a FA you know, like a lot of times it's family trust, but the other spouse will be like, well, they have all this money that they're going to get in the future. So I should get more of our assets right now is, and I hear that a lot, right? Because it, it makes sense. Well, grandma and grandpa, or their parents are going to give them the house and the farm and, you know, all of these things and they're going to have millions of dollars. And, and so I should get more of what we built during the marriage. You know, Bob, what do you, how do you address that when people start to think that way,

Bob Boyd: 35:05

Uh, and believe me, they do think that way, that's a very common position for somebody to take a, there's a couple of layers to that. Um, first of all, uh, if, if the, if the parents or grandparents are still alive and, uh, the bequest have not been made to the children, that's not even admissible in a divorce case here in Georgia. Uh, the expectancy of an inheritance is inadmissible. So while it might be nice to have some photos of where mom and dad live and where grandma and grandpa live and their beach house and everything else, it's not coming in because it's not a vested interest. You can only start talking about those things. When mom and dad have died and left you something, or grandma and grandpa died and left you something, uh, to start talking about deviating on the property division. Uh, now practically speaking, have I seen people settle a case, uh, and maybe give the non moneyed spouse is described him a little more of the marital estate. Yes, I've seen that done, but I can't recall any time I've been in court and had a similar facts situation and seen a judge, uh, do something, especially when there was only an expectancy of some inheritance and not something definitely in someone else's pocket. Um, that that's just been my experience. Other people might have different experience, but that's, that's what I've seen in those situations.

Melissa Gragg: 36:57

And Tish, from your standpoint, when you see a situation like that, maybe not in divorce, but if you see a trust that has some impending, you know, grandparents, parents are in perfect health, but there's a trust in place that they are a beneficiary to, um, you know, uh, do, does the spouse have any right to that? You know, does the spouse, and what do you see normally that they've tried to fight, you know, like, was there something missing in the trust that they kind of gravitate towards say, oh, you missed that. So now this, this trust should be considered marital property or anything like that.

Tish McDonald: 37:38

Well, let me first begin with, if the grandparents or parents are living, for example, sometimes you will see the planners, the estate planners come in and Amanda will, or Amanda trust. If they have the ability to, um, to put tighter restrictions, for example, making the trust distributions of, uh, under a will discretionary to protect against, um, a spouse. If they have a child or grandchild is going about to get divorced, they can do that. It's their money, it's their assets. But more go ahead. Oh, no, I, I, um,

Bob Boyd: 38:14

Good say almost without exception, when you have moneyed grandparents or parents who are planning on leaving something to their child, there's going to be a prenup. They're not getting married without a prenup. And, uh, because they know the law, uh, and they know all about this marital and separate property, but they're going to lock it down, even tighter with a prenup. And even to the point of maybe saying that the non-money spouse is waiving any claim to get paid, anything that someone might receive through gift or inheritance, But that's when you agree with that too, I mean, you're good prenup in that, in that case. Yes.

Tish McDonald: 39:11

Um, also we've been involved in situations where, um, there has been a divorcing couple that he really intend to reconcile and would like to reconcile, and therefore they enter into a postnuptial agreement. And just like with prenups, the disclosure, the spouses have to make to each other is really, really big. You've got to be, you got to disclose every asset you own and, or, you know, within reason of course. But if you write trust beneficiary, you got to tell the other spouse about it. Right. Um, and so postnup can also protect, um, but your intentions to reconcile need to be on.

Bob Boyd: 39:49

And interestingly, just sort of as a footnote to this whole discussion, uh, I've been involved several of these situations where the, uh, parents have set up trusts for their kids and the kids know that they have a trust and that's all they know the parents purposely do not tell them, or even give them any inkling of the assets that are contained in the trust.

Melissa Gragg: 40:22

Nice. I see that quite a bit. And, and to your point about the prenups, I think from the cases that I've seen, that would involve trust and prenups and all of it, a lot of times, and this could just be a generalization, so feel free to come at me for it. I'm good. But I have seen the trust are more defendable. Um, you know, across the board, they they're either written better or more defendable, but that can't totally be true because they're written by all these different attorneys, but they're usually more protected then the prenup and the postnup. Right. And that's just what I've seen is that a lot of times there may be more protection unless the, the grandparents or parents are getting involved with it. You know, um, sometimes those prenups are just to support it, but if it, if it really falls and has an issue, it's going to be in the trust document, that's going to kind of break it, break it, the wall down to get to the assets, maybe more than the prenup would, but maybe that's just a crazy thought.

Bob Boyd: 41:35

Well, um,

Melissa Gragg: 41:38

You know, I'm not going to tell you you're crazy,

Bob Boyd: 41:41

But I don't think you're crazy. I sorted this. I sort of disagree with it, but you know, that's where these prenups get very tricky. And, uh, our colleagues who are the trust and estate planners that dish mentioned a few minutes ago, a lot of times they want to, they want to, they're very protective of their clients. Let me put it like that. And they want, they want to get control of drafting that prenup and what I've been allowed to speak in front of their groups and their seminars. I try to tell them, look, I'm not interested in taking over your client, but you darn well better get a divorce lawyer to look at any prenup you draft, because there's some things you're not thinking about. And, and even with trust and estate lawyers, planners, that, that I have the greatest respect for, uh, I've always suggested to them, please let me take a look at this prenup before you get it signed. Just so we've had two sets of eyes looking at it because to go back to your original point, I think the prenup can be just as effective as, uh, as any trust document. I mean, the place where most people get in trouble with a prenup is not having the full and complete disclosure that Tish talked about earlier. That that's where you get get into problems. Uh, because most everybody who kind of knows what they're doing, they're going to draft a proper document. It's when the client gets squirrely and doesn't give you the disclosure that you need to have. Right.

Melissa Gragg: 43:20

Well, and I think that the trust becomes very important in the divorce one, because it could be an asset on the marital balance sheet. The other piece of it though, is that if you're looking at income to one or both spouses, right? Cause it could be income to the person that may not be working, that they have assets there that they could have earnings on. It could be income for the person that is working, but in, in some of these situations, you have a trust that, and Tisha's talked about it several times, but this is where it becomes important. If the trust is not distributing income on a consistent basis, or have a mechanism to do it, can we just make an assumption? Well, you got a million dollars in the trust and we're going to make an assumption of what kind of income you could in the future earn off of it. Is that a valid position in divorce?

Tish McDonald: 44:25

Uh, I'll take that Bob. I think if, if the, if it's a discretionary standard, uh, I would say, no, it should not be considered. Um, going forward is as a factor. What do you think about,

Bob Boyd: 44:40

Well, I think I can make an argument that it should be because maybe it is discretionary because the trustees trying to not put it, put any distributions into the marital estate. Uh, and I, and I've seen that happen Situation where the trust is paying taxes on income that could have been distributed. And wasn't, I think that situation a judge has going to impute that income to you.

Tish McDonald: 45:16

Okay, good.

Bob Boyd: 45:19

I think judges, and there's not going to be a blanket rule on that. It's going to be a case by case basis, but, uh, it could certainly come down either way on, on whether it's going to get counted or not.

Melissa Gragg: 45:33

Well, and I think it kind of goes to the factors of what to consider in looking at a trust under any type of litigation, but specifically under divorce is, you know, the trust documents, the specifications, what this person is a trustee of beneficiary, not involved, but also when, when some of the trust documents are unclear, there's also sometimes that people and, and a lot of times what you just said was, is the trust is distributing some income to pay taxes. So then I think that another way, and this might be above all of our pay grades cause it's about taxes. Um, but Tish, have you ever seen situations where, you know, maybe a beneficiary or is taxed on the earnings and the distributions, but they still don't have any control or ownership of the underlying assets? Not that play a factor into it,

Tish McDonald: 46:37

But where I have seen it, Melissa is where the grand tour under what's called a defective brain toward trust. The grand tour sometimes can be that what we call the nod, moneyed, spouse, meaning for planning reasons, the moneyed spouse sets up a trust for the benefit of, of, uh, the moneyed, spouse and children. But for planning reasons makes the non moneyed spouse, the grand tour, meaning that person, let's say it's the Y sends the trust document and is also required to pay the income tax on the assets. You might imagine in force that grantor spouse is like, what in the world? I can't be stuck with that. But usually what happens is that green tour spouse is indemnified, but, uh, that's where I see it. I did not seem the situation you described where the beneficiaries is taxed. Um, but you did Melissa say something that jogged my memory of wanting to make this point on this podcast is that it used to be, um, there was a, let's say there's a real question about an irrevocable trust and where the part of those assets ought to be marital property. Um, there used to be just a fight put up by the trustee not to come in to the divorce action as a third party over time as standards have loosened for what, for, for adding a third party in Georgia, for example, is there any evidence that, that third party ought to be added? Like maybe not just a trustee, but accompany, um, then add them. So you're seeing less of a fight night used to take on like six months to a year just fighting the trustee coming in. You're seeing less of that. Um, usually the trustee just will say, okay. Um,

Melissa Gragg: 48:34

No, I think that, that that's helpful. And I think that one key takeaway from this podcast is that, you know, and, and sort of to normalize it a little bit is that when we go to get divorced, we hire a divorce attorney, right. We hire a family lawyer and we're like, they should be able to take in and do everything in this divorce. And the reality is a lot of these states have some sort of trust mechanism in it. And, you know, just like when we have complicated financial issues, we might pull in other attorneys it's sometimes is necessary to pull in an estate attorney to understand the nuances, because they're almost always nuances beyond, um, just the divorce situation, right?

Bob Boyd: 49:33

There's no, no doubt about it.[inaudible] I did a case about a year or two ago where, uh, there w it started with me and then we knew there was a trust. And then I brought in Tish and then there were issues over the trust documents. So we, then we had to bring in the trust and estate, lawyer planner who drew up the documents. And then we had to have the CPA in there to talk about the tax ramifications of everything. So, uh, I mean, it's it, you know, paraphrase, it takes a village. It does it on a case like that. I mean, it really does.

Tish McDonald: 50:20

And also sometimes there can be a solution that the respective parties trust mistakes planters can come up with. An example of that is some states are allowing modifications of a rep will trust and certain benefits and certain birth situation.

Bob Boyd: 50:36

One case that I had where the husband and wife, both, they got it. And they knew that it did not make any sense for them to collapse his trust and then have to pay a ton of dough to the government that if they work together, they could make everything work out. And that's what they did. And they saved themselves a lot of money, uh, contrast that to this other case that Tish and I had to try where the wife wasn't having any part of keeping the trust intact. And they spent literally hundreds of thousands of dollars arguing about it when they could have worked together and everybody could have been happy.

Melissa Gragg: 51:17

Yeah, no, I, I, I, I think that there is extreme creativity that's required, um, because the facts and circumstances changed. And that's typically what we're seeing is you now have a different fact pattern. So how do we change the assets in that capacity as well? If we can. Um, I don't know if you guys have any other unique stories to talk about, um, high asset, you know, couples and family estates. I'll give you one brief one, and you can think about if you guys have any other stories, but, um, we had a situation where the couple had a beautiful multimillion dollar home gorgeous they'd lived in at that, like most of their 10 years of marriage. And, um, towards the end, the wife was like, you know, I'd love to take the house and he can take the business. And the reality was the parties never owned the house. So the house was actually in a trust owned by the parents that the house was fully paid. The parties never paid any money, never any money to rent the house, never made any payments to the house. I mean, that might've been the first red flag, but that's okay. Um, you know, we see some of these divorces that happen in high net worth individuals, where a spouse comes in to a family that has money and is just like, assuming like, well, he had a house, you know, we sold that house and we moved into another house. And so we own it where in this particular situation, that house was literally not on the table as an asset. It was paid off, but it wasn't in their names and it wasn't an asset of the marriage. And that became a really, really hard issue to over cause that was the only way we could even it out, right. Or the parties only thought that it could even it out. And so now you take that big asset out and what do we have left? And so in some cases we've really just around money. We have people not totally being honest about the money and because they never had to, or whatever the reason is, but have you guys seen other situations where maybe a trust played into it and it was a surprise in some capacity.

Bob Boyd: 53:37

So I would suggest to you that a situation like you had is not that uncommon. And it's not a question of the money, spouse being deceitful, uh, hiding the ball, whatever word you want to use. Very often these high net worth people share as little information with their children as they can. And it could have been a matter of simple as I go live and you go, y'all go live in the family house. It'll be fine. And they've never really had to worry about anything. And so they're thinking, okay, fine. I got the keys, let's go to the house and it's all furnished and it's nice and we'll just live there. And eventually they start feeling like it's their own, and they don't have to ask any questions because everything's taken care of. It's just, it's just not that uncommon I've found for, for, uh, for the, if you will, the beneficiaries to not really understand what's going on because nobody's telling him

Melissa Gragg: 54:48

And things get paid for, you know? And so it's sort of drawn that us, don't tell we're living great. Everything's fabulous. And a lot of

Bob Boyd: 54:58

And credit card never write a check for it. Somebody's paying it, but life's good until it's not

Tish McDonald: 55:05

Right. Bentley, Melissa, one thing you, um, if you asked about what sort of situations that we are saying is sometimes you have a situation where a spouse, uh, there's joint planning, uh, the husband and wife go see an estate planner. They set up a trust, we'll say for the kids. And, um, I'll say the non moneyed spouse is an ANC, the trustee. And then later in a divorce that nominee spouse goes, why? And I didn't know a sign that I didn't know, you didn't, you didn't explain it to me, money spouse. Well, so they, that's not a really strong legal position for them because after all they were, they're usually probably in the state planner was there and would be a witness to say, well, she understood or he understood. So now what we're saying is a new theory rising up. And at least in some of the states have a breach of confidential relationship, which is a tort claim. Um, Georges is probably way too broad right now. Um, but, uh, Bob and I are seeing more of that. It's like, it's almost a catch all tort claim, but it ought to be taken seriously because it carries with it punitive damages. Bob, do you want any

Bob Boyd: 56:20

Kick off on, on the case? We had to try Tish. Yeah. Those things do not get tried that often. Right? I mean, these trust cases where they interface with divorce, because there's, there's just too much risk. It gets way too expensive. But you know, I mean, our Supreme court said some basic things like a husband and wife have a confidential relationship. Right. And that's all they give you. I don't know what that means, but that's, that's what they say. Um, but that, that's a big deal now in these relationships for this.

Tish McDonald: 56:56

And I, I thought Bob, um, I took a look at some other states recently, and I have to say that my own personal view is I liked north Carolina's role on confidential relationships between found spouses it's. And it simply said, that's how I look at this. It says that that spouses have fiduciary duties to each other with respect to distinct agreements or transactions between them. That makes sense, for example, a postnuptial agreement, um, or if they enter into a business together, they've got to treat each other really, really honestly. Um, but I still believe that, um, a spouse who earns funds should have some freedom to do what they want to generally with their money. For example, they want to make a gift to charity. They should be able to do it, not have to go run and tell the other spouse. And generally it's a matter of

Bob Boyd: 57:53

The Supreme court opinion in our case say about that. I seem to recall something,

Tish McDonald: 57:58

It said that, um, that I'm not going to say what the D the court Georgia Supreme court said, we're not going to define now what the duty of disclosure ought to be respect to financial transactions that one spouse takes apart from the other. But this one did not involve a$25 gift to the United way. It's really just referring to the trial court. And in our case, the case, Bob and I tried the trial court found there was clearly known nefarious or fascial intent. So there was no breach of the confidential relationship. Um, so that's what happened in our particular case. We prevailed on that point.

Bob Boyd: 58:38

And Melissa, I want to go back a little bit to something you were talking about, about the formation of the documents and everybody participating. That's where, and I would suggest while the documents are important. I think one of the also critical things that people have to understand that if you ever have to prove something up in court, a judge or a jury is going to want to look at a timeline and your timeline for establishing this trust, how it came about who was involved, when were they involved in this timeline? That's that really, to me, is the critical analysis and it stands, or it falls

Melissa Gragg: 59:24

Well. And, and is, you know, the other thing is if, if there really is no true ownership of one of the parties to the trust, like Tisha talked about entering that trust as a third party to them, to the marriage disillusion claim or something like that, you know, we've seen when the trust are really protected and those spouses have no actual ownership that, that trust almost becomes like an untouchable. Like you're not going to be able to necessarily get the documents of what is owned by the trust. You may not be able to get the financials. If there's businesses in the trust, Tisha, you kind of seen that same type of situation. If the trust is really protective or maybe Bob, um, that it, you can't touch it,

Tish McDonald: 1:00:17

I'll tell you. What I have seen is situations where, um, you, you have a trust, the children are the beneficiaries, let's say they're minors. The non moneyed spouse may not have access to the funds, but on behalf of the minor children, they will demand accountings or demand distributions for their benefit. I've seen that.

Bob Boyd: 1:00:40

And a lot of trust have that provision don't they Tish that they can, that a beneficiary can demand an accounting. Yeah.

Tish McDonald: 1:00:48

And sometimes statute sometimes defines when an accounting must be given.

Melissa Gragg: 1:00:54

Yeah. So, I mean, you know, it's pretty clear that trusts are a complication in high net worth divorces. Um, and I think that, you know, the purpose of this podcast was to really just to shed light on a bunch of different situations that we've seen, that they've almost become more complicated, but a lot of times when the instruments are, are done correctly, um, for the intent, and that's still the same intense during the divorce, you know, you do see a lot of protections surrounding that document. Um, the problem is the intent changes, the purposes, change the situations change and not always was everything done most of the time. It was not done with the intent to do anything bad to another person during the divorce. It just feels like it when you get to the divorce. Right.

Tish McDonald: 1:01:55

Oh, very true. When you say Bob, I agree.

Bob Boyd: 1:01:59

Yeah. Everything looks different when somebody has been served with the complaint for divorce than it did when you're sitting in the lawyer's office, sinus and trust documents, didn't go in and having a nice glass of wine.

Melissa Gragg: 1:02:12

And maybe we can kind of end it a little bit with some recommendations of how to protect assets, you know, um, in, in some, I mean, I usually will, you know, even in papering up gifts from other people, like, you know, what are some of your central discussions with anybody about how to either protect their assets or, and is it best, can you do much during the divorce or, or during the marriage, or is this something that kind of has to be planned prior to the marriage?

Bob Boyd: 1:02:51

Well, I think you can't protect assets that you've acquired during the marriage. I mean, that's how that's, that's a whole cottage industry of trust and estates lawyers that do nothing, but set up these trusts and LLCs, uh, to help people basically pay as little tax as possible. And it's all perfectly legal and above board. Um, I think the idea is you need to have a plan in place. Uh, if you're expecting to get a chunk of money, you need to have a plan in place before you get the money so that you can have these assets set up to receive the money and therefore, um, you know, so that you get the most beneficial tax treatment. But that's about the extent of my advice when somebody asks me that is, Hey, you need to call so-and-so. This is way out of my bailiwick, right?

Melissa Gragg: 1:03:44

Because there is, I mean, a lot of the, um, you know, generation skipping or even, um, moving, you know, we're, we're seeing a lot of people move businesses and to trust to move them down the line. Um, I think that all of that kind of things, or if you're getting, if you know that there's some inheritance coming during the marriage, you know, I think it does become important, the trail that that money takes. And so if grandma, you inherit a hundred thousand dollars from grandma and you just take that check and put it in your joint bank account, you know, you might encounter some issues, not necessarily cause you can still trace assets, right. And that's what financial people come in to do. But I think that, you know, the purpose of this is to say, you need to con it. It does, it is important. It's important how it comes to you. It's important what you do with it, where it is contained and all of those things, um, have their issues.

Bob Boyd: 1:04:45

Th th we could do another podcast on this. I would just say very quickly, I tell my clients, um, you know, if you've got separate assets coming into the marriage, keep them separate. If you get anything during the marriage, keep it separate because this is, I can only speak for Georgia in this case, if you, if you title it in joint names, you're going to have a hard time because the presumption in the law is you've created marital property, made a gift to the marriage and that's going to be hard to be. So if you want, if you want to consciously, you know, put that hundred thousand dollars into a joint account, know that it's probably gone,

Tish McDonald: 1:05:28

Uh, or, or in a repair of a house. Right. Uh, that's become

Bob Boyd: 1:05:32

Even more so than the repair by house.

Melissa Gragg: 1:05:35

Yeah, yeah, no, it is a whole new, a whole nother podcast. So

Bob Boyd: 1:05:40

We could do one on how to protect your assets without a prenup.

Melissa Gragg: 1:05:45

Yeah, no, cause I mean, I think all of this, you know, I mean, people think that, oh, I'm just getting divorced. It's that it's just easy. Let's just be done with it. But there is a lot of different nuances that you just need to be aware of. But I think for, for the purposes, we've, we've really attacked trust in this. We've really kind of given people a good basis. I think we do need to talk about separate assets and separate income and income on separate assets. You know, like all of those do have nuances. Um, but for now I think it's going to be helpful if Tish and you kind of give our listeners some idea of how they can reach out to you, what benefit you could provide. Um, maybe Tish, you can give us a little bit about, you know, where you practice and, and the things you focus on.

Tish McDonald: 1:06:39

And, um, I, in Atlanta, Georgia, it, the, the office of king and Spalding and I, as you indicated in the introduction, I do practice primarily in litigation involving trust and estates. So not just divorces, but with respect to this particular subject is I usually help the family lawyers. Uh, if they have a particular, um, you know, trust is under attack, sometimes just evaluation of business. We might have some resources that the family lawyers need for us to, um, help them with. Uh, and, uh, but I also do litigation for, uh, defend trustees, trustees, defend beneficiaries. I have been involved in a number of, um, family disputes, as well as for nonprofits, including colleges.

Melissa Gragg: 1:07:28

Does it matter like if there's just trust issues just about Georgia or does it matter for you? You can create

Tish McDonald: 1:07:36

The matter, especially we we've got a, um, not only national international presence. And so, um, I've got the good resources all over the U S

Melissa Gragg: 1:07:45

Awesome. That's so that's great. And Bob, maybe you can give us a little bit more info about you and your firm.

Bob Boyd: 1:07:53

Yeah, I mean, we've got a law firm of, uh, 16 lawyers, uh, which in Georgia, pretty good size firm doing nothing but divorce work. Uh, and, you know, we, we primarily handle, uh, highest set cases, uh, and, uh, complicated custodial issues. Um, but I've also got other lawyers who help folks with day-to-day divorces. So, you know, we, we've got a pretty varied practice, but, um, the bulk of our practice is centered on, uh, folks who've accumulated some wealth.

Melissa Gragg: 1:08:30

Yeah. And I think to give the listeners a perspective, a lot of times I've divorce from, uh, you know, a family law office may have two or three individuals, and that would be a lot of people doing divorce. So having 16 is a tremendous amount of people focus on this, you know, this particular area. So

Bob Boyd: 1:08:53

The good thing about it is with our people, uh, particularly our partners. There's not probably not too much, we haven't seen. So that experience counts for a lot, particularly at family law.

Melissa Gragg: 1:09:05

Well, and, and I think that, you know, what we've talked about today is the complexities. The reality is you can see a lot of divorces and there may be some that have a business valuation, right? You can see a lot of divorces and some may have trust. And so the issue is if you're not seeing a velocity of cases, you're never really going to get involved with these complex issues. And so when you, when you have attorneys that have been involved with these very complex issues, that is the markings of the experience. Um, because that means you've not only had the velocity of a ton of cases to look at because trusts are not always involved. Um, but you also have the benefit of understanding how some of them have played out in the court system. And so those do become very important when you're even trying to negotiate a settlement, is that you understand what the ramifications are legally for those types of assets

Bob Boyd: 1:10:08

And what are the challenges recognizing what you don't know and not being afraid to ask for some help, like from Tisch.

Melissa Gragg: 1:10:16

Absolutely. And, and, and it's perfectly normal and reasonable. Um, and so I think I thank you for all of your time and efforts today. And, uh, I think, you know, I think I've already heard Bob was saying, there might be another podcast. I heard him say that too. I think I did Tish. So, so, uh, we'll look forward to more information about these complex issues and, uh, we appreciate all your contribution. Thanks, Melissa. All right. Talk to you soon.