Trust Established By Wife Is Ruled Marital Property For Equitable Distribution

In the family law, equitable distribution case of Deaver v. Lemon, PICS Case No. 15-0896 (Pa. Super. May 22, 2015) the Honorable Jacqueline O. Shogun, writing on behalf of the Pennsylvania Superior court, ruled that the trial court erred in finding that wife had established an oral trust and that this trust was not marital property where the evidence indicated that wife had access to and control over the oral trust funds, which she had placed in the trust.

The parties were married in 1996. During the marriage, husband worked as an attorney for a law firm in Washington, D. C., while wife stayed at home to care for the parties’ two children. Prior to the marriage, wife received an inheritance which, combined with gifts from her parents, totaled $140,000. During the marriage, wife received another inheritance of $125,000.

According to wife, these funds were held in an oral trust that was later converted to a written trust memorialized on May 5, 2010. In July 2010, wife filed for divorce. The trial court determined that the total value of the marital estate was $14,684. The trial court ordered husband to pay wife alimony of $2,000 per month for a period of eight years.

The trial court was persuaded that the trust held by wife was non-marital in nature and that she had no present ability to control or derive income from this asset.

Pursuant to 20 Pa.C.S. §7737, oral trusts created after Nov. 6, 2006, are unenforceable in Pennsylvania, the court explained. However, prior to the effective date of §7737, oral trusts (or parol trusts) were permitted in Pennsylvania. In order to establish a parol inter vivos trust of personalty, the proponent has the burden to establish its existence. The acts and words of those involved in creating the trust must admit to no other interpretation than the creation of a trust, the court noted.

Here, wife maintained that while a written trust document was created in May 2010, the trust was established 40 years earlier, before the effective date of §7737. The trial court accepted the divorce master’s recommendation and concluded that the testimony from wife and wife’s father was credible concerning the creation of the trust. Wife maintained she had no access to the funds in the oral trust; thus, it was never her property.

By contrast, husband claimed that the May 2010 written trust was, in fact, evidence that wife had access to and control over the oral trust funds and that this control and access to the trust funds defeated the trial court’s finding of an oral trust over which wife had no control. The court agreed with husband’s assertions, noting that by the trust’s express terms, wife placed her property into the trust. Moreover, evidence of deposits into the trust verified that wife deposited her money into the trust.

The court noted that the language of the written trust listed wife as settlor and revealed that wife funded the trust and made herself beneficiary. Thus, the trial court erred and abused its discretion in concluding that an oral trust existed.

The court determined that the corpus of the alleged oral trust was the separate property of wife. Moreover, because income was earned on wife’s property during the marriage, that income should have been deemed marital property and subject to equitable distribution. As such, the court reversed and remanded for the trial court to determine what income the trust funds accrued during the marriage and to consider that income as marital property for purposes of equitable distribution and alimony.

Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 38PLW584 (June 23, 2015)

Filed Under: Family Law; Divorce Action; Equitable Distribution; Trust; Marital Property

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