When dividing a marital estate, the divorce court must first determine whether an asset or interest constitutes “property.” The term “property” seems straightforward enough; however, the waters become very muddy when dealing with a future interest in something. For example, being the beneficiary of a living person’s will does not give the beneficiary a vested interest in the grantor’s estate. This is because the grantor (the person creating the will) can revoke or change it at any time before their death. On the other hand, if a spouse is a direct beneficiary of an irrevocable trust, that interest has generally been found to be “property” for purposes of divorce. Appellate cases in Colorado have helped narrow down the definition of property over the years. However, the definition remains ever-changing and depends on the particular interest or asset at issue.
Recent Colorado Court of Appeals Case
In August of this year, the Colorado Court of Appeals addressed the issue of whether a spouse’s beneficial interest in an irrevocable family trust constitutes “property.” This case dealt with a marital estate of nearly $50 million. The trial spanned over 6 days, which is almost unheard of in Colorado family law. The appeal arose after Wife’s stepmother created an irrevocable family trust listing Wife as a beneficiary. Wife’s father was the primary beneficiary and held a power of appointment over the trust. This allowed him sole discretion to determine whether Wife would receive any distributions from the trust. Once Wife’s father passed away, Wife and her co-beneficiaries could then receive whatever funds and assets were left.
The Court of Appeals held that although Wife was a listed beneficiary, she did not have an irrevocable interest in the trust. This is because Wife’s father had sole discretion to use the trust funds for his own benefit or other beneficiaries’ benefit as he saw fit, which could ultimately leave no funds upon his passing. See In re Marriage of Smith, 2024 COA 95.
Protecting generational wealth during a divorce is becoming an increasingly common issue in Colorado. It’s certainly a very emotionally charged one. Call Bloch Ongert to discuss your case today.
