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13-P-906                                   Appeals Court

13-P-686

13-P-1385

CURT F. PFANNENSTIEHL vs.  DIANE L. PFANNENSTIEHL

(and two consolidated cases[1]).

Nos. 13-P-906, 13-P-686, & 13-P-1385.

Norfolk.     February 11, 2014. – August 27, 2015.

Present:  Kafker, C.J., Cypher, Kantrowitz, Berry, & Fecteau, JJ.[2]

Divorce and Separation, Division of property, Findings, Attorney’s fees.  Trust, Spendthrift provision.  Contempt.  Practice, Civil, Findings by judge, Contempt, Stay of proceedings.

Complaint for divorce filed in the Norfolk Division of the Probate and Family Court Department on September 22, 2010.

The case was heard by Angela M. Ordoñez, J.; a complaint for contempt, filed on January 24, 2013, was also heard by her; and a motion to stay enforcement of the judgment pending appeal was considered by her.

A motion to stay the proceedings pending appeal was considered in this court by Vuono, J.

Robert J. O’Regan for the husband.

Jillian B. Hirsch for the wife.

BERRY, J.  The main issue presented — in what is the lead of three appeals[3] related to these divorce proceedings — concerns the decision of a judge of the Probate and Family Court (probate judge or judge) to include in the marital estate, for purposes of the G. L. c. 208, § 34, division, the husband’s interest in a multi-million dollar trust established by the husband’s father (the 2004 trust[4]).  The principal of the 2004 trust was, in the main, associated with funding from the family’s operation of corporations that own and operate for-profit colleges, including Bay State College in Massachusetts and Harrison College in Indiana.[5]  The husband claims as error the assignment of  $ 1,333,047 of the trust value to the wife and the requirement that the husband pay $ 48,699.77 monthly for twenty-four months to effectuate the division of assets set forth in the amended judgment.[6]

As to this issue, the husband, citing a spendthrift provision in the subject trust, argues that the 2004 trust value and income therefrom were isolated, were not within the marital estate, and, therefore, should have been excluded from consideration under G. L. c. 208, § 34.[7]

This spendthrift isolation theory, as detailed infra, is advanced notwithstanding that the 2004 trust had made distributions to the husband — including an outright $ 300,000 in 2008 followed by 2009-2010 monthly payments of several thousand dollars — all of which were distributed from the 2004 trust to the husband, his twin brother, and a sister.  Only as to the husband did these substantial monthly payments end, and they did so precisely on the eve of the husband’s divorce filing.  In contrast to the finale for the husband, the 2004 trust payments continued to the husband’s brother and sister.  Specifically, there was a cutoff of the monthly payments to the husband of from $ 20,000 to $ 65,000 in August, 2010, one month before the commencement of divorce proceedings in September, 2010.  This cutoff, of course, stands in stark contrast to the continuing pattern of distributions to the husband’s two other siblings and undermines the husband’s theory of exclusion of the 2004 trust.

For the reasons stated herein, we conclude that the record in the case, including but not limited to trust documentary exhibits, provides telling evidence that the spendthrift provision is being invoked as a subterfuge to mask the husband’s income stream and thwart the division of the martial estate in the divorce.  A chart set forth infra shows a spendthrift scheme that is virtually empty of purpose except as a form of insulation to inclusion and valuation in the divorce process.  On this issue, we look to settled trust law, which holds that the mere statement of a spendthrift provision in a trust does not render distributions from a trust, such as this one, immune to inclusion in the marital estate for G. L. c. 208, § 34, calculations.

In addition to our determination that the probate judge correctly included the 2004 trust in the marital estate, we further conclude that the judge appropriately divided the marital estate by allocating sixty percent to the wife and forty percent to the husband.[8]

1.  Divorce appeal.  a.  Factual background.  The following is taken from the case record of the divorce.  The parties were married in February, 2000, and last lived together in August, 2010.  The parties have two children.  At the time of trial, the son was eleven years old, and the daughter was eight years old.  Both children have special needs.  The son has been diagnosed with dyslexia and Attention Deficit Disorder (ADD) and attends a private school that specializes inteaching students with dyslexia.  The daughter has been diagnosed with Down syndrome and has had significant medical and developmental issues throughout her life.  The daughter currently is treated by nine specialists for her medical needs and attends a specialized school that provides her with physical, occupational, and speech therapy.  She requires “around the clock supervision.”

i.  The husband.  At the time of the 2012 trial, the husband was forty-two years old.  He had attended college for one and one-half years.  He has dyslexia and ADD but is otherwise in good health.  The husband comes from a family of substantial means.  Those substantial family holdings are principally connected to the family’s running of for-profit colleges.  The tuition income from these for-profit educational businesses was substantial, and, indeed, was a main source of funding for the 2004 trust.

     In addition, the husband was employed as an assistant bookstore manager for one such university and earned about $ 170,000 per year.  The judge found that a “normal incumbent” in this assistant bookstore manager position would earn roughly $ 50,000 to $ 60,000 per year.  The judge found that this handsome and inflated salary flowed from the husband’s “familial relations.”[9]

     Between 2008 and 2010, the husband received tax-free distributions from the 2004 trust as follows:  $ 300,000 received in one payment in 2008, $ 340,000 received in six payments in 2009, and $ 160,000 received at a rate of $ 20,000 per month for the first eight months of 2010.  Payments from the trust ceased after August, 2010, the month preceding the husband’s filing for divorce.

In 2010, the husband’s gross income, including the trust distributions of $ 160,000, amounted to approximately $ 350,000.  At the time of trial, given the cessation of the trust income, the husband’s gross annual income had diminished to $ 180,000.  The husband has substantial opportunities to acquire capital assets and income in the future.

ii.  The wife.  The wife is forty-eight years old and is generally in good health.  She is a college graduate who served as an officer in the United States Army Reserves for eighteen years.  The wife left the military in 2004, just two years short of the twenty years of service that would have entitled her to a military pension.  The decision to retire came after pressure from the husband and his family following the birth of the parties’ daughter, who, as noted, is medically challenged.  The wife currently works as an ultrasound technician one day each week and is paid approximately forty-six dollars per hour.  At the time of trial, her gross yearly income from this position was $ 22,672.

The wife was the primary homemaker and caretaker of the two children throughout the entirety of the marriage. She has devoted extraordinary amounts of time and effort addressing the children’s (and particularly the daughter’s)personal,medical, educational, and extracurricular needs and activities.  The judge found that the wife “currently spends most of her time caring for [the parties’ daughter].”  The daughter’s needs are ongoing, and she will likely reside with the wife for numerous years to come.  Although the wife has some opportunity to acquire assets in the future, her opportunity is limited considerably by her care of the parties’ daughter.

b.  The family lifestyle as interconnected to the 2004 trust distributions.  During the marriage, the family was able to enjoy an upper middle class lifestyle.  This expansive lifestyle was financially attributable, in large measure, to the distributions to the husband from the 2004 trust, the beneficence of the husband’s father, and the rather large salary of $ 170,000 which the husband received as the assistant bookstore manager.  The probate judge did “not credit [the husband’s] testimony that he lacked knowledge concerning where he spent the 2004 Trust distributions as well as whether he paid taxes on said distributions.”

c.  The amended judgment.  The pertinent parts of the judgment, as amended and dated August 13, 2012, are summarized as follows.

Including the husband’s interest in the 2004 trust, the judge calculated the total value of the combined marital estate at $ 4,305,380.  The judge divided assets in the marital estate (including the husband’s interest in the 2004 trust) by allocating sixty percent to the wife and forty percent to the husband.  In the final calculations including that division, and certain other assets, the wife received total assets valued at $ 2,328,688 and the husband received total assets valued at $ 1,976,692.

The judge found that the total value of the 2004 trust was $ 24,920,217.37.  The judge calculated the husband’s one-eleventh interest[10] in the trust at $ 2,265,474.31.  The wife was allocated a portion of the 2004 trust worth $ 1,133,047.79.  The husband retained a portion of the 2004 trust valued at $ 1,132,426.52.

To effectuate the asset transfers to the wife, the judge ordered the husband to make twenty-four monthly payments to the wife in the amount of $ 48,699.77.[11]

In other provisions of the amended judgment, the wife was designated the primary custodial parent of the children, subject to the husband’s parenting schedule.  The husband was ordered to pay child support in the amount of $ 1,100 per week, an amount to which the parties stipulated.  Neither party was awarded alimony.

The judge also ordered the parties to maintain life insurance policies for the benefit of the children and, based on the judge’s findings concerning the husband’s obstructionist conduct at trial, ordered the husband to contribute $ 175,000 towards the wife’s attorney’s fees.  As we have indicated, both the husband and the wife have appealed.

d.  The 2004 trust.  i.  General principles.  At the outset, we set forth the general principles that bear upon the authority of the probate judge to determine whether to include an asset or an interest in the marital estate.  In D.L. v. G.L., 61 Mass. App. Ct. 488, 492-493 (2004), we stated:

“General Laws c. 208, § 34, defines the scope of a trial judge’s discretion to assign interests in the marital estate to the wife or husband, based on a number of specified factors. . . .  Separate from the division of assets within the estate is the question whether certain assets properly are considered a part of the estate.  In making the determination of what to include in the estate, the judge is not bound by traditional concepts of title or property.  ‘Instead, we have held a number of intangible interests (even those not within the complete possession or control of their holders) to be part of a spouse’s estate for purposes of § 34.’  Baccanti v. Morton, 434 Mass. 787, 794 (2001), quoting from Lauricella v. Lauricella, 409 Mass. 211, 214 (1991).  ‘When the future acquisition of assets is fairly certain, and current valuation possible, the assets may be considered for assignment under § 34.’  Williams v. Massa, 431 Mass. 619, 628 (2000).”

D.L. v. G.L., supra, quoting from S.L. v. R.L., 55 Mass. App. Ct. 880, 882-883 (2002).[12]

In this case, we determine that the judge acted properly in including the husband’s interest in the 2004 trust in the marital estate, which we further describe below, and appropriately valued and divided the trust assets.

ii.  Trust background.  We outline the only parts of the 2004 trust material to these appeals.  The 2004 trust is an irrevocable spendthrift trust that was established by the husband’s father.  The 2004 trust holds shares of stock in the husband’s family-controlled private corporations, which corporations, in turn, own and operate for-profit colleges.[13]  Among additional assets and liabilities in the 2004 trust, there are promissory notes owed to the husband’s father, and lifeinsurance policies.[14]

There are two trustees of the 2004 trust.  The husband’s twin brother is one trustee.  This brother is also vice-president and secretary of Educational Management Corporation and president and treasurer of Bay State College, which is owned by Bay State Education Corporation and holds stock in that particular for-profit college (see note 5, supra).  The brother and the father serve as officers and directors of the corporations.  Thus, in these corporate roles, the brother and father decide and control what dividends are to be paid to the trust, impacting the funding to the 2004 trust, and, in turn, the 2004 trust principal and income available for distributions.

The second trustee was ostensibly an outside trustee, but this trustee was also inextricably interconnected with, and aligned with, the husband’s family.  This trustee is a lawyer, and he and his law firm have represented the husband’s father and his businesses since 1972.  His law firm also represents the trustees of the 2004 trust.  At trial, this trustee’s testimony manifested not only hands-off administration, but also little, if any, scrutiny of the 2004 trust distributions; indeed, this trustee appeared unaware of the level of, or timing of, the distributions.

     To use understatement:  the record shows the 2004 trust was not administrated impartially by the two trustees.  To the contrary, the judge expressly found that as the divorce began, “the proverbial family wagons circled the family money.”  We have described some record facts that support the judge’s graphic image and findings, but there are far more.  Among other facts, the judge cited the cessation before the divorce of distributions to the husband and continuing pattern of monthly distributions to the husband’s brother and sister; the judge also considered the unusual testimony of the supposedly independent cotrustee concerning the ongoing payments to the brother and sister.  This trustee said that the reason why the distributions to the husband were discontinued was out of a concern that the intent of the donor (the husband’s father) to keep funds within the family might be violated if distributions continued.  This statement was not indicative of independence.

iii.  Chart showing cutoff of 2004 trust distributions to the husband.  In calculating the 2004 trust distributions, the judge added the numbers as follows:  between April, 2008, and August, 2010, the husband received $ 800,000 from the trust and, since April, 2008, the husband’s brother received $ 1,133,207 and his sister received $ 1,180,000.

The following chart reveals how the spigot from the 2004 trust of substantial monthly income distribution was deliberately and abruptly shut off for the husband alone as the divorce proceedings were in the immediate offing.  (Again, to be noted is that this chart does not include the $ 300,000 outright distribution in 2008.)

It is clear that this cutoff of the distributions from the 2004 trust only to the husband and just on the eve of divorce was a deliberate manipulation to erase a major component of the husband’s annual income and to silence his interest in the trust — for a convenient time while the divorce was ongoing.  Significantly, the judge found it likely that the husband would receive distributions from the 2004 trust after the divorce was over.  The judge found as follows.  “The Court finds that the suspension of trust distributions occurred because [the husband] filed for divorce and the Trustees deemed it risky to give [the husband] money that might be shared with [the wife], a non-beneficiary.”  The husband now seeks to cover this manipulation by invoking the spendthrift provision.[15]

iv.  The spendthrift provision.  This pattern of distribution — substantial distributions before the divorce, then zero as the divorce loomed — belies the husband’s invocation of a spendthrift provision to exclude the 2004 trust from his marital estate.  The spendthrift provision provides as follows:

     “Neither the principal nor income of any trust created hereunder shall be subject to alienation, pledge, assignment or other anticipation by the person for whom the same is intended, nor to attachment, execution, garnishment or other seizure under any legal, equitable or other process.”

It is well established by law that a trust, even one with a spendthrift provision, may be included in a marital estate for purposes of division under § 34.  ”Common sense and basic concepts of fairness support the notion that ownership of a valuable asset demonstrates ability to pay without further inquiry as to whether payment can be enforced directly against the asset. . . .  The law does not require that an obligor be allowed to enjoy an asset –such as a valuable home or the beneficial interest in a spendthrift trust — while he neglects to provide for those persons whom he is legally required to support.”  Krokyn v. Krokyn, 378 Mass. 206, 213-214 (1979).  Accord Lauricella v. Lauricella, 409 Mass. at 216.  ”[W]e have held a number of intangible interests (even those not within the complete possession or control of their holders) to be part of a spouse’s estate for purposes of § 34.”  Id. at 214.  Thus, in Lauricella it was held that a trust with a spendthrift clause was includable under § 34.  See Davidson v. Davidson, 19 Mass. App. Ct. 364, 371 (1985) (remainder interest subject to valid spendthrift clause included in estate for property division under § 34).

v.  The ascertainable distribution standard in the 2004 trust.  We also consider, as did the probate judge, whether in this case the trust is subject to an ascertainable standard which supports the inclusion of this asset in the marital estate.  The income stream was not too remote or speculative, nor purely discretionary.

As to the ascertainable standard for distribution, the 2004 trust provides in art. first, par. A, a common distribution standard tied to such life matters as support, welfare and maintenance.

“Until the division of the Trust into separate shares pursuant to paragraph B below, the Trustee shall pay to, or apply for the benefit of, a class composed of any one or more of the Donor’s then living issue such amounts of income and principal as the Trustee, in its sole discretion, may deem advisable from time to time, whether in equal or unequal shares, to provide for the comfortable support, health, maintenance, welfare and education of each or all members of such class . . . .  In the exercise of such discretion, the Trustee may take into account funds available from other sources for such needs of each beneficiary . . . .  At the end of each taxable year, any net income which is not disposed of by the terms of this paragraph shall be added to the principal of the trust estate.”  (Emphasis added.)

Thus, the husband had a present enforceable right to distributions from the 2004 trust.  That factor, among others, was appropriately assessed by the probate judge in weighing the value and manner of the total asset division to the wife.  Significantly, the judge found it likely that the husband would receive distributions from the 2004 trust after the divorce was over.

In these respects, the 2004 trust differs from wholly discretionary trusts, with no distribution standards regarding support, health, maintenance, welfare, or education.  Thus, we are not persuaded by the husband’s citation to D.L. v. G.L., 61 Mass. App. Ct. 488, because the trust at issue in that case involved payments that were wholly discretionary, and, consequently, the trust was not includable in the marital estate.  (In D.L., supra, neither income nor principal had ever been distributed from the subject trust to the husband, a marked contrast to this case where there were serial monthly distributions to the husband.)

Reduced to essentials, it is clear that the 2004 trust has an ascertainable standard pursuant to which the trustees, as fiduciaries, were obligated to, and actually did, distribute the trust assets to the beneficiaries, including the husband, for such things as comfortable support, health, maintenance, welfare, and education.  Illustrative of ascertainable standards which govern trust distributions, see, e.g., Marsman v. Nasca, 30 Mass. App. Ct. 789, 795 (1991), quoting from Woodbury v. Bunker, 359 Mass. 239, 243 (1971) (language directing trustees to pay beneficiary such amounts as they “shall deem advisable for his comfortable support and maintenance” has been interpreted to set an ascertainable standard, namely to maintain life beneficiary “in accordance with the standard of living which was normal for him before he became a beneficiary of the trust”).  See also Dana v. Gring, 374 Mass. 109, 117 (1977); Dwight v. Dwight, 52 Mass. App. Ct. 739, 744 n.5 (2001) (“the trustee would be under a duty to provide income from the trust to the husband should the trustee determine, upon inquiry, that the husband needed it”).

Given these ascertainable standards, the husband’s interest in the trust is vested in possession, with a presently enforceable right to the trust distributions to support his lifestyle during his lifetime including for maintenance, welfare, and education (and including educational funds needed for the special needs of the two children).  Indeed, the pattern of distributions up to the time of the divorce filing (with the husband regularly receiving distributions until the eve of the divorce filing) reflects distributions from the 2004 trust that fall within these ascertainable standards.

Finally, it cannot be gainsaid that the substantial income distributions for support, maintenance, and welfare from the 2004 trust were woven into the fabric of the marriage.  The 2004 trust distributions were integral to the family unit, and the family depended upon these trust distributions monies to meet their routine expenses and to maintain their standard of living.  It was mostly the large cash distributions from the 2004 trust which allowed the husband and wife to live an upper middle class lifestyle, own an expensive home, supplement the expenses for their special needs children’s services, and live well beyond the husband’s inflated bookstore income of $ 170,000.  The judge found the husband had expenses of $ 3,557 per week and wife had expenses of $ 2,910.  Their combined annual expenses are $ 336,284.  As the judge found, such high-level expenses could only have been met with augmentation from the 2004 trust distributions.  Notably, the trust distributions were all tax-free, so the disposable income was significant.  In short, the family lifestyle and expenses, as a matter of financial mathematics, could not have been met on the husband’s after-tax net income without the 2004 trust income stream as woven into the marriage fabric.

Furthermore, upon termination of the distributions from the 2004 trust, the husband will receive a share equal to his siblings.  The husband therefore has a vested beneficial interest subject to inclusion in the marital estate.  Even a “remainder interest under [a] testamentary trust . . . constituted a sufficient property interest to make it a part of [the] estate for consideration in connection with a property division under § 34.”  Davidson v. Davidson, 19 Mass. App. Ct. at 372.[16]

vi.  The 2004 trust valuation and division.  Having decided that the 2004 trust was includable in the marital estate, the judge had discretion to divide that asset.  ”Once the judge included these assets as part of the marital estate, [he] had broad discretion to determine how to divide the entire estate equitably . . . .”  Williams v. Massa, 431 Mass. at 625-626.  Moreover, the fact that the value of a vested, but not yet distributed, interest may not be susceptible of precise calculation “does not alter its character as a divisible asset.”  Lauricella v. Lauricella, 409 Mass at 217.  See Davidson v. Davidson, 19 Mass. App. Ct. at 373 n.12.

Our divorce law takes an expansive view of what may comprise the marital estate of a party, including a beneficial interest in a trust.  In this case, the distributions to the husband from the 2004 trust from 2008 to 2010 (prior to the divorce) support including the 2004 trust in the estate of the recipient subject to division under G. L. c. 208, § 34.  See Earle v. Earle, 13 Mass. App. Ct. 1062, 1063 (1982); Davidson v. Davidson, 19 Mass. App. Ct. at 374 n.13; Comins v. Comins, 33 Mass. App. Ct. at 30.

For these reasons, we conclude that the ascertainable standard embedded in the 2004 trust, the enforceability of that standard for distributions to the husband, and the vested nature of the husband’s interest in the 2004 trust warranted the judge in including the 2004 trust in the marital estate.[17]

e.  Attorney’s fees.  The award of attorney’s fees to the wife’s counsel in the amount of $ 175,000 was based, in large part, on the husband’s failure to obtain information concerning, and to list a value for (other than as “uncertain”), his beneficial interest in the 2004 trust.  On this record, including, but not limited to, the attorney’s fees unnecessarily incurred by the wife in “scorched earth litigation” and discovery violations,[18] we conclude the fees awarded are reasonable and shall be affirmed.

2.  The contempt case.  On January 24, 2013, the wife filed a complaint for contempt, alleging that the husband had failed to comply with the amended judgment of divorce because he had not made a required monthly payment in the amount of $ 48,699.77.

The husband stated that he had no independent ability to make the monthly payments and, therefore, could not be adjudged in contempt.  In his answer, and later through the representations of his counsel at the contempt hearing and in his own affidavit, the husband stated that while he had been making monthly payments to the wife in the required amount as a result of loans he had been receiving from his father, in January, 2013, his father had indicated that he would no longer be lending monies to the husband for this purpose.[19]

After his father decided to stop lending money to him, the husband requested, by letter, that the two trustees of the 2004 trust make distributions to him on a monthly basis so that he could comply with the judgment.  Not surprisingly given the distribution cutoff, which was tied to the divorce, the trustees declined the husband’s request for distributions.

After hearing, the husband was adjudicated guilty of contempt for failing to pay to the wife each month the sum of $ 48,699.77 for the period between January 15, 2013, and April 15, 2013.  Arrearages (including the interest thereon) were fixed at $ 200,634.05, and the husband was ordered to pay attorney’s fees to the wife’s counsel in the amount of $ 5,250.  The husband was ordered to jail for a period of sixty days unless released earlier by the payment of the amounts due.  In her findings, the judge stated that the husband had violated a clear and unequivocal order and that he had sufficient assets to pay what he currently owed.

On this convoluted record, we are not persuaded that the contempt judgment can stand under the standard of Birchall, petitioner, 454 Mass. 837, 853 (2009).  Here the husband did, or at least ostensibly tried to do, what he was supposed to do (write the letter to the trustees requesting distributions from the 2004 trust).  Although one might be disposed to question the genuineness of all these machinations given the bias of the two trustees and the husband’s father, the outcome of the matter is that it was not proved by clear and convincing evidence that the husband wilfully and intentionally violated a clear and unequivocal order.  Accordingly, the judgment of contempt is set aside.  See Dominick v. Dominick, 18 Mass. App. Ct. 85, 94 (1984); Flaherty v. Flaherty, 40 Mass. App. Ct. 289, 289 (1996).

3.  The motions to stay.  Following the entry of the amended judgment of divorce, the husband filed a motion for stay pending appeal, which was denied by the probate judge on March 7, 2013.  Thereafter, the husband filed a motion for stay in this court pursuant to Mass.R.A.P. 6(a), as appearing in 454 Mass. 1601 (2009), which was denied by a single justice, without comment, on April 12, 2013.  The husband has appealed from the order of the single justice.  We see no merit in this appeal.  Indeed, we note that on February 11, 2014, a panel of this court stayed so much of the amended judgment as required the husband to pay to the wife the monthly sum of $ 48,699.77 for twenty-four months to effectuate the judgment.

As to the stay during this appeal, that stay shall be vacated upon entry of the rescript by this court.[20]

Conclusion.  In the divorce appeal, docket no. 13-P-906, the amended judgment is affirmed.  In the contempt action, docket no. 13-P-1385, the judgment of contempt is vacated.  The wife’s request for appellate attorney’s fees and costs is denied.  In the appeal from the order of the single justice denying the stay pending appeal, docket no. 13-P-686, the appeal is dismissed.

So ordered.