“Oh what a tangled web we weave when we first practice to deceive.”
Those are the initial words of a judicial opinion of the Florida District Court of Appeals, Second District, filed November 27, 2013. (Berlinger v. Casselberry; Case No. 2D12-6470). The Court affirmed the trial court’s finding that a garnishment order can reach otherwise protected monies of a discretionary trust.
Although a probate and family law matter, the case is also instructive for general creditor and debtors claims. A trail of factual and legal maneuvers that at first blush seemed reasonable, later are found to be perhaps counterproductive; considering the complex interplay of statutory interpretation, equity, and public policy.
In 2007, after 30 years of marriage, a former husband (Beringer) and former wife (Casselberry) divorce. Amicably reaching a financial settlement, the former husband continues to pay his $16,000 a month permanent alimony obligation until early 2011. Before a hearing is held on the former wife’s petition to the former, husband agrees to liquidate his IRA to satisfy the alimony arrearages. The Court then issued a writ of garnishment to the discretionary trust bank trustee. Subsequently, without supplementing his financial disclosures and effected by an attorney who was a longtime friend of his personal attorney, the former husband transferred his interest in real property (that included his residence) to a discretionary Irrevocable Life Insurance Trust. After he established the trust, the former husband was deposed; swearing that there were no life insurance trusts. Interestingly, the bank, as corporate co- trustee, issued the former husband a credit card from which his personal expenses (e.g., travel, entertainment, clothing, medical expenses, grooming, gifts, and his current former wife’s credit card bills) were paid.
Confronted with those facts, the former wife filed a civil contempt and enforcement action against the bank trustee. Neither the former husband nor the bank trustee objected; and the Court issued writs of garnishment against the bank trustee. Finally, the former wife filed a motion for a continuing writ of garnishment against the bank trustee to attach the present and future distributions made to or for the former husband’s benefit from any trust. She alleged that traditional methods of enforcing alimony were insufficient.
At a hearing seeking a declaration that the family trusts were discretionary trusts, the trustee argued that, subject to Florida Code §736.0504 they had greater protection from creditors. Specifically in this case: “prohibiting any creditor including (the former wife) from attaching distributions on behalf of or for the benefit of (the former husband).” Rejecting that argument, the Trial Court granted continuing writs of garnishment. It substituted the trustee for the former wife as the garnishee. And, it further ordered all distributions made directly or indirectly to, on behalf of, or for the benefit of the former husband made payable to the former wife unless, at the time of any future distributions, there was no alimony or alimony arrears owed. Moreover, if trustee wished to make distributions to the former husband beyond the amount of the then outstanding amount of alimony, trustee must seek court approval before doing so to ensure that there remained sufficient assets in the trust to secure the continued payment of alimony.
Because its decision required statutory interpretation, the Appellate Court was permitted to review the matter de novo (anew). That is, as in the Trial Court, its case analysis and decision involved examining the specific facts in light of the statutory mandate.
The trusts were indeed, in light of the statute, determined discretionary spendthrift trusts. Discretionary: since the distributions were completely within the fiduciary discretion of the trustee; spendthrift: since the statute protects the trust funds from creditor attachment or assignment.
On similar facts in an earlier Florida Supreme Court case (Bacardi v. White, 463 So.2d 218 (Fla. 1985)), and given the former wife’s standing spousal support order, the Appellate Court denied the trusts statutory protection. Specifically tracking the language of Florida Statute § 736.0503, the Court upheld “an order attaching present or future distributions to or for the benefit of the beneficiary (because this is the former wife’s) last resort (and) that traditional methods of enforcing the claim are insufficient.”
Interestingly, the Appellate Court pronounced that “Florida has a public policy favoring spendthrift provisions in trusts and protecting a beneficiary’s trust income; however it gives way to Florida’s strong public policy favoring enforcement of alimony and support orders.”
Not within the four corners of the decision, the Appellant former husband’s actions to “ring fence” trusts, transfer his interest in real property, and testimony at a subsequent deposition proved counterproductive. In an action in equity, they could be characterized as demonstrating “unclean hands.” In such case, equity could deny a claimant protection.
Whether a personal estates and trusts matter or a commercial debtor–creditor transaction, professional guidance and factual scenario planning is critical: an ounce of crisis planning is worth a pound of crisis management!
For more information contact:
Carl H. Perdue, JD, LLM
Senior Counsel and Partner
ASSOULINE & BERLOWE, P.A.
Intellectual Property, Labor & Employment Law, Bankruptcy, Commercial Litigation, and Corporate Law
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