Asset protection against domestic support judgments is very difficult. As an example, one of my clients has been paying substantial alimony to an ex-wife. His surviving parent, who lives in South Carolina, told him that his S.C. estate planning attorney set up a living trust that would protect the client’s future inheritance from his ex-wife by placing the inherited assets in a discretionary spendthrift trust. The client asked me to confirm the protection under Florida law.
The parent’s trust included a comprehensive spendthrift clause. Spendthrift clauses are designed to protect trust assets from the beneficiary’s creditors. The trust agreement also stated that all distributions to the client were subject to the discretion of the successor trustee. The document required the son to appoint an independent co-trustee, someone not subject to the family court’s alimony directives.
The ability for former spouses to invade spendthrift trusts has an interesting history in Florida law, a history discussed in a Florida Bar Journal article published earlier this year. Briefly, about 20 years ago the Florida Supreme Court ruled that spendthrift protections do not apply to domestic support obligations including alimony and child support awards. Then, about seven years ago, the legislature amended Florida’s trust statute to add creditor protection to all trusts that provided for discretionary distributions of income and principal to the beneficiary. The statute made no exceptions for domestic support obligations. Therefore, a former spouse could not attack money held in a discretionary trust even if the same trust’s spendthrift clause did not protect trust assets.
Then came along a 2013 appeals court decision which is the subject of the Florida Bar Journal article. A Florida appellate court said that a former spouse could garnish distributions to beneficiary from a discretionary trust in order to collect alimony. The former spouse cannot force the trustee to make distributions, but once the distributions are made, if ever, the money would be garnished by the ex spouse to collect alimony currently due.
The article suggests that parents planning to protect their money from a child’s former spouses consider setting up trusts in jurisdictions other than Florida. This raises conflict of law issues. I’m not sure a Florida court trying to enforce an alimony debt against a Florida resident would respect the trust laws of the foreign jurisdiction.