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THE ASSETS TRANSFERRED TO IRREVOCABLE TRUSTS FOR THIRD PARTY BENEFICIARIES ARE NOT SUBJECT TO EQUITABLE DISTRIBUTION, TRIAL COURT REVERSED OVER AN EXTENSIVE DISSENT (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court in this divorce proceeding, over a comprehensive dissent, determined the assets transferred to irrevocable trusts were not subject to equitable distribution:

While a trial court has broad discretion in fashioning an equitable distribution award, that discretion is not unlimited. Courts must respect the parties’ economic decisions made during the marriage, and may not disregard the legal character of property based solely on equitable concerns. As the Court of Appeals has emphasized, courts should not second-guess how parties chose to structure and allocate their assets during the marriage (see Mahoney-Buntzman v Buntzman, 12 NY3d 415, 420-421 [2009]). Consistent with this principle, assets transferred to valid, irrevocable trusts for third-party beneficiaries are not subject to equitable distribution absent evidence that the trust is a sham or that a spouse retains revocation power or a beneficial interest … . C.S. v R.H., 2026 NY Slip Op 05849, First Dept 10-8-26

Practice Point: Assets transferred to Irrevocable trusts for third-party beneficiaries are not subject to equitable distribution.

 

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