It’s a marvelous troika: money, power, love. No wonder that when a divorce comes along to flip that coin, the horrors of its other side can lead better people down darker paths.
One such well-worn path is the refusal of an individual (debtor-spouse) to honor a divorce judgment (support judgment) that requires him to financially support his ex-spouse (creditor-spouse) or their children. The law might not be able to entirely save these people from each other. But from the probate litigator’s perspective, it makes a valiant effort. As a law nerd might say, the statutory scheme—culminating with Code of Civil Procedure (CCP) Section 709.010 and Probate Code (Probate) Section 15305 provides a means to enforce support judgments against even spendthrift trusts. As anyone else might say, you can force deadbeat parents to support their exes and their kids.
A creditor-spouse may enforce a support judgment against a debtor-spouse’s trust. The statutory scheme is pretty straightforward. A support judgment is, after all, a money judgment; and a creditor can enforce a money judgment against a debtor’s beneficial interest in a trust. See CCP Section 695.010 et seq. CCP Section 709.010 provides the “exclusive means” of doing this. FirstMerit Bank, N.A. v. Reese (2015) 242 Cal.App.4th 408.
Under CCP Section 709.010, if a creditor-spouse brings a petition in the probate court, the court may apply the debtor-spouse’s interest in a trust to satisfy a support judgment “by such means as the court, in its discretion, determines are proper[.]” CCP Section 709.010 doesn’t apply to all things to which the term “trust” is attached. For example, look elsewhere if you’re dealing with a Totten trust. But it applies to express trusts and some implied trusts.
A creditor-spouse may use CCP Section 709.010 to empower the court to, for example, order a lien against or sale of the debtor-spouse’s interest in a trust; collect trust income; or liquidate and transfer trust property.
The easy outcome here is that a court can order a trustee to satisfy a support judgment from trust assets that are otherwise slated to go to a debtor-spouse. For example, say a debtor-spouse has failed to pay child support and now owes the creditor-spouse an accrued balance of $50,000. Say the debtor-spouse has a 50% beneficial interest in a trust that his mother created, which holds $5 million. The simple resolution is for the trustee of that trust to pay off the $50,000 debt.
The trustee’s refusal to pay can create significant problems. No matter how just the creditor-spouse’s cause is, legal costs can easily eclipse the $50,000 judgment in our example. But there are upsides. One is the real threat of forcing the trustee to pay the creditor-spouse’s attorney fees. Another one is that the court could order the sale of the debtor-spouse’s interest in the trust. Maybe that interest is attenuated or uncertain. Who would buy it? Consider the possible result for the creditor-spouse. In our example, instead of walking away with $50,000, the creditor-spouse could walk away as the owner of the debtor-spouse’s $2.5 million contingent interest. That outcome would certainly bring its own risks. But one would be hard-pressed to find a better example of financial reward matching poetic justice.
A spendthrift provision in a debtor-spouse’s trust doesn’t thwart a creditor-spouse. CCP Section 709.010 expressly limits its applicability to spendthrift trusts, the rules for which are stated at Probate Sections 15300 et. seq. The policy behind spendthrift provisions is that an individual should have the right to choose the object of his bounty. Canfield v. Security-First Nat. Bank (1939) 13 Cal.2d 1. However, the law overrides that policy in various circumstances. Once such circumstance relates to claims for child or spousal support—Probate Section 15305. After all, the mother in our example may wish to leave half of her $5 million fortune to her son; but she might want to shield that fortune from the woman who may someday become her son’s ex-wife.
The law chips away at the spendthrift shield that a settlor creates. Theories to support this result include construing the spendthrift clause to exclude the debtor-spouse’s dependents or merely finding a violation of public policy—that is, a debtor-spouse shouldn’t enjoy the benefits of a trust while neglecting his dependents. See Ventura County DCSS v. Brown (2004) 117 Cal. App.4th 144 (policy behind payment of support outweighs policy allowing settlor to control disposition of property). Either way, the result is the same as if a mother creates her trust for the benefit of not only her son but also her son’s dependents.
Probate Section 15305 doesn’t get rid of the spendthrift shield, though. It has two key prongs that depend on whether or not the debtor-spouse/ beneficiary has the right to compel the trustee to pay money to or for the benefit of the debtor-spouse. If the debtor-spouse does have that right, the court may order the trustee to satisfy the support judgment “out of all or part of those payments as they become due and payable, presently or in the future.” If the debtor-spouse doesn’t have that right, the court may order the trustee only to satisfy the support judgment “out of all or part of future payments that the trustee, pursuant to the exercise of the trustee’s discretion, determines to make to or for the benefit of the beneficiary.”
Under Probate Section 15305, if the trustee is obligated to disburse funds to the debtor-spouse, the court can order the trustee to pay those funds to the creditor-spouse. If the trustee isn’t obligated to disburse funds, the court can order the trustee only to pay those funds to the creditor-spouse out of payments that the trustee makes in his discretion.
The discretion analysis carries its own nuances. A court may direct payments from a spendthrift trust to a creditor-spouse only after the trustee’s exercise of discretion. For example, if the trustee decides not to distribute because the debtor-spouse’s care needs are already met, a court can’t force the trustee to satisfy a support judgment. Young v. McCoy (2007) 147 Cal.App.4th 1078 (imprisoned debtor; analysis under nearly identical statute for judgments relating to felonious conduct). On the other hand, it’s an abuse of discretion if the trustee’s only reason for declining to distribute is to keep the funds out of the creditor-spouse’s hands. Ventura County DCSS v. Brown (2004) 117 Cal. App.4th 144. Going deeper, the discretion of the court, not just the trustee, can become a part of the analysis. See Pratt v. Ferguson (2016) 3 Cal.App.5th 102 (court’s failure to exercise discretion is an abuse of discretion).
David Parnall is a trust and estate litigator with Hartog, Baer & Hand in Orinda, Calif. He can be reached at [email protected].