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INTERESTS IN TRUSTS AS PROPERTY IN DISSOLUTION OF MARRIAGE: IDENTIFICATION AND VALUATION

Real Property, Probate and Trust Journal, Spring 2005 by Chorney, Marc A

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Wife contended that husband's income interest in the trust constituted property under C.R.S.A. section 14-10-113.66 The court of appeals decided otherwise and held that husband's income interest in the trust was not property under the statute.67 The court stated that "when the beneficiary has no interest in the corpus, and no right to control how the corpus is invested, . . . the income is a mere gratuity deriving from the beneficence of the settlors."68

J. C.R.S.A. section 14-10-113(7)(b)

In In re Marriage of Gorman,69 husband's living mother created a typical revocable trust in which she retained all the income from the trust, the right to receive distributions of principal for her benefit, and the power to revoke or amend the trust. Upon the mother's death, the trust was to be distributed to the husband and his siblings.

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The trial court held that husband did not possess a property interest with respect to the trust, but only a mere expectancy.70 The court of appeals reversed and held that husband's vested remainder interest had to be treated in the same manner as the vested remainder interest considered in Balanson II.71 The court acknowledged the difficulty in valuing such an interest and suggested that the property division could be delayed until husband came into actual possession of the interest.72

In response to Gorman, the Colorado legislature revised C.R.S.A. section 14-10-113, effective July 1, 2002.73 The revised statute states, in pertinent part:

"[P]roperty" and "an asset of a spouse" shall not include any interest a party may have as an heir at law of a living person or any interest under any donative third party instrument which is amendable or revocable, including but not limited to third-party wills, revocable trusts, life insurance, and retirement benefit instruments, nor shall any such interests be considered as an economic circumstance or other factor.74

The statute does not define the terms "amendable" and "revocable," and the meaning of those terms will be fertile ground for controversy and litigation. Many trust instruments grant powers of appointment, both inter vivos and testamentary, for persons who are typically, but not necessarily, beneficiaries of the trust. The practical effect of exercising a power of appointment on the beneficial interest of a divorcing spouse is no different than if a settlor of a revocable trust amended or revoked the terms of the trust altering or eliminating the beneficial interest. Similarly, a trustee's or trust protector's power also might be considered substantial enough to render the beneficial interest amendable or revocable.75

Even if a court determined that a power of appointment or other power rendered the interest in trust too remote to constitute property, a remaining issue is whether the beneficial interest may be considered as an "economic circumstance or other factor."76 As previously discussed, Jones held that an interest in a trust that was deemed to be a mere expectancy and not property should be considered as an economic circumstance under C.R.S.A. section 14-10-113(1)(c).77 The extent to which C.R.S.A. section 14-10-113(7)(b) overrules that holding is unknown at this time.

INTERESTS IN TRUSTS AS PROPERTY IN DISSOLUTION OF MARRIAGE: IDENTIFICATION AND VALUATION

Real Property, Probate and Trust Journal, Spring 2005 by Chorney, Marc A

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