In 2014, a high-profile Kentucky divorce case took center stage with the court allowing the divorced spouse to break up a Delaware dynasty trust to access some of its assets as part of her divorce settlement. More specifically, the dynasty trust was to be broken up in order to fund a separate trust for the benefit of the divorced wife. At one point, the trust was estimated to be worth around $300 million. The court looked into the argument of this being a spendthrift trust but ruled that the wife was not a creditor in her claim for maintenance. It would appear that Delaware spendthrift trusts have little protection against a divorcing spouse. However, there are many jurisdictions that see a lack of this protection as well. Accordingly, if you are drafting a trust in Delaware, you should look to a discretionary trust instead because it does not rely on the spendthrift clause for asset protection.
See Steven J. Oshins, Beware of Rights of Beneficiary’s Divorcing Spouse in Delaware, Wealth Management, November 1, 2016.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
