Flaherty v. Flaherty

• Decision Date: 22 March 1994
• Docket Number: No. 92-702,92-702
• Citation: 138 N.H. 337,638 A.2d 1254
• Parties: Lynda M. FLAHERTY, v. Paul W. FLAHERTY.
• Court: New Hampshire Supreme Court

Page 1254

638 A.2d 1254

138 N.H. 337

Lynda M. FLAHERTY, v. Paul W. FLAHERTY.

No. 92-702.

Supreme Court of New Hampshire.

March 22, 1994.

Law Offices of Carpenito, P.A., Salem (James W. Carpenito on the brief, and C. Michael Celenza orally), for plaintiff.

Gormley, Mayer & Gormley, P.C., Nashua (Arthur O. Gormley, III on the brief, and Fred K. Mayer orally), for defendant.

JOHNSON, Justice.

The defendant, Paul Flaherty, appeals the property distribution in a divorce decree, recommended by the Master (Peter J. Bourque, Esq.) and approved by the Superior Court (Barry, J.), which awarded the plaintiff, Lynda Flaherty, one-half of the defendant's interest in a spendthrift trust created by his parents. On appeal, the defendant argues that the trial court abused its discretion by: (1) applying New Hampshire law to the interpretation, construction, and administration of the trust; (2) including in the marital estate the defendant's interest in the remainder of the trust, despite an anti-alienation clause; and (3) awarding the plaintiff a one-half share of the defendant's one-sixth interest in the remainder of the trust. We affirm.

On October 11, 1990, Massachusetts residents John W. Flaherty and Norma E. Flaherty, the defendant's parents (the parents), created an irrevocable trust naming as co-trustees the defendant and one of his brothers, John E. Flaherty. The trust corpus comprises the parents' family home in Lowell, Massachusetts, investment portfolios, stocks, annuities, and mutual funds. The parents may add property to the trust at any time. By the terms of the trust, the trustees are to pay the parents up to $1,000 trust income monthly. The trust provides that upon the death of the last surviving parent, the trust will be distributed in six equal shares among their six children. The trust contains an anti-alienation clause affecting all persons given an interest in the trust. The final article of the trust document states that the trust is governed by the laws of Massachusetts.

John W. Flaherty testified that, in creating the trust, he intended that his children's families would share in his children's interests. John E. Flaherty testified that his understanding of his duties as co-trustee is that each family member's interest in the trust is to be enjoyed by his or her spouse as well.

On March 2, 1992, after nearly twenty-three years of marriage, the plaintiff filed for divorce. The final divorce decree, based on irreconcilable differences, gave the plaintiff primary physical custody of the parties' minor child and divided the defendant's interest in the trust evenly between the parties.

I. Exercise of Jurisdiction and Choice of Law

The defendant first argues that jurisdiction of the Flaherty trust belonged to a Massachusetts court, and that Massachusetts law should have been applied to the trust. In determining whether the superior court should have exercised or declined to exercise its jurisdiction, we consider the relationships that New Hampshire and Massachusetts have with the trust. Bartlett v. Dumaine, 128 N.H. 497, 517, 523 A.2d 1, 14 (1986); see A. Scott & W. Fratcher, The Law of Trusts § 569, at 164 (4th ed. 1989). Massachusetts' interest in the proper administration of the trust is substantial because the settlors are Massachusetts residents and the assets contained in the trust are based in that State. New Hampshire's interest, however, is greater. First, both the plaintiff and defendant resided in New Hampshire while married. Second, and more important, the precise issue that is raised with respect to the administration of the trust is how it is to be figured into the division of the marital assets. Since the New Hampshire Superior Court issued the divorce decree, it should decide every facet of the property division, including the defendant's remainder interest in the trust.

We next consider what effect should be given to the trust provision designating Massachusetts law as that by which the trust is to be governed, construed, and administered. This court has respected choice of law provisions in trusts. See, e.g., In re Dumaine, 135 N.H. 103, 106, 600 A.2d 127, 129 (1991); In re Lykes Estate, 113 N.H. 282 284, 305 A.2d 684, 685 (1973); Restatement (Second) of Conflict of Laws §§ 268(1) comment b, 277(1) comment b (1971). Thus, we determine that the choice of law provision in the Flaherty trust directs that Massachusetts law controls the governing, construing, and administration of the trust.

II. Inclusion of Trust Interest in Marital Assets

We next consider whether the trial court properly included the defendant's remainder interest in the Flaherty trust in the marital estate. RSA 458:16-a governs the type of property included in the marital estate: "Property shall include all tangible and intangible property and assets, real or personal, belonging to either or both parties, whether title to the property is held in the name of either or both parties." RSA 458:16-a, I (1992). The defendant argues that his beneficial interest in the spendthrift trust should not be included because he has not yet received an interest in it, and the trust does not have a monetary value ascribed to it.

We find that although the defendant does not enjoy a present possessory interest in the trust, his interest is vested; i.e., he was an ascertained remainderman upon the creation of the trust, and his interest is certain to reach him upon the specified event of the death of his last surviving parent. If the defendant should die before his last surviving parent, then his interest would pass through his estate as an owned asset. See Restatement (Second) of Property § 34.6(4) comment b, illus. 5 (1992).

The facts of this case are analogous to those in Halliday v. Halliday, 134 N.H. 388, 593 A.2d 233 (1991). In that case, we held that a non-vested, military pension lacking present value was intangible property under RSA 458:16-a, I, and therefore subject to division in divorce. Id. at 391, 593 A.2d at 235. Similarly, in the case at hand, the defendant's remainder interest in the trust will have value only in the future; this factor does not prevent the inclusion of the interest in the marital assets. Cf. Lawlor v. Lawlor, 123 N.H. 163, 459 A.2d 238 (1983) (husband's vested, but undistributed, legacy under will of deceased parent was relevant economic circumstance for marital master to consider in dividing marital property and awarding alimony).

The defendant argues that the trial court wrongly invalidated the anti-alienation clause in the trust instrument by allowing the plaintiff to reach the defendant's interest in the remainder of the trust. The following is the provision at issue:

"No person to whom any interest is given, whether in income or principal, shall have the power to anticipate, alienate [ ], dispose of or encumber such interest or income by anticipation or to subject the same of his debts or liabilities, and no such interest or income shall be liable for his debts or liabilities."

In this case, we consider a remainder interest vested in the defendant that is subject to an anti-alienation clause separate from the spendthrift provision pertaining to the allocation of steady income to the parents. The issue is whether a clause protecting the right of a beneficiary, i.e., the defendant, to receive the principal of the trust in the future is valid.

Applying Massachusetts law, we find that the anti-alienation clause and the circumstance that the defendant's remainder interest will not have value until his last surviving parent dies do not preclude our treatment of the interest as marital property. Although spendthrift trusts have been held valid in Massachusetts, courts have recognized that...