Pfannenstiehl v. Pfannenstiehl

• Decision Date: 27 August 2015
• Docket Number: 13–P–686,13–P–1385.,Nos. 13–P–906,s. 13–P–906
• Citation: 88 Mass.App.Ct. 121,37 N.E.3d 15
• Parties: Curt F. PFANNENSTIEHL v. Diane L. PFANNENSTIEHL (and two consolidated cases).
• Court: Appeals Court of Massachusetts

88 Mass.App.Ct. 121

37 N.E.3d 15

Curt F. PFANNENSTIEHL

v.Diane L. PFANNENSTIEHL (and two consolidated cases¹ ).

Nos. 13–P–906

13–P–686

13–P–1385.

Appeals Court of Massachusetts, Norfolk.

Argued Feb. 11, 2014.

Decided Aug. 27, 2015.

Robert J. O'Regan, Boston, for the husband.

Jillian B. Hirsch, Boston, for the wife.

Present: KAFKER, C.J., CYPHER, KANTROWITZ, BERRY, & FECTEAU, JJ.²

Opinion

BERRY, J.

The main issue presented—in what is the lead of three appeals³ related to these divorce proceedings—concerns the decision of a judge of the Probate and Family Court (probate judge or judge) to include in the marital estate, for purposes of the G.L. c. 208, § 34, division, the husband's interest in a multi-million dollar trust established by the husband's father (the 2004 trust⁴ ). The principal of the 2004 trust was, in the main, associated with funding from the family's operation of corporations that own and operate for-profit colleges, including Bay State College in Massachusetts and Harrison College in Indiana.⁵ The husband claims as error the assignment of $1,333,047 of the trust value to the wife and the requirement that the husband pay $48,699.77 monthly for twenty-four months to effectuate the division of assets set forth in the amended judgment.⁶

As to this issue, the husband, citing a spendthrift provision in

the subject trust, argues that the 2004 trust value and income therefrom were isolated, were not within the marital estate, and, therefore, should have been excluded from consideration under G.L. c. 208, § 34.⁷

This spendthrift isolation theory, as detailed infra, is advanced notwithstanding that the 2004 trust had made distributions to the husband—including an outright $300,000 in 2008 followed by 2009–2010 monthly payments of several thousand dollars—all of which were distributed from the 2004 trust to the husband, his twin brother, and a sister. Only as to the husband did these substantial monthly payments end, and they did so precisely on the eve of the husband's divorce filing. In contrast to the finale for the husband, the 2004 trust payments continued to the husband's brother and sister. Specifically, there was a cutoff of the monthly payments to the husband of from $20,000 to $65,000 in August, 2010, one month before the commencement of divorce proceedings in September, 2010. This cutoff, of course, stands in stark contrast to the continuing pattern of distributions to the husband's two other siblings and undermines the husband's theory of exclusion of the 2004 trust.

For the reasons stated herein, we conclude that the record in the case, including but not limited to trust documentary exhibits, provides telling evidence that the spendthrift provision is being invoked as a subterfuge to mask the husband's income stream and thwart the division of the marital estate in the divorce. A chart set

forth infra shows a spendthrift scheme that is virtually empty of purpose except as a form of insulation to inclusion and valuation in the divorce process. On this issue, we look to settled trust law, which holds that the mere statement of a spendthrift provision in a trust does not render distributions from a trust, such as this one, immune to inclusion in the marital estate for G.L. c. 208, § 34, calculations.

In addition to our determination that the probate judge correctly included the 2004 trust in the marital estate, we further conclude that the judge appropriately divided the marital estate by allocating sixty percent to the wife and forty percent to the husband.⁸

1. Divorce appeal. a. Factual background. The following is taken from the case record of the divorce. The parties were married in February, 2000, and last lived together in August, 2010. The parties have two children. At the time of trial, the son was eleven years old, and the daughter was eight years old. Both children have special needs. The son has been diagnosed with dyslexia and Attention Deficit Disorder (ADD) and attends a private school that specializes in teaching students with dyslexia. The daughter has been diagnosed with Down syndrome and has had significant medical and developmental issues throughout her life. The daughter currently is treated by nine specialists for her medical needs and attends a specialized school that provides her with physical, occupational, and speech therapy. She requires “around the clock supervision.”

i. The husband. At the time of the 2012 trial, the husband was forty-two years old. He had attended college for one and one-half years. He has dyslexia and ADD but is otherwise in good health. The husband comes from a family of substantial means. Those substantial family holdings are principally connected to the family's running of for-profit colleges. The tuition income from these for-profit educational businesses was substantial, and, indeed, was a main source of funding for the 2004 trust.

In addition, the husband was employed as an assistant bookstore manager for one such university and earned about $170,000

per year. The judge found that a “normal incumbent” in this assistant bookstore manager position would earn roughly $50,000 to $60,000 per year. The judge found that this handsome and inflated salary flowed from the husband's “familial relations.”⁹

Between 2008 and 2010, the husband received tax-free distributions from the 2004 trust as follows: $300,000 received in one payment in 2008, $340,000 received in six payments in 2009, and $160,000 received at a rate of $20,000 per month for the first eight months of 2010. Payments from the trust ceased after August, 2010, the month preceding the husband's filing for divorce.

In 2010, the husband's gross income, including the trust distributions of $160,000, amounted to approximately $350,000. At the time of trial, given the cessation of the trust income, the husband's gross annual income had diminished to $180,000. The husband has substantial opportunities to acquire capital assets and income in the future.

ii. The wife. The wife is forty-eight years old and is generally in good health. She is a college graduate who served as an officer in the United States Army Reserves for eighteen years. The wife left the military in 2004, just two years short of the twenty years of service that would have entitled her to a military pension. The decision to retire came after pressure from the husband and his family following the birth of the parties' daughter, who, as noted, is medically challenged. The wife currently works as an ultrasound technician one day each week and is paid approximately forty-six dollars per hour. At the time of trial, her gross yearly income from this position was $22,672.

The wife was the primary homemaker and caretaker of the two children throughout the entirety of the marriage. She has devoted extraordinary amounts of time and effort addressing the children's (and particularly the daughter's) personal, medical, educational, and extracurricular needs and activities. The judge found that the wife “currently spends most of her time caring for [the parties' daughter].” The daughter's needs are ongoing, and she will likely reside with the wife for numerous years to come. Although the wife has some opportunity to acquire assets in the

future, her opportunity is limited considerably by her care of the parties' daughter.

b. The family lifestyle as interconnected to the 2004 trust distributions. During the marriage, the family was able to enjoy an upper middle class lifestyle. This expansive lifestyle was financially attributable, in large measure, to the distributions to the husband from the 2004 trust, the beneficence of the husband's father, and the rather large salary of $170,000 which the husband received as the assistant bookstore manager. The probate judge did “not credit [the husband's] testimony that he lacked knowledge concerning where he spent the 2004 Trust distributions as well as whether he paid taxes on said distributions.”

c. The amended judgment. The pertinent parts of the judgment, as amended and dated August 13, 2012, are summarized as follows.

Including the husband's interest in the 2004 trust, the judge calculated the total value of the combined marital estate at $4,305,380. The judge divided assets in the marital estate (including the husband's interest in the 2004 trust) by allocating sixty percent to the wife and forty percent to the husband. In the final calculations including that division, and certain other assets, the wife received total assets valued at $2,328,688 and the husband received total assets valued at $1,976,692.

The judge found that the total value of the 2004 trust was $24,920,217.37. The judge calculated the husband's one-eleventh interest¹⁰ in the trust at $2,265,474.31. The wife was allocated a portion of the 2004 trust worth $1,133,047.79. The husband retained a portion of the 2004 trust valued at $1,132,426.52.

To effectuate the asset transfers to the wife, the judge ordered the husband to make twenty-four monthly payments to the wife in the amount of $48,699.77.¹¹

In other provisions of the amended judgment, the wife was designated the primary custodial parent of the children, subject to the husband's parenting schedule. The husband was ordered to pay child support in the amount of $1,100 per week, an amount to which the parties stipulated. Neither party was awarded alimony.

The judge also ordered the parties to maintain life insurance policies for the benefit of the children and, based on the judge's findings concerning the husband's obstructionist conduct at trial, ordered the husband to contribute $175,000 towards the wife's attorney's fees. As we have indicated, both the husband and the wife have appealed. d. The 2004 trust. i. General principles. At the outset, we set forth the general principles that bear upon the authority of the probate judge to determine whether to include an asset or an interest in the marital estate. In D.L. v. G.L., 61 Mass.App.Ct. 488, 492–493, 811 N.E.2d 1013 (2004), we stated:

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