The Supreme Court of New Jersey affirmed the Appellate Division's holding that, for purposes of determining alimony, it was not appropriate to impute income to a wife based on her beneficial interest in an irrevocable trust created and funded by her parents.
During the marriage of the husband and wife, the wife's parents settled an irrevocable, discretionary support trust for the wife, as sole beneficiary. The wife and her parents were the co-trustees of the trust. The trust provided that the trustees shall pay or apply for the benefit of the wife's health, support, maintenance, education and general welfare all or any part of the net income therefrom and any or all of the principal thereof, as the trustees determine to be in the wife's best interests, after taking into account the other financial resources available to the wife for purposes known to the trustees. The trust also provided that the wife was not permitted, under any circumstances, to compel distributions of income and/or principal prior to the time of final distribution, and contained a spendthrift provision.
The trial court applied the Restatement (Third) of Trusts to determine that support and maintenance required the trustees to distribute such sums as are necessary to maintain the wife's lifestyle. The trial court said it would not be equitable for a beneficiary to maintain assets held in trust and not provide for his or her family. If such income is imputed to the beneficiary and the trustee refuses to act accordingly, the beneficiary would certainly be unjustly enriched if she were to first receive alimony, have a limited child support obligation, and ultimately receive the entire trust income anyway.
The Appellate Division reversed, in part, and affirmed, in part. It held that the Restatement (Third) of Trusts had not been adopted by any reported decision in New Jersey and, if adopted, would change the law in New Jersey. The Appellate Division suggested that adoption of the Restatement (Third) of Trusts would be more appropriate by the New Jersey Supreme Court. It then held that by applying existing law, which has incorporated various provisions of the Restatement (Second) of Trusts, the wife's beneficial interest in the trust was not an asset held by her for purposes of New Jersey's alimony statute and she could not, merely by being a named co-trustee, without the consent of her parents, compel discretional distributions. Thus, no income from the trust should have been imputed to the wife. The New Jersey Supreme Court affirmed.