In the afterglow of a wedding, the spouses probably don’t immediately start thinking how the bliss they feel may end spectacularly and expensively. Chances are they may even start estate planning, thinking how they can seamlessly transfer assets to the other. In Nelson v. Nelson, a Florida appellate court reminded us that the estate planning choices spouses make, however, have far-reaching consequences if before death they doth part.

Husband and wife bought a house together in California and titled it in both of their names. They then transferred the home into an irrevocable trust established for the benefit of the wife and her descendants, and named the wife as the sole trustee of the trust. Husband and wife divorced and a Florida trial court characterized the house as a marital asset subject to equitable distribution. The Florida appellate court, however, found that the house – while originally a marital asset – lost that status once it was transferred to the irrevocable trust.

The appellate court’s decision suggested that the trial court had modified the trust to reach the equitable distribution result, so there was much analysis of trust modification. Florida statutory trust modification would not work because statutory modification required application of the trustee or of a qualified beneficiary - not the settlor. Surely, the trustee – the soon-to-be ex-wife – and the qualified beneficiaries – the wife and her descendants – would not want to modify the trust. The husband, as settlor, could not petition to statutorily modify the trust even if he presented unrebutted testimony that the trust was created as an estate planning mechanism intended to protect the California home from claims made by his heirs in the event he were to predecease his wife during marriage. Under Florida statutes, however, a settlor can petition to modify a trust that contains a mistake even if the trust is unambiguous. There is no mention of whether the husband claimed the trust contained a mistake and modification was necessary to conform to his intent.

Similarly, the trial court could not rely on the common law to modify the trust because neither the trust nor all the beneficiaries were before the court. Thus, the appellate court also reaffirmed that representative capacities make a difference – a concept we have seen before in Florida. The trial court could not order relief regarding the trust because the trust and all the beneficiaries were not parties to the divorce action. If the trial court wanted to provide relief regarding the trust, then the trust along with the beneficiaries needed to be made parties to the underlying action.

The appellate court also suggested that the terms of the trust could have addressed the possibility of divorce. The trust could have terminated upon divorce. However, the court failed to consider the problems with that scenario – if the husband were to take back an interest in the asset upon termination of the trust, that would have made him a beneficiary which is likely something he did not want.

While statistics vary on the rate of divorce, many of the people who pay attention to such things place the rate between 40%-50% and the rate of divorce of subsequent marriages even higher. When transferring assets during your life to accomplish an estate plan, the prospect of divorce is a conversation worth having with your estate planner.