For many families, trusts are a central feature of estate planning. Properly structured, trusts can preserve wealth across generations, reduce estate and gift tax exposure, and simplify the eventual transfer of assets to children and descendants.
But when a trust beneficiary’s marriage ends in divorce, those same trusts can become sources of friction and financial disparity.
In Washington State, courts are charged with making a “just and equitable” division of divorcing parties’ “community and separate property.” Because trust assets are owned by the “trustee,” they are not considered to be within the community or separate property of the beneficiaries. But RCW 26.09.080 also directs courts to consider the parties’ respective “economic circumstances at the time of dissolution.” Trust interests can become highly relevant to that inquiry, even when the trust itself is not considered a community or separate asset owned by a party or subject to division by the divorce court.
Consider a spouse who is the beneficiary of an irrevocable trust established by a grandparent long before the marriage. Under Washington law, that trust will fall entirely outside the divorce court’s authority to divide. Yet if that beneficiary regularly receives distributions, has predictable access to trust resources, or otherwise enjoys financial support from the trust, those realities may influence the court’s assessment of the parties’ post-divorce economic positions. The details of the trust are thus likely to be discoverable, and the spouse who does not have a beneficial interest may argue that the spouse with the trust interest should receive less of the couple’s community property.
Threshold Question: What Type of Trust Is It?
When a party to a divorce has an interest in a trust, the first question is deceptively simple: What type of trust is it?
The answer often determines both whether the trust itself is subject to division in the dissolution action and how much weight the court may give it in evaluating the parties’ economic circumstances.
The analysis begins with the trust instrument and any amendments or restatements. Together, those documents reveal the trust’s essential characteristics, including whether it is revocable or irrevocable, who controls the trust, who benefits from it, and what rights, if any, beneficiaries have enforceable rights to distributions of trust assets.
One of the earliest task in a divorce where trusts are involved is collecting the complete trust file. Lawyers are often presented with excerpts, outdated versions, or informal descriptions that omit provisions critical to the analysis. Where a party lacks access to the complete file, the broad discovery powers under CR 26 will likely provide a path forward to obtaining trust documents and, potentially, financial information about the trusts in which either spouse has an interest.
Revocable vs. Irrevocable Trusts (The Most Consequential Classification in Divorce)
In dissolution proceedings, the distinction between revocable and irrevocable trusts is often dispositive. It frequently determines whether trust assets fall within the divorce court’s authority at all. Broadly speaking, assets held in a revocable trust where one or both divorcing spouses are the grantors and lifetime beneficiaries remain reachable in a dissolution proceeding, while assets held in properly structured irrevocable trusts are generally not reachable.
On the other hand, if a third party such as a parent or grandparent is a grantor of a revocable trust and has named one of the spouses as a beneficiary, the beneficiaries’ interest in that revocable trust interest will be seen by Washington courts as a “mere expectancy” of a later potential inheritance (similar to being named in a will of a person who has not yet died) and, as affirmed by In Re Marriage of Cooney (unpublished Div. I, 2023), such trusts will not be considered either a property interest or as impacting a beneficiary’s economic interests for purposes of divorce.
To determine revocability, the operative question is whether the grantor retains the power to revoke, amend, terminate, modify, or withdraw assets from the trust. If those powers exist, the trust will generally be treated as revocable regardless of how the document is labeled.
Conversely, if a trust is governed by Washington law and contains no retained powers of amendment, revocation, termination, or withdrawal, and the instrument does not otherwise provide that it is revocable, it is irrevocable.
The Utah Supreme Court’s decision in Dahl v. Dahl (2015) demonstrates that labels are not controlling. In that case, the husband set up a trust to benefit himself that, by its title, was “irrevocable.” But the Court looked beyond the trust’s “irrevocable” label and held it to be functionally revocable due to the trust terms that gave husband a retained, unilateral amendment power. Emphasizing that labeling in the trust instrument is not determinative, the Court remanded the case back to the trial court with instructions to allow the wife to withdraw her share of the marital property that husband had contributed to the trust, or alternatively to credit the wife with an offset equal to the value of her share.
Revocable trusts where one or both spouses are the grantors (a “grantor” is the person who created the trust) sit squarely within the divorce court’s reach because the grantor retains ultimate control over the assets. For divorce, tax, and creditor purposes, the law typically looks through the revocable trust structure to the person who can reclaim the property at will.
As a result, revocable trust assets where one or both spouses is the grantor remain subject to characterization, valuation, and distribution in dissolution proceedings.
Irrevocable Trusts (Generally Beyond the Divorce Court’s Reach)
Irrevocable trusts are intended to be permanent and thus are treated differently than revocable trusts in divorce. Assets in an irrevocable trust cannot be freely altered, claimed, or controlled by the grantors and in most cases, there are similar limits on beneficiaries’ ability to access and control trust assets. For that reason, irrevocable trusts are not generally treated as property “of the parties” as required by RCW 26.09.080 for division in divorce.
Washington courts have long recognized that third-party entities, and the properties they hold, are not parties to divorce proceedings. Irrevocable trusts are separate legal entities administered by trustees. And under appellate cases such as In re Marriage of McKean (2002) and In re Marriage of Petrie (2001), trustees are not part of divorce proceedings. Thus, any disputes involving trust validity, trust administration, or trustee conduct must be brought through separate proceedings such as an action filed under the Trust and Estate Dispute Resolution Act (TEDRA), chapter 11.96A RCW.
Absent extraordinary circumstances outside the divorce proceeding, such as a successful challenge to a trust’s validity, assets held in an irrevocable trust ordinarily will not be divided between or awarded to spouses in a Washington divorce.
But even though an irrevocable trust is not ordinarily subject to division in divorce, it may still play an important role in the court’s analysis. This is because when deciding how to divide the community and separate property, Washington courts must apply the requirement in RCW 26.09.080(4) to consider the “economic circumstances of each spouse” at the time of dissolution. A spouse’s beneficial interest in or control over an irrevocable trust may materially affect that spouse’s income stream, access to capital, and financial security.
Although Washington appellate courts have not yet articulated a comprehensive framework for analyzing the economic impacts of trust interests, the economic circumstances approach is consistent with both the statutory directive and the authors’ experience litigating these issues at the trial court level. As a practical matter, irrevocable trusts often influence the division of marital property, even when the trust assets themselves remain untouched.
Mandatory vs. Discretionary Trusts (and Why “Spendthrift” Clauses Matter)
Within the category of irrevocable trusts, the nature and scope of a beneficiary’s rights and interests is important to understand when analyzing whether a beneficiary’s interest will be treated as an asset in the divorce or part of the economic circumstances analysis.
In a “mandatory” trust, the trustee is required to make distributions at certain times according to the terms of the instrument. Courts in other states that have grappled with this issue have frequently viewed those enforceable rights as economically certain income streams. Similarly, if a beneficiary has unilateral withdrawal rights that do not require a trustee’s agreement, a court might consider those assets to belong to the party-beneficiary who has the right to make the withdrawals.
By contrast, in a “discretionary” trust, distributions are left to the trustee’s judgment, often guided by standards such as health, education, maintenance, or support. Such interests are more likely to be framed as contingent or speculative. Sometimes referred to as an “expectancy,” there are strong arguments that these types of interests cannot reasonably be treated as a present asset. But as ACTEC Fellow Sharon Klein observed in her three-part podcast Practical Considerations in Representing the (Un)Happily Married, the history of a trust’s administration may be just as important as its written terms. Regular distributions, for example, whether discretionary or not, may influence how a court views a beneficiary’s financial reality.
“Spendthrift” clause in irrevocable trusts add another layer to the analysis. These clauses restrict a beneficiary from assigning their trust interests and prevent creditors from accessing trust assets. Spendthrift provisions are an important protection against creditors, including in divorce. Yet spendthrift protection has limits. While it may prevent direct claims against trust assets by a beneficiary’s creditor or divorcing spouse, it does not erase the financial reality that a beneficiary receives economic support from the trust. Courts may still consider that support when evaluating the parties’ economic circumstances.
Washington in Context: Emerging Approaches in Massachusetts
Washington appellate authority on trusts in dissolution remains relatively sparse. While McKean confirms that trust-related information is discoverable, and Petrie confirms the right to bring a separate action when a divorcing party’s behavior as trustee is at issue, no reported decision has authorized a court to invade an irrevocable trust or apply doctrines such as alter ego, sham trust, or fraudulent transfer within the dissolution proceeding itself.
Other jurisdictions have taken a more expansive approach. For example, through a series of recent decision, Massachusetts has emerged as the jurisdiction attracting the most national attention in this area. Those cases, a few of which are discussed below, have generated substantial discussion, and in some cases alarm, among trust and estate and family law practitioners across the county. This is because Massachusetts courts have shown a willingness to include certain beneficial trust interests in the marital estate based on a practical examination of access to trust assets. These decisions, however, arise from Massachusetts’ statutory framework and caselaw, and they should not be assumed to reflect the approach Washington courts would take. Even so, the cases provide a useful lens through which to consider questions of control, access, expectancy, and economic benefit.
In Pfannenstiehl v. Pfannenstiehl (2016), the Massachusetts Supreme Judicial Court held that the husband’s interest in an irrevocable discretionary spendthrift trust with multiple beneficiaries and no enforceable right to compel a distribution was an expectancy that was too speculative to be included in the marital estate. At the same time, and similar to the Washington approach, the court permitted consideration of that interest in evaluating each party’s future financial prospects.
Since Pfannenstiehl, Massachusetts courts have applied the fact-intensive principles of access, control, and expectation across a variety of cases, sometimes with surprising results. In Levitan v. Rosen (2019), an irrevocable trust set up by wife’s father gave wife the right to demand 5% of the trust principal annually, but gave the trustee discretion for distributions above and beyond the 5%. The court concluded that the entire trust interest constituted marital property, emphasizing that the wife was the sole beneficiary, the beneficiary class was closed, and her interest had vested upon her father’s death.
In Jones v. Jones (2023), the Appeals Court of Massachusetts considered what appeared to be a fully discretionary trust with an independent trustee set up by wife’s family. In contrast to Levitan, no distribution had ever been made to the wife. The court noted, however, that the wife was the sole beneficiary of the trust and would receive all assets upon her mother’s death, effectively a mandatory distribution. The court determined that this interest was sufficiently “fixed and enforceable” to constitute divisible property in divorce. The court affirmed the assignment of the trust interest to the wife and required her to pay the husband its equivalent value over 10 years.
Certain other states, such as New Hampshire and Delaware, have adopted statutes that expressly exclude discretionary trusts from divorce proceedings in all circumstances. Because states vary significantly in how they treat trusts in divorce, the forum can have a meaningful impact on the outcome. Parties with substantial trust assets in their estates should consider those differences when evaluating relocation, especially if divorce is imminent.
When to Call a Lawyer
In divorces that involve trusts, the central issue in Washington is not whether a trust can be divided and awarded in the divorce court, but what role the trust will play in the court’s evaluation of the parties’ economic circumstances. Answering that questions requires a close examination of the trust instrument, the beneficiary’s rights, the trustee’s authority, and the trust’s history of administration. And because those issues can significantly influence settlement leverage and ultimate outcomes, early analysis is essential. Stokes Lawrence’s Trust & Estate Litigation Team frequently works with clients and family law practitioners on trust-related issues arising in divorce. Our experience in both trust litigation and fiduciary disputes allows us to identify issues that may not be immediately apparent and to help clients develop informed strategies at the outset of a case.
