United States (New York)
Law Over Borders Comparative Guide: Family Asset Protection Law Guide: Divorce, Finance and the Media
Family Asset Protection Law Guide: Divorce, Finance and the Media
Chapters in this guide
12
New York’s treatment of trusts in family law matters is largely demonstrated through the development of case law. Further, New York law’s broad approach to discovery allows for a wide range of party access to information surrounding trusts and trust assets. A focus on transparency carries over to the manner in which family law proceedings are conducted both in and out of the courtroom.
Various forms of trusts are recognized in New York. Trust treatment depends on the structure of the trust and the circumstances under which the trust was formed and funded.
Typically, trusts established by family members for the benefit of one party are viewed as separate property pursuant to the New York Domestic Relations Law and may not be altered by the court or invaded for property distribution purposes. However, income and/or other distributions from trust assets may be considered in establishing both spousal and child support obligations.
Irrevocable trusts established jointly by the parties during the marriage to meet estate planning objectives are also commonly determined to be outside of the marital estate for purposes of property distribution. Exceptions may exist in circumstances where a trust is funded with marital property, where such trust is established unilaterally by one party for the purpose of concealing assets or removing property from the marital estate. In those matters, to the extent that the court is prohibited from altering the trust structure, the disadvantaged spouse may be entitled to recover a credit for a portion of the marital property placed into trust. In Oppenheim v. Oppenheim, 168 A.D.3d 1085 (2d Dept. 2019), despite the wife’s claims that the husband had engaged in “inequitable conduct in the establishment of” the trust, the trial court found that the “circumstances surrounding, among other things, the creation of the family trust” did not substantiate the wife’s claims and that the trust was legitimately created. In Oppenheim, the husband kept the wife informed of the trust and she was aware of the source of the funding and tax implications; further, the trust was created before any “indication of marital discord.” In contrast, in Riechers v. Riechers, 178 Misc. 2d 170 (Sup. Ct., Westchester Co. 1998), where the wife denied that she was ever consulted by the husband in the planning or formation of a trust, the court awarded the wife one half of the value of the marital assets placed in trust by the husband.
Treatment of trusts can vary with the type of trust (e.g. irrevocable versus revocable). The court retains more authority to distribute assets held in a revocable trust, where the party or parties retain access to the assets held therein. In Surasi v. Surasi, 2001 N.Y. Misc LEXIS 1117, 2001 NY Slip Op 40408(U) (Sup. Ct., Richmond Co. 2001), the trial court held that the trust created by the husband during the pendency of the divorce, was a revocable trust and therefore, should be set aside, with property transferred back to the marital estate for distribution to the parties.
The court may also terminate a New York trust which has been formed for illegal or sham purposes. In Goldberg v. Goldberg, 172 A.D.2d 316 (1st Dept. 1991), the court found that the wife had established that, during the marriage, she was a significant contributor in the accumulation of marital property and that the husband had deliberately dissipated marital funds and secreted marital assets through the conveyance of those assets to various trusts and alter ego corporations.
Separately, life insurance trusts are frequently established in New York to provide security for court-ordered financial obligations to a spouse or child, in the event of one party’s death.
With respect to trusts formed in foreign jurisdictions (other U.S. states or overseas), the court would treat these similarly to New York trusts but would not necessarily acquire jurisdiction to dissolve the trust.
Discovery obligations in New York are broad, as any information “material and necessary” to a matrimonial action may be requested and required to be produced. Trust instruments, as well as underlying financial documentation relative to trust assets and liabilities, may be requested and exchanged.
A party maintains the right to seek a protective order striking or limiting disclosure demands where, for example, these are overly broad, unduly burdensome, beyond the scope of appropriate discovery, or the like. On occasion, New York courts have limited overseas discovery, including a deposition of a co-trustee. In Azria v. Azria, 198 A.D.3d 472 (Sup. Ct., New York Co. 2019), where the wife failed to demonstrate that the information she sought from the husband’s brother, a co-trustee living in France, was “crucial to the resolution of a key issue in the litigation,” the court denied her motion for an order issuing a letter rogatory to French authorities to take the brother’s deposition.
The financial disclosure obligations of a trustee in divorce proceedings filed in New York where the trust is governed by New York law are that the parties to the divorce action are charged with reasonable efforts to obtain information from the trustee. The trustee may also be subject to direct subpoena to produce requested information; unless the trustee moves for a protective order and/or to quash the subpoena, the materials will be expected to be produced and/or testimony taken, with potential civil and criminal penalties for non-compliance.
A uniform act (Uniform Deposition and Discovery Act) permits New York subpoenas which seek discovery to be in honoured in most other U.S. states.
Similarly, if a party fails to produce requested documentation which the court believes is in their power to produce, the court may adopt remedies that involve striking pleadings, adopting adverse inferences, precluding a party from offering evidence or presenting their case at trial, with respect to specific, or, in extreme cases, all issues.
The court may also consider the degree of non-compliance in directing counsel fees and costs awards.
Expectations for parties in divorce proceedings filed in New York but where the trust is governed offshore would be as above with similar remedies for non-compliance. With respect to a foreign trust, the court may issue letters rogatory to request a court of the foreign jurisdiction to permit discovery to proceed, but there is no subpoena power overseas, or guarantee of foreign cooperation.
The financial disclosure obligations under New York law of a trustee in divorce proceedings filed in foreign jurisdictions but where the trust is governed by New York law would be that the trustee would likely be expected to comply with a validly issued disclosure order, whether the trustee is joined or not joined as a party. Practitioners should be aware of whether any bilateral agreements exist to facilitate such discovery and/or the procedures that must first be followed in the foreign jurisdiction to obtain or request such disclosure.
Absent the circumstances described in Section 1.1, above, in New York it would be unlikely, from an asset-distribution perspective, that a beneficiary spouse would be ordered to share trust income or principal with a non-beneficiary spouse. However, in the case of both child support and spousal support proceedings in New York, the court may consider the respective financial resources of the parties, inclusive of access to trust income, loans from trust assets and other distributions. According to the New York Domestic Relations Law and the Family Court Act, the statutory definition of “income” for child support and spousal support purposes is identical, and includes the following:
DRL § 240(1)(b)(5): ‘Income’ shall mean, but shall not be limited to, the sum of the amounts determined by the application of clauses (i), (ii), (iii), (iv), (v) and (vi) of this subparagraph reduced by the amount determined by the application of clause (vii) of this subparagraph:
(i) gross (total) income as should have been or should be reported in the most recent federal income tax return. If an individual files his/her federal income tax return as a married person filing jointly, such person shall be required to prepare a form, sworn to under penalty of law, disclosing his/her gross income individually;
(ii) to the extent not already included in gross income in clause (i) of this subparagraph, investment income reduced by sums expended in connection with such investment;
(iii) to the extent not already included in gross income in clauses (i) and (ii) of this subparagraph, the amount of income or compensation voluntarily deferred and income received, if any, from the following sources:
(A) workers’ compensation,
(B) disability benefits,
(C) unemployment insurance benefits,
(D) social security benefits,
(E) veterans benefits,
(F) pensions and retirement benefits,
(G) fellowships and stipends,
(H) annuity payments, and
(I) alimony or maintenance actually paid or to be paid to a spouse who is a party to the instant action pursuant to an existing court order or contained in the order to be entered by the court, or pursuant to a validly executed written agreement, in which event the order or agreement shall provide for a specific adjustment, in accordance with this subdivision, in the amount of child support payable upon the termination of alimony or maintenance to such spouse; provided, however, that the specific adjustment in the amount of child support is without prejudice to either party’s right to seek a modification in accordance with subparagraph two of paragraph b of subdivision nine of part B of section two hundred thirty-six of this article […];
(iv) at the discretion of the court, the court may attribute or impute income from such other resources as may be available to the parent, including, but not limited to:
(A) non-income producing assets,
(B) meals, lodging, memberships, automobiles or other perquisites that are provided as part of compensation for employment to the extent that such perquisites constitute expenditures for personal use, or which expenditures directly or indirectly confer personal economic benefits,
(C) fringe benefits provided as part of compensation for employment, and
(D) money, goods, or services provided by relatives and friends;
(v) an amount imputed as income based upon the parent’s former resources or income, if the court determines that a parent has reduced resources or income in order to reduce or avoid the parent’s obligation for child support; provided that incarceration shall not be considered voluntary unemployment […].
If a spouse obligor fails to comply with a court order directing the payment of child support or spousal support, or an order directing payment of equitable distribution or other financial obligations, the court (or child support collection unit, as the case may be) may apply a wide range of financial restraints, payment interceptions and enforcement mechanisms against that spouse, up to and including, potential imprisonment for contempt. This would be the case with New York orders as well as foreign orders that have been obtained in that jurisdiction consistent with New York principles of due process and, as a result, qualify to be recognized/registered in New York for enforcement purposes.
Unless the trust is a party to a divorce agreement and has assumed contractual obligations, direct orders from the court to the trustee would not necessarily be issued as part of New York divorce proceedings. Orders would be issued against the parties, who may be imputed with financial resources deriving from trust assets.
Enforcing a foreign order directing a trustee who is not a party to the foreign action to perform certain steps may prove problematic. However, it is possible to have a foreign order recognized and enforced in New York against the spouse beneficiary who maintains legal obligations to utilize their resources to satisfy the foreign order. New York courts recognize and enforce foreign orders against a spouse under the principle of comity, provided certain conditions are met. See, for example, S.B. v. W.A., 38 Misc.3d 780 (Sup. Ct., Westchester Co. 2012); in the case of support, foreign orders are enforced pursuant to the Uniform Interstate Family Support Act, which applies to other U.S. states/territories and foreign jurisdictions.
See above, Section 1.2, with respect to the remedies against a spouse who fails to comply with a court order, either domestic or foreign. The court may employ multiple financial remedies against a non-compliant party but may also commit the obligor to a prison term upon a finding of contempt of a support or other court order.
To the extent a trustee/trust officer fails to comply with a New York subpoena or properly served enforcement mechanism designed to restrain or capture the obligor’s resources to satisfy a judgment, there may be penalties involved, including the payment of a fine and potential warrant, in the event of non-compliance.
PNAs are enforceable in New York and the position is generally the same if the PNA is a foreign agreement, provided the agreement is valid and enforceable in the foreign jurisdiction.
For a PNA to be enforceable on divorce, if it is a New York Agreement, the agreement must be acknowledged or proved in the manner for a deed to be recorded pursuant to New York’s Real Property Law.
New York agreements may cover a wide range of issues, inclusive of a party’s obligations upon divorce and upon death, as well as issues related to security for such financial obligations (e.g., life insurance, the establishment of trusts, testamentary provisions).
Most of the time PNAs cannot deal with financial claims regarding children, except when the parties enter into a postnuptial agreement where children already exist, and the necessary statutory language and calculations are included in the agreement. Even in this circumstance, the postnuptial agreement terms as to child support are subject to the court’s approval and potential modification, especially where the agreement is distant in time to the divorce proceedings.
In New York, the media widely reports on notable family law cases.
Parties in family law proceedings — and/or children, trustees, settlors and beneficiaries (irrespective of whether they are parties) — can be identified by the media, provided there is no court order restricting access.
Members of the media can physically attend court hearings — and/or attend remotely by video link — and report on matters raised orally at those court hearings, provided there is no court order restricting access.
Access to documents, such as court filings in divorce and other family law-related matters, is restricted to the court, the parties and their attorneys of record.
Although documents are not available for review by the public, the fact that a divorce action has been filed and the county clerk’s notations regarding the filing of motions and scheduling of court dates are widely accessible.
The parties may apply for an “Anonymous” caption, on motion to the court. The court anonymizes family matters in other ways, especially child-related, by adopting initials rather than full names, in the action’s caption (e.g., if the decision is published).
Cameras or recording devices are permitted to accompany their owner into the courtroom, but the court will instruct that no images or recordings are to be taken.
New York courtrooms are generally open to the public. However, pursuant to DRL 235(2):
“If the evidence on the trial of such an action or proceeding be such that the public interest requires that the examination of the witnesses should not be public, the court or referee may exclude all persons from the room except the parties to the action and their counsel, and in such case may order the evidence, when filed with the clerk, sealed up, to be exhibited only to the parties to the action or proceeding or someone interest, on order of the court.”
In evaluating the above, courts often take into account whether an open courtroom will adversely impact children. Even if the courtroom remains open for the media to observe proceedings, the media would not be permitted, in a family law matter, to access filed documents.