By Michael Lundy, Managing & Founding Partner of Older Lundy & Alvarez
After handling literally thousands of divorce cases, I am convinced more than ever that things rarely work out the way people plan for them to work out. In more than a few of my recent cases, I have seen this truism play out very dramatically in the context of people’s estate planning. It has been somewhat stunning to see how often people hire brilliant and very expensive estate planning attorneys to draw up magnificently complicated estate planning structures to avoid estate taxes, creditors and, at times, marital claims by spouses, and yet things play out very poorly for the so-called “planners” when they find themselves in divorce court. Indeed, this issue arose so many times that I insisted that my firm hire our own brilliant estate planning and tax attorneys to assist me in some of my divorce litigation (and, of course, to create “magnificently complicated” estate planning structures, when appropriate).
In a very recent case that we just settled, the husband previously hired some of the best accountants and estate planning attorneys in Tampa Bay to form a multitude of irrevocable trusts, LLCs, corporations and partnerships. Each of the trusts held one or more equity interests in one or more of the corporate entities. It was very clever and totally lawful tax avoidance estate planning. The husband also sought to use these structures to avoid his wife’s claims to tens of millions of dollars of what were very obviously marital assets. From the moment the husband took the position that the trusts owned the assets, he was absolutely certain, not to mention very pleased with himself, that his wife would not be able to touch his assets. As it turned out, however, this was an incorrect and absolutely disastrous approach for the husband.
First, obviously during a period of marital bliss, the husband named his wife as a beneficiary of several of the trusts. Second, the husband, wanting to maintain control of the assets during his life, named himself as the trustee of several trusts. What happens when a trustee is getting a divorce from his beneficiary? Answer: big problems.
Second, the husband had failed to pay any attention to his fiduciary duties during the lifetimes of the trusts. I guess he figured, why bother? No one was watching him when everything was blissful. He was just operating as he always had – with total control over the family’s wealth and without regard for formalities or legal duties. He had no evil intentions and was in fact doing a great job of stewarding his family’s assets. Then, he and his attorneys made what I believe was a very foolish decision to try to use these trusts as weapons in the divorce case. What happens when a trustee has failed to abide by trust laws and his beneficiary is mad at him? Answer: bigger problems.
This divorce case turned into two cases – a divorce case and a separate lawsuit over the trusts that was a true back-breaker. After the husband was served with the trust lawsuit, it didn’t take him very long to recognize that he stepped into a pile of something terrible. The case settled almost immediately after that and this particular husband was fortunate that his wife was a fair-minded person in the end.
Moral of the story? Well, there is more than one.
- If you form trusts or corporate entities, don’t just wing it. Get good legal advice early and often.
- Don’t let greed or pride get the best of you in a divorce case. I have been on both sides of this issue and the truly fair person always comes out ahead.
- If your trust is mixing with your divorce, or if ever it may, hire a law firm that understands it all.
Michael Lundy has been practicing law since 1999, when he began his career in the area of complex civil litigation. In 2001, he was hired by Alston & Bird LLP, where he worked in both the Atlanta and New York offices in the areas of public and private securities transactions, mergers and acquisitions and general corporate law. In 2003, he founded Older, Lundy & Alvarez with Ben Older and the firm has seen extraordinary growth ever since. Currently, Lundy practices almost exclusively in the area of Marital and Family Law.
