Gavel resting on top of money

Section 2030 of California’s Family Code provides an important safeguard to ensure the fairness of marriage dissolution proceedings. It allows the Court to order a more financially well-off party to pay some or all of the other party’s attorney fees, beginning as early as the start of the proceedings. Section 2030 was enacted to put divorcing parties on equal footing.

The protections of Section 2030 extend beyond spouses: where a third party has been joined to a dissolution proceeding, the statute allows the court to order that third party to pay the attorney fees of one of the spouses to the extent such fees were incurred in connection with the third party. This provision furthers California’s public policy in favor of egalitarian dissolution proceedings.

But what happens when that public policy collides with California trust law?  Specifically, what occurs when one spouse is a beneficiary of a “spendthrift trust” designed to keep assets away from the beneficiary’s creditors? The California Court of Appeal’s recent decision in In re Marriage of Wendt (2021) ___ Cal.App.5th ___, addressed this question.

Trust Beneficiary’s Marriage Goes South

Elizabeth Wendt was the beneficiary of the Elizabeth Anne Wendt Trust, an irrevocable spendthrift trust created by her father in 1989.  Windham Bremer served as the trustee, and administered the trust exclusively in Indiana.  (Though there was some dispute over whether the Court should apply California or Indiana law, the Court of Appeal ultimately found no conflict between the two states’ laws as to the relevant issues.)

Wendt married Nicholas Pullen in 1997 and they had three children.  Wendt filed a petition for dissolution of the marriage in 2013, when the children were still minors.  Both child and spousal support were at issue in the dissolution proceedings, held in Nevada County Superior Court.

In January 2015, Wendt made a written request to trustee Bremer asking him to disburse trust funds in order for her to pay spousal and child support.  Bremer denied the request.

Just over a year later, Pullen filed a motion to join both the trust and Bremer to the dissolution proceedings.  The family court granted the motion.

Bremer fought the joinder, proverbially kicking and screaming.  He filed a motion to quash for lack of jurisdiction and/or to dismiss for forum non conveniens, which was denied.  He unsuccessfully petitioned the Court of Appeal for a writ of mandate challenging the denial.  Finally, he filed a demurrer to the joinder, which was overruled.

Pullen filed a request under Section 2030 for $76,141 from the trust to compensate him for the attorney fees and costs he expended in making his successful joinder motion.

The family court denied Pullen’s Section 2030 request, citing Ventura County Dept. of Child Support Services v. Brown (2004) 117 Cal.App.4th 144, for the proposition that Section 2030 fees could only be awarded from a spendthrift trust upon a finding of bad faith by the trustee.  Pullen appealed to the Third District Court of Appeal, based in Sacramento.

Court of Appeal Refuses to Infer Bad Faith Requirement

As a preliminary matter, the Court of Appeal disputed the family court’s interpretation of VenturaVentura dealt with Probate Code section 15305(c), which allows a court to compel the trustee of a spendthrift trust to pay the beneficiary’s child support obligations.

The trustee in Ventura attempted to subvert the statute by making no distributions at all.  The Ventura court, though recognizing that courts generally do not interfere with a trustee’s discretion in the absence of bad faith, referred to the trustee’s attempt to circumvent Section 15305 as an “improper motive” that justified ordering the trustee to pay child support.

The Court of Appeal found that Pullen’s Section 2030 request was a request for attorney fees, not a claim for child support, such that Ventura and Section 15305 were inapplicable.  Further, the Ventura court did not actually require a showing of trustee “bad faith.”

Construing California and Indiana law, the court observed that the “purpose of a spendthrift trust is to prevent dissipation of the trust’s assets by the beneficiary or the beneficiary’s creditors.”  The purpose is not undermined by requiring a trustee to pay debts arising out of the trust’s administration.  Hence, since the trustee unsuccessfully resisted joinder in the family law case, Pullen could rely on Section 2030 to seek his legal expenses from the trustee without any showing of bad faith.

The Court of Appeal remanded the matter to the family court to consider factual issues not yet addressed, leaving it to be determined whether Pullen would receive a Section 2030 fee award.

Takeaways

While parents may create spendthrift trusts to protect assets from their children’s failed marriages, the protection is not rock solid.

Marriage of Wendt should give trustees of spendthrift trusts reason to think long and hard about decisions they make in connection with dissolution proceedings.  Section 2030 only allows a court to order a third party to pay legal fees of divorcing spouses in connection with issues involving the third party.  By accepting joinder, trustees may minimize the fees they could be ordered to pay.

The decision also should make trustees of spendthrift trusts think twice about refusing to disburse funds to beneficiaries embroiled in dissolution proceedings.  Though the refusal may stem from a sensible desire to keep trust assets away from the hands of the soon-to-be-ex-spouse, the end result may be that the trustee gets pulled into the proceedings and winds up bearing both its legal expenses and those of the disgruntled spouse as well.