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Florida District Court of Appeal Upholds Order of Continuing Garnishment of Trust Distributions by an Ex-Spouse with a Support Order

Berlinger v. Casselberry (Case no. 2D12-6470. Fla. 2d DCA Nov. 27, 2013) 

In a case of bad facts for the beneficiary of purely discretionary irrevocable trusts, the Florida Second District Court of Appeal held that the trial court acted within its authority in granting continuing writs of garnishment against the trustees of such trusts for the benefit of a spouse who defaulted in his alimony obligations to his ex-spouse.

As background, after 30 years of marriage, Bruce Berlinger ("Berlinger") and Roberta Sue Casselberry ("Casselberry") divorced in 2007. Pursuant to the parties' divorce agreement, Berlinger agreed to pay Casselberry $16,000 per month in permanent alimony. Shortly thereafter, Berlinger remarried and he and his new spouse supported their lifestyle with discretionary distributions from Irrevocable Trusts for his benefit (the "Berlinger Discretionary Trusts"). The Berlinger Discretionary Trusts provided for distributions to Berlinger in the absolute discretion of the trustees, and contained a spendthrift clause prohibiting attachment of Berlinger's interest in the Trusts by his creditors.

In May, 2011, Berlinger stopped making alimony payments to Casselberry. In July 2011, Berlinger transferred his two-thirds interest in real property (including his home) to an irrevocable trust, but denied doing so in a subsequent deposition.

In September 2011, in lieu of making distributions directly to Berlinger, he instead received a credit card from the corporate co-trustee of the Berlinger Discretionary Trusts, to be used for payment of expenses including travel, entertainment, clothing, medical expenses, grooming, gifts and his current wife's credit card bills. The credit card bills were paid directly from the Berlinger Discretionary Trusts.

Casselberry filed a motion for writ of garnishment against the trustees of the Berlinger Discretionary Trusts, which was granted by the trial court. The order provided that all distributions made directly or indirectly to, on behalf of, or for the benefit of Berlinger by the trustees of the Berlinger Discretionary Trusts would be made payable to Casselberry unless, at the time of any future distributions, there was no alimony or alimony arrears owed. In addition, if the trustee of a Berlinger Discretionary Trust, after satisfying outstanding alimony amounts, wanted to make a distribution to Berlinger, it would require court approval to ensure there remained sufficient assets in the Berlinger Discretionary Trusts to secure continued payment of alimony. Berlinger appealed the trial court's order to the Second District Court of Appeal.

In his appeal, Berlinger argued that Section 736.0504 of the Florida Trust Code specifically prohibited Casselberry from attaching distributions made to or for the benefit of Berlinger from the Berlinger Discretionary Trusts. The District Court of Appeal disagreed, holding that the Florida Supreme Court's decision in Bacardi v. White, 463 So. 2d 218 (Fla. 1985), was controlling and that the Florida Trust Code enacted in 2006 was a codification of theBacardi holding.

In Bacardi, the Florida Supreme Court held that with respect to spendthrift trusts that were not purely discretionary (i.e., trusts which mandate distributions to the beneficiary), a spouse or former spouse with a judgment in the form of support could seek a court order to obtain distributions otherwise payable to the intended beneficiary. For discretionary Trusts, where no present distributions were required, the Bacardi Court held that a court could not direct distributions to be made, however, if trustee of a discretionary trust decided to make a distribution to the intended beneficiary then such beneficiary's former spouse with a judgment for support could petition the court to obtain a continuing garnishment. Therefore, if the Trustee wants to make a distribution to or for the benefit of the beneficiary, the former spouse holding a judgment could intercept the proposed distributions before they reach the intended beneficiary.

Berlinger argued that the Florida Trust Code, enacted in 2006, provided greater protection to beneficiaries of spendthrift trusts with a discretionary distribution standard than under the Bacardi ruling. Specifically, Section 736.0503 of the Florida Trust Code provides, in relevant part, as follows:

"(2) To the extent provided in subsection (3), a spendthrift provision is unenforceable against:

(a)  A beneficiary's child, spouse, or former spouse who has a judgment or court order against the beneficiary for support or maintenance…."

Section 736.0504 of the Florida Trust Code provides, in relevant part, as follows:

"(1) As used in this section, the term "discretionary distribution" means a distribution that is subject to the trustee's discretion whether or not the discretion is expressed in the form of a standard of distribution and whether or not the trustee has abused the discretion.

(2)  Whether or not a trust contains a spendthrift provision, if a trustee may make discretionary distributions to or for the benefit of a beneficiary, a creditor of the beneficiary, including a creditor as described in s.736.0503(2), may not:

(a)  Compel a distribution that is subject to the trustee's discretion; or

(b)  Attach or otherwise reach the interest, if any, which the beneficiary might have as a result of the trustee's authority to make discretionary distributions to or for the benefit of the beneficiary…." (emphasis added.)

Berlinger argued that Section 736.0504(2) provided greater protection to the Trustee than the Bacardi Court, as a former spouse creditor under Section 736.0503(2) is specifically precluded under Section 736.0504(2)(b) from attaching or otherwise reaching the interest of the beneficiary.

The Berlinger Court disagreed, stating that Florida Trust Code Sections 736.0503 and 736.0504 "codify the Florida Supreme Court's holding in Bacardi. Neither section protects a discretionary trust from garnishment by a former spouse with a valid order of support…."

In summary, it is important to exercise caution when explaining to clients the protection provided to beneficiaries of Florida spendthrift discretionary trusts with respect to support obligations to former spouses.

© 2021 Proskauer Rose LLP. National Law Review, Volume IV, Number 77
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About this Author

Albert W Gortz, Proskauer Rose Law Firm, Personal Planning Attorney
Partner

Albert W. Gortz is a Partner in the Personal Planning Department and has been with the firm since 1970 and in the Florida office since he opened it in 1977.

561-995-4700
George D Karibjanian, Proskauer Rose Law Firm, Personal Planning Attorney
Senior Counsel

George D. Karibjanian is a Senior Counsel in the Personal Planning Department, resident in the Boca Raton office. George is Board Certified by the Florida Bar in Wills, Trusts & Estates and is a Fellow in the American College of Trust and Estate Counsel.

561-995-4780
David Pratt, Personal Planning Attorney, Proskauer Rose Law Firm,
Partner

David Pratt is a Partner in the Personal Planning Department and head of the Boca Raton office. His practice is dedicated exclusively to the areas of trusts and estates, estate, gift and generation-skipping transfer, fiduciary and individual income taxation and fiduciary litigation. He has extensive experience in estate planning and post-mortem tax planning. He has been asked to serve as an expert witness on several occasions, and has been referred to as a “seasoned trusts and estates lawyer” in a Florida Third District Court of Appeals Opinion

561-995-4777
Mitchell M Gaswirth, Proskauer Rose Law Firm, Tax Attorney
Partner

Mitchell M. Gaswirth is a Partner in the Tax Department. His practice focuses primarily on income, gift and estate tax and related business planning. Mitchell counsels individuals, entrepreneurs and business entities in connection with the various income and other tax issues which arise in sophisticated business transactions.

310-284-5693
Andrew M Katzenstein, Proskauer Law Firm, Personal Planning Attorney
Partner

Andrew M. Katzenstein is a Partner in the Personal Planning Department in the Los Angeles office where he assists high net worth individuals, companies and charitable organizations with all aspects of tax and estate planning. He focuses his practice on tax planning matters, which include estate, gift and generation-skipping tax planning, as well as income tax of trust planning, probate and trust administration matters, resolving disputes between fiduciaries and beneficiaries, and charitable planning

310-284-4553
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