On Sept. 6, the Fourth District Court of Appeal ruling in Pratt v. Ferguson (2016) 3 Cal.App.5th 102 (“Pratt”) gave more muscle to support orders, holding a trustee for the parent owing the support can’t arbitrarily withhold monies rom the trust estate. Specifically, the court found that a court may order payment of child support from the obligor’s share of a trust, regardless of any clause barring the trustee from making distributions subject to claims by the beneficiary’s creditors.
In this case, the trust contained a standard spendthrift clause, along with a “shutdown” clause, which read:
“All provisions for the payment of periodic installments of principal to any beneficiary shall become inoperative during any period when and to the extent that, if paid, they would become subject to the enforceable claims of creditors of the beneficiary.”
The court affirmed a 2004 holding of Division Six of the Second District Court of Appeal that, under Probate Code section 15305, subdivision (c), “A court may overcome the trustee’s discretion under the narrow circumstances present here: when there is an enforceable child support judgment that the trustee refuses to satisfy. Under these circumstances, the trial court may order the trustee to satisfy past due and ongoing support obligations directly from the trust.” (Pratt, supra, at p. 111, citing Ventura County Dept. of Child Support Services v. Brown (2004) 117 Cal.App.4th 114, 155.)
I anticipate that this ruling will have ripple effects far beyond cases that involve trusts and shutdown clauses, especially where the obligor uses other legal maneuvers (and not a spendthrift trust) to avoid paying support.
Pratt may lead to other courts in other matters ordering the trustee to satisfy other judgments, not just probate and family court judgments, as long as the judgments themselves are valid within the context of that particular case. For example, courts may order trusts be used to satisfy attorney fee, PI and malpractice judgments. The more “creative” judgment debtors become, the less tolerance the courts are likely to show.
What exactly is the significance of Pratt? California law requires courts adhere to statewide uniform guidelines in setting child support orders, which are based on the current income of both parents, or, under appropriate circumstances, imputed income of one or both parents.
Family Code section 3900 codifies the general obligation of both parents to support their minor children in the manner suitable to the children’s circumstances. This general obligation is also reflected in the legislature’s statement of intent that, in implementing the child support guideline, courts shall adhere to the principles that a parent’s first and principal obligation is tosupport their minor children according to the parent’s circumstances and station in life; and that both parents are mutually responsible for the support of their children. (Fam. Code, § 4053, subds. (a) & (b); see also Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2016) ¶ 6:137.)
Prior to Pratt, trustees commonly withheld distribution of income from a trust, or sometimes even the trust res itself, also known as the trust corpus. Such withholding may have occurred because the beneficiary exerted pressure on the trustee, in the case of a familial or familiar relationship between trustee and beneficiary; or because the trustee, in their discretion, did not feel support payments from the trust were warranted and felt the trustee’s duty is to preserve the trust solely for the benefit of the direct beneficiary.
Often, too, the settlor provided the trustee with authority to exercise their absolute discretion regarding claims for payment requested of the trust including, but not limited to, requests for the payment of past or even current ongoing child (and often spousal) support.
Section 15305 of the Probate Code changed California law. Code of Civil Procedure section 709.010 formerly included a provision giving the court discretion to divide periodic payments from a trust (including a spendthrift trust) between the beneficiary and the person(s) entitled to child or spousal support from the beneficiary. The amount that could be applied to child or spousal support was limited to the amount that could have been applied to child or spousal support on a like amount of earnings. This provision has been removed from Code of Civil Procedure section 709.010, leaving Probate Code section 15305 to govern.
In Pratt, David Pratt obtained final orders requiring his ex-wife to pay child support and expenses. Ex-wife is the beneficiary of a trust established by her grandparents.
Pratt filed a petition to compel the trustee of the trust at issue to satisfy the orders from ex-wife’s share of the trust estate. The trial court denied the petition based on the shutdown clause previously cited, finding it prohibited the trustee from making certain distributions if they would become subject to ex-wife’s creditors claims (the shutdown clause).
After considering Probate Code section 15305 and the legislative intent behind it as well as out-of-state cases, the appellate court opined a beneficiary should not enjoy their trust benefits to the detriment of their dependents. Finding the trial court’s failure to exercise discretion is itself an abuse of discretion, Pratt essentially held a trustee may not exercise their discretion to avoid trust distributions if improperly motivated to prevent the estate from being used to satisfy child support obligations.
Maya Shulman is principal of the Shulman Family Law Group of Calabasas, and is an expert in interstate and international divorce and custody cases and interstate adoptions. She can be reached at firstname.lastname@example.org.