October 1, 2014
Authored by: Luke Lantta
Trusts often lurk in the background of divorces. Sometimes they take center stage. But trusts can cast a wide net, and the trust instrument and financial details concerning the trust may reveal private financial information about persons other than the divorcing spouses. Why should a likely aggrieved and antagonistic soon-to-be ex-spouse get the whole thing? If challenged, they probably shouldn’t. That’s what a California appellate court decided in In re Marriage of Williamson.
The husband was blessed by birth to be born into a wealthy family. Consequently, he was a beneficiary of a trust that was, in turn, one of a dozen and a half sub-trusts under another trust. He received annual income from the one trust, but was not a beneficiary of any other trust or sub-trust. The wife served subpoenas requesting documents from the various family trusts. The husband sought a protective order as to the family trusts, except for the one trust for which he was a beneficiary. Further, the husband sought to only disclose information about that trust that related to his interest. The trial court granted the protective order and limited discovery concerning the one trust to: (1) checks paid to the husband, (2) the husband’s income statements and tax returns, and (3) those express terms of the trust that allocate income to the husband and define his interest in the trust. All other information concerning third parties who were beneficiaries, contingent beneficiaries, and the assets of the trust were to be redacted to prevent disclosure.
The appellate court agreed with the scope of this protective order. Now, California has a state constitutional right to privacy, but the court’s decision was rooted in basic discovery parameters. Discovery in California, like many jurisdictions, may be limited when the intrusiveness of the request outweighs the likelihood that the information sought will lead to the discovery of admissible evidence. Private financial information of third parties is worthy of some protection in discovery.
Third parties with interests in trusts that are dragged into litigation may want to consider being proactive in protecting their rights. Likewise, trustees that receive subpoenas to produce trust information that concerns the rights of non-litigants may want to consider (1) providing notice to those third parties and an opportunity for the third parties to object to the discovery requests or (2) seeking protection from the discovery requests.