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Hidden Inherited Property- Offshore Trust
© 2003 National Legal Research Group, Inc.
WYOMING: Breitenstine v. Breitenstine, 62 P.3d 587 (Wyo. 2003).
Where the husband hid substantial assets in an offshore trust shortly before the divorce, and the wife relocated with the husband to the Bahamas to carry out his plan to reduce taxes, the trial court properly divided the husband's inherited property.
During the marriage, the husband received substantial gifts and inheritances from his parents. The husband was given 21% of the stock in his family's business early in the marriage. When that business was sold, he received a portion of the sale proceeds which corresponded to his proportionate ownership interest. However, as was contemplated by the parties when structuring the sale of the business, the husband received shortly thereafter equal gifts of $1.9 million from both his father and his mother. These funds were deposited into a joint account to which both the husband and the wife had access. The funds were commingled with other marital assets, and the couple lived off these funds and the income generated by investments purchased with funds from these commingled accounts. The parties moved for a time to the Bahamas as the husband wished to minimize taxes. They returned to Wyoming, where they renovated a home utilizing $2.2 million in funds from the joint account.
The parties first separated but reconciled in March 1995. Later in that same year, the husband received another sum of money from his mother, approximately $4 million, which by stipulation of the parties was considered as an inheritance from his father's estate. The husband thereafter created a family trust into which he transferred these funds as well as a substantial portion of other marital assets. This trust was maintained offshore in the Bahamas as well. The parties separated a second time in 1996 but again reconciled. In 1997, the parties separated for the final time. During the period between the creation of the family trust and the hearing for a division of the marital property in 2001, the husband continued to transfer assets into the family trust.
In dividing the parties' assets, the district court made the finding that the marital estate consisted of at least $8,764,673, made up almost entirely of gifts from the husband's parents. It awarded one-half of the marital estate to the wife. The husband alleged error, arguing that the court failed to consider that he was the party through whom the property was acquired, see Wyo. Stat. Ann. 20-2-114, and that, under Wyoming law, property inherited or gifted to one spouse is awarded to the spouse who received it.
The Wyoming Supreme Court rejected this argument. It declared that a reading of the statute indicated that the party through whom the property was acquired was one of the multiple factors the trial court considered in determining an appropriate division of property. While property inherited by one party can be awarded to the party by whom it was inherited or to whom it was given, it need not always be awarded to the spouse who received it.
On the facts, the supreme court first noted that although the husband was able to account for approximately $11 million of income into the marital estate, he could only show $3.5 million in disbursements. The district court was free, therefore, to conclude that the husband still controlled the remaining unaccounted-for assets and could take that into account in dividing the marital estate. It also considered the wife's contributions to the value of the marital assets since she relocated to the Bahamas with her husband so that he could reduce tax consequences, which limited her ability to return to the United States. This was a sacrifice on her part in that it impacted upon her relationship with family and friends and required that home schooling of their children be undertaken. Moreover, noted the court, the parties had few assets that were not gifts or inheritances from the husband's parents or were not purchased with such gifted assets. If such assets were not divided, the wife, who was granted custody of the children, would have had little and the husband would have enjoyed his considerable wealth. Considering all of these factors, the district court's decision to divide the marital estate was not an abuse of discretion.
The husband also argued that the district court's order of distribution of marital assets which included inherited assets was intended to punish him. Under Wyoming law, the court may consider fault, but not with the intent to punish one of the parties. The appellate court found sufficient evidence in the record to support the conclusion that the family trust was an offshore asset protection trust (OAPT) which, despite the mechanism of a trust and beneficiaries (the parties' children), was, in reality, a means by which the husband maintained effective control over the principal and income during the term of the trust, and could claim the assets free of the trust at its expiration in 2005. Given the timing of the creation of the trust (close to the time the parties became separated), its establishment in an offshore financial institution, and the terms of the trust instrument, the court found sufficient badges of fraud to warrant its conclusion that it was an OAPT designed to thwart creditors, including the wife. The court held that, for all practical purposes, the husband had given the assets to himself with the benefit of a spendthrift provision. While the court declined to discuss the legitimacy of OAPTs in general, it did comment that the use of such trusts to avoid alimony, child support, and a fair division of marital property upon divorce was reprehensible. According to the supreme court, therefore, the consideration by the district court of the family trust as a means of asset protection was reasonable and did not display a prohibited intent to punish the husband in its equitable division order.
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