The Asset That Was Never Theirs.

It is an uncomfortable subject, which is why it is so often left out of the planning conversation. But a divorce court is a court of division, and it works with a defined pool called the marital estate. Whether a family trust interest falls inside that pool or outside it is frequently the single largest number in the case. And unlike a creditor claim, this one arrives without warning, without a demand letter, and without any opportunity to improve the structure first.

A New Hampshire decision — In the Matter of Jonathan Merrill and Lea Merrill, No. 2020-0009 (N.H., opinion issued 20 Apr. 2021) (Hantz Marconi, J.; Hicks and Bassett, JJ., concurring), on appeal from the 7th Circuit Court–Rochester Family Division, reported at 174 N.H. 195, 261 A.3d 300 — is a compact demonstration of how that question gets answered, and of how much rides on words written into a trust instrument years before the marriage was in trouble. The case is not recent, and it broke no new doctrinal ground. It is worth reading anyway, because it shows the mechanism working end to end: a trial court that got it wrong, a statute that was clear, and a beneficiary who kept roughly $292,000 of family business value out of a marital estate on a point he had not even raised in time.

Jonathan and Lea Merrill married in February 2005. He worked at George Merrill & Son, the family’s excavation business, and at KEM Realty, the family’s horse farm. His interests were layered: he owned 24.5 percent of the excavation business outright, owned 23.75 percent of the realty company, and was the beneficiary of the JGM 2012 Trust, which held a further 20.5 percent of the excavation business. Merrill, slip op. at 1.

That third layer is the one that matters. The same underlying enterprise reached him through two entirely different legal channels — one as owner, one as beneficiary — and the divorce court treated them identically.

He petitioned for divorce in June 2017. After a lengthy trial the Circuit Court issued a final decree on 11 November 2019 that swept the shares held by the JGM 2012 Trust into the marital estate alongside the shares he owned personally, and ordered him to pay his former spouse $286,165.50 to equalise the division, plus $3,524 a month in alimony for eight years. Id., slip op. at 2.

New Hampshire’s definition of marital property is broad by design. It reaches “all tangible and intangible property and assets … whether title to the property is held in the name of either or both parties.” Id., slip op. at 2, quoting In the Matter of Cohen & Richards, 172 N.H. 78, 84 (2019); see also RSA 458:16-a, I (2018). On that language alone, a trust interest looks capturable — and trial courts across many jurisdictions have reasoned exactly that way.

But New Hampshire had legislated on the point. RSA 564-B:5-502(e)(1) (2019) provides that “[t]o the extent that a beneficiary’s interest in a trust is subject to a spendthrift provision, the beneficiary’s interest is not [marital] property for purposes of RSA 458:16-a, I.”

That is not a balancing test. It is not a factor for the court to weigh against the length of the marriage or the needs of the parties. It is a categorical exclusion from the pool. The Supreme Court’s own summary was four words longer than it needed to be: “RSA 564-B:5-502 is clear: a beneficiary’s interest in a trust that is subject to a spendthrift provision is not marital property.” Id., slip op. at 4.

The threshold question, then, is not whether the interest is valuable, or whether the beneficiary can expect to receive it. It is only whether the trust carries a valid spendthrift provision.

Under the statute, a trust is subject to a spendthrift provision “only if it restrains both voluntary and involuntary transfers of a beneficiary’s interest.” RSA 564-B:5-502(a) (2019), quoted at id., slip op. at 4. Both. A clause that stops creditors but leaves the beneficiary free to assign is not enough, and neither is the reverse.

The JGM 2012 Trust said this:

The former spouse argued this fell short of the statutory standard because it did not in terms prohibit a transfer by the beneficiary. The court disagreed, and its parsing is instructive. The first half — freedom from “interference or control by any creditor or spouse (or divorced former spouse)” — restrains involuntary transfers. The second half — that the interest “shall not be capable of anticipation or assignment by the beneficiary” — restrains voluntary ones. Both boxes ticked; valid spendthrift trust; interest outside the marital estate. Id., slip op. at 4.

Two details in that clause deserve a planner’s attention. It names the spouse and the divorced former spouse expressly, rather than relying on the general word “creditor” to carry a divorce claim. And it reaches not merely the beneficiary’s interest but “all payments of income or principal to be made to or for any beneficiary.” Neither was strictly necessary to satisfy the statute. Both made the argument shorter than it would otherwise have been.

Here is the part that should make every planner slightly uncomfortable.

The beneficiary raised the spendthrift point for the first time in his second motion for reconsideration, having had at least three earlier opportunities to make it. His former spouse argued, entirely reasonably, that the issue was not preserved for appeal. Id., slip op. at 3.

The Supreme Court sidestepped preservation altogether and reversed under the plain error rule — a doctrine it applies “sparingly and only in circumstances in which a miscarriage of justice would otherwise result,” requiring an error that is plain, that affects substantial rights, and that seriously affects the fairness, integrity, or public reputation of judicial proceedings. Id., slip op. at 3, citing State v. Russell, 159 N.H. 475, 493 (2009), and Stachulski v. Apple New England, LLC, 171 N.H. 158, 171 (2018). All four prongs were met: the statute was clear, and the trial court’s error “erroneously increased the value of the marital estate by nearly $292,000.” Id., slip op. at 4.

The consequences cascaded. The court reversed the inclusion of the trust assets, and because property and alimony are statutorily linked, it vacated the property award, the alimony award, and the incorporation of the temporary order into the final decree, remanding the whole exercise. Id., slip op. at 5–6, citing RSA 458:16-a, II and RSA 458:19, IV(b) (2018).

So the structure held. But notice what held it: not the beneficiary’s advocacy, which was late, and not the trial judge, who got it wrong. What held was the document — a spendthrift clause drafted in 2012, five years before the divorce petition, by a settlor who was not a party to any of this. The instrument was so plainly correct that an appellate court reached past its own procedural rules to give it effect.

That is the argument for doing the work properly, stated about as forcefully as a court can state it. A structure that is right on its face survives its owner’s mistakes. A structure that needs skilled advocacy to save it will eventually meet a day when the advocacy is late.

Merrill involved a trust settled for the beneficiary by his family — not one he settled for himself. That distinction runs underneath everything above, and it is the recurring theme of these notes.

A third-party trust works because the beneficiary never owned the property. There is no transfer to attack, no timing to interrogate, no question of intent to hinder or delay anyone. The interest was never his to bring into the marriage. Contrast the position of a person who, sensing a marriage failing, moves assets into a trust for his own benefit: he has not removed the asset from the estate, he has created a documented act with a date on it, sitting in the middle of the dispute — precisely the fact pattern that produces findings of intent rather than findings of protection.

The same three properties we look for everywhere are what made this structure work:

• Seasoned. Settled in 2012; divorce petition in 2017. The trust long predated the trouble, so its purpose was never in question.
• Not self-settled. The family, not the beneficiary, put the shares in. He held a beneficial interest, not a repackaged ownership interest.
• Genuinely restrictive. The clause actually restrained both voluntary and involuntary transfer, which is what the statute demanded. A decorative spendthrift recital would have failed the test.

Jurisdiction decides the question, and jurisdictions differ sharply. New Hampshire has legislated a categorical exclusion. Many states have not, and treat a beneficial interest as a factor in equitable division, or distinguish between mandatory and discretionary interests, or look to whether distributions were actually received during the marriage. The result in Merrill is a result under RSA 564-B, not a general rule of American law. Where the family sits, where the trust sits, and which law governs the beneficiary’s interest are questions to settle deliberately.

Draft the clause to the statute, not from a form. The statutory test was specific: both voluntary and involuntary transfers. A clause copied from a precedent bank may satisfy that test, or may protect against creditors while leaving assignment untouched. It costs nothing to check it against the governing standard; it costs a great deal to discover the gap in a contested hearing.

Name the risk you actually mean. The Merrill clause named spouses and divorced former spouses. Where a settlor’s real concern is a child’s marriage, saying so plainly removes an argument.

Keep the trust’s affairs distinct. Merrill was clean partly because there was a real trust holding a real interest, administered as such. Where a beneficiary treats trust property as personal property — drawing on it freely, controlling it in substance — the categorical protection begins to look less categorical, whatever the instrument says.

The conversation belongs one generation up. By the time a child’s marriage is in difficulty, the planning window has closed. Nothing done at that point improves the position, and most things done at that point make it worse. The trust that protected Jonathan Merrill was created by his family before anyone knew it would be needed. That is the only time it can be created.

Merrill is a small case about an excavation business in New Hampshire, and it will never be famous. But it captures the mechanism exactly: a divorce court reached for roughly $292,000 of family business value, and a statute plus a well-drafted clause put it back — over a preservation objection the beneficiary should have lost.

The instrument did the work. It did it years after it was signed, in a proceeding its settlor never contemplated, for a beneficiary who raised the point too late. That is what a properly built structure is for. It is not a clever argument deployed in a crisis; it is a decision made on an ordinary day, in ordinary language, that turns out to be unanswerable when it finally matters.

The families who are protected in their children’s divorces are the ones who thought about it before there was anything to protect against.

This note is general commentary on a published decision and is not legal advice for any particular person, trust, or marriage. Whether a beneficial interest falls inside or outside a marital estate turns on the governing jurisdiction, the terms of the instrument, and the facts. Anyone with a live question should take advice on their own structure.