Dahl v. Dahl
345 P.3d 566, 2015 WL 404521, 2015 UT 23 (2015)
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Rule of Law:
Under Utah law, a trust that purports to be irrevocable is nevertheless revocable if the settlor reserves an unrestricted power to amend its terms. Furthermore, Utah's strong public policy in favor of the equitable distribution of marital assets may override a trust's choice-of-law provision when necessary to divide marital property contained within the trust.
Facts:
- Dr. Charles Dahl and Ms. Kim Dahl were married for nearly eighteen years, during which Ms. Dahl was the primary caregiver for their two children and did not work outside the home.
- Dr. Dahl established "The Dahl Family Irrevocable Trust," naming himself as the settlor.
- The trust agreement contained a provision stating, "The Trust hereby established is irrevocable," but also stated, "Settlor reserves any power whatsoever to alter or amend any of the terms or provisions hereof."
- The trust agreement included a choice-of-law provision designating Nevada law as governing.
- Ms. Dahl conveyed her interest in marital property, including the marital home and assets valued at over $2 million, to the Trust.
- Ms. Dahl was not a signatory to the trust agreement and was not named as a settlor.
- Ms. Dahl's status as a beneficiary of the Trust was contingent on her remaining Dr. Dahl's spouse.
- Dr. Dahl filed for divorce from Ms. Dahl on October 24, 2006.
Procedural Posture:
- Dr. Dahl filed for divorce from Ms. Dahl in Utah district court.
- During the contentious divorce proceedings, Ms. Dahl filed a separate lawsuit in district court against the Dahl Family Irrevocable Trust, seeking a declaratory judgment that its assets were marital property.
- In the divorce action, the district court refused to join the Trust as a party or consider its assets for equitable distribution.
- The divorce court entered a final Decree of Divorce, which denied Ms. Dahl's requests for temporary and permanent alimony and attorney fees.
- In the separate trust action, the district court granted summary judgment in favor of the Trust, ruling that the trust was irrevocable and Ms. Dahl had no enforceable interest in its assets.
- Ms. Dahl filed separate appeals from the final orders in both the divorce action and the trust action to the Utah Court of Appeals.
- The Utah Court of Appeals certified both appeals to the Utah Supreme Court.
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Issue:
Does a trust instrument that states it is irrevocable but reserves an unrestricted power for the settlor to amend any of its provisions render the trust revocable under Utah law, thereby allowing a spouse who contributed marital assets to be considered a settlor with the right to revoke her portion for equitable distribution in a divorce?
Opinions:
Majority - Justice Parrish
Yes, a trust that purports to be irrevocable but reserves an unrestricted power to amend is revocable under Utah law, and a spouse who contributed marital assets has the rights of a settlor to reclaim those assets. The court first declined to enforce the trust's Nevada choice-of-law provision, reasoning that Utah's strong public policy in favor of the equitable distribution of marital property would be undermined if the provision were used to shield marital assets from division. Applying Utah law, the court held that an unrestricted power to amend a trust includes the power to revoke it, rendering the Dahl Family Trust revocable despite its title and language to the contrary. Citing the Utah Uniform Trust Code, which defines a 'settlor' as a person who contributes property to a trust, the court concluded that Ms. Dahl was a settlor of the portion of the trust attributable to her contributions. As a settlor of a revocable trust, she has a statutory right to revoke the trust with regard to the marital property she contributed.
Dissenting - Justice Durham
No, the dissent does not disagree with the majority's trust law holding but argues the district court abused its discretion in denying permanent alimony. The dissenting justice agreed with most of the majority's comprehensive opinion but disagreed with the affirmance of the denial of permanent alimony to Ms. Dahl. The dissent argued that even though Ms. Dahl's counsel performed poorly and her financial claims were exaggerated and undocumented, the trial court should have imputed basic living expenses for her. Given the parties' wealthy lifestyle, Dr. Dahl's high earning capacity, and Ms. Dahl's lack of recent employment, the dissent believed the denial of any alimony award created a substantial inequity, contrary to the policy of maintaining the marital standard of living where possible. The dissent also argued the trial court applied the wrong legal standard by treating proof of 'need' as a mandatory prerequisite for alimony, rather than as one of several factors to consider.
Analysis:
This decision significantly clarifies the intersection of trust and family law in Utah, establishing that the state's public policy on equitable marital distribution can override a trust's choice-of-law provision. By ruling that an unrestricted power to amend includes the power to revoke, the court prioritizes substance over form, preventing settlors from creating functionally revocable trusts under the guise of irrevocability. Most importantly, the holding broadens the definition of 'settlor' to include anyone who contributes property, providing a critical tool for divorcing spouses to reclaim marital assets placed in a trust by the other spouse, thereby preventing such trusts from being used as a shield against equitable distribution.
