The Connecticut Supreme Court has ruled in a precedential case that trust assets can be withdrawn and stored elsewhere while the beneficiary is in the midst of divorce proceedings.

The dispute concerns a Massachusetts irrevocable trust established for Paul Ferri Jr. in 1983, when he was 18. The contents were distributed by its trustees and placed in a new trust without his knowledge in 2011 while his divorce from Nancy Powell-Ferri was pending. The first trust allowed Ferri to make limited withdrawals at certain intervals. The new trust allowed him to take out any amount at any time, subject to the discretion of the trustees, which included his brother.

Powell-Ferri claimed the trust was valued at $98 million, and requested $50 million of that. Ferri said the trust was valued at $80 million and the trustees put the figure at $69 million.

Superior Court Judge Lynda Munro ruled the withdrawal was improper and ordered 75 percent of the assets to be returned to the original trust. The trustees appealed that order, and the appeal remained pending during the divorce trial. Munro ruled that if the removal of funds was found to be invalid, Powell-Ferri was entitled to a lump sum of $12 million, in lieu of alimony. If the removal was upheld, she would be entitled to alimony of $25,000 per month.

Powell-Ferri appealed, arguing Ferri should have sued the trustees for return of the assets.

On appeal, the Connecticut Supreme Court certified questions of law to the Massachusetts Supreme Court because the 1983 trust was formed in that state. The Massachusetts court was asked whether the laws of that state allowed the contents of the 1983 trust to be distributed to the 2011 trust, and if not, how much of the funds should be returned to the 1983 trust. The Massachusetts court was also asked if a court, in considering whether a party who created the 1983 trust intended to permit distribution of the contents to another trust, should consider an affidavit from that party to establish what he intended when he set up the trust.

The Massachusetts court answered affirmatively to the first and third questions and did not answer the second question.

When the case returned to the Connecticut Supreme Court, Powell-Ferri claimed Ferri’s “acquiescence” in the trustee’s action was improper because that omission amounted to disposition of a marital asset.

The court found, however, that if a party is required to take affirmative action to recover marital assets in some circumstances, “this is not such a case. The Massachusetts Supreme Judicial Court held that the trustees were permitted to decant assets from the 1983 trust to the 2011 trust. The trustees, therefore, did not engage in any illegal activity and did not breach any conditions of the 1983 trust agreement. Powell-Ferri also did not establish that Ferri was aware of the creation of the 2011 trust before it occurred, let alone that he was somehow involved in the decanting of assets.”

A key factor in the Aug. 8 ruling was that the court concluded Ferri was unaware the trustees were shifting the assets to a different trust, said Carol Topol Orland of Broder & Orland. The trustees believed they were obligated under the terms of the trust to transfer the funds given that Ferri was in divorce proceedings, Orland said. The fact that Ferri rarely took money out of the 1983 trust to pay his living expenses was another factor in his favor, Orland said.

“It was really a landmark case because we haven’t seen this before—the wife was a creditor, in essence, and the court said the trustees of the original trust were right in protecting the trust’s assets from the creditor,” Orland said. “Now that we have this law, I can see it having application in the drafting of trusts; I can see it having an application once there’s divorce, if there’s about to be a divorce. It’s going to be interesting to see what our colleagues make of this.”

Orland represented Ferri. She was joined by Sarah Murray of her firm and Charles Ray of McCarter & English. Kenneth Bartschi and Karen Dowd of Horton, Dowd, Bartschi & Levesque represented Powell-Ferri. Bartschi was on vacation and Dowd did not respond to a request for comment.