The North Carolina Supreme Court recently issued a ruling concerning the treatment of revocable trusts in equitable distribution proceedings. This decision came in the case of Kathleen K. Face v. S. Allen Face, filed under docket number 333PA24. The court's ruling clarified that a revocable trust does not need to be joined as a party in a divorce-related property division case if all settlors of the trust are already named parties in the case.
This ruling is significant for individuals going through divorce proceedings involving trusts, as it simplifies the legal process and reduces the number of parties involved in such cases. The decision impacts how courts handle property distribution when trusts are involved, potentially streamlining future cases.
Background
Kathleen K. Face and S. Allen Face were married on May 11, 2007, and separated on July 17, 2014. They finalized their divorce on November 9, 2015. During their marriage, they created a revocable trust known as the S. Allen Face, III and Kathleen K. Face Revocable Trust, which held three properties. The couple served as co-trustees and sole beneficiaries of the trust.
After their separation, both parties sought equitable distribution of their marital property, which included the properties held in the trust. They agreed in a pretrial order that the properties were marital assets and stipulated that the trust was correctly designated in the proceedings. However, after the trial court issued its equitable distribution order, Allen Face appealed, claiming that the trust should have been joined as a necessary party under Rule 19 of the North Carolina Rules of Civil Procedure.
The trial court denied Allen Face's motion to set aside the orders related to the equitable distribution, leading to an appeal to the North Carolina Court of Appeals. The appellate court affirmed the trial court's decision, leading Allen Face to seek discretionary review from the North Carolina Supreme Court.
The Ruling
The North Carolina Supreme Court, led by Justice Tamara Barringer, ruled that a revocable trust does not need to be joined in an equitable distribution proceeding when all settlors are named parties. The court stated, "A judgment against the settlors concerning property held in a revocable trust will effectively bind the revocable trust without interfering with anyone else’s rights." This ruling modifies and affirms the judgment of the Court of Appeals.
The court clarified that the failure to join a necessary party under Rule 19 does not deprive the court of subject matter jurisdiction. The court emphasized that the settlors of a revocable trust retain complete control over the trust's assets, blurring the lines between the trust's property and the settlors' personal property.
Impact
This ruling has significant implications for future divorce proceedings involving revocable trusts in North Carolina. It establishes that as long as all settlors of a revocable trust are parties to the case, the trust itself does not need to be joined, which simplifies the legal process. This decision may encourage parties in similar situations to resolve their disputes without the added complexity of involving trusts as separate parties.
The ruling may also influence how attorneys approach divorce cases involving trusts, as they can now focus on the parties involved rather than the trust itself. This could lead to more efficient resolutions in equitable distribution cases, ultimately benefiting individuals navigating the divorce process.
What's Next
While this ruling clarifies the treatment of revocable trusts in equitable distribution cases, it is possible that the decision could be appealed or challenged in future cases. However, details regarding any related pending cases were not available in the court filing.