South Dakota Supreme Court Protects Trusts from California Order
California resident Cleopatra Cameron was the beneficiary of trusts created under California law. In 2009, her husband, Christopher Pallanck, filed for divorce in California. As part of the divorce proceeding, the California Family Law court ordered the trusts to pay child and spousal support to Mr. Pallanck. The trusts, which were later moved to South Dakota, made payments for a time but eventually stopped.
Mr. Pallanck sued the trusts in South Dakota to enforce the California child support order against the trusts. The South Dakota circuit court found that forcing the trusts to make the payments was a method of enforcing the California order, which must be determined under South Dakota law, rather than California law. Based on the protective provisions of South Dakota trust law and the terms of the trusts, the circuit court held that the trusts were prohibited from making the distributions.
Mr. Pallanck appealed to the South Dakota Supreme Court, which held that, generally, the Full Faith and Credit Clause of the U.S. Constitution requires states to give full faith and credit to the orders of courts in other states. However, the South Dakota Supreme court ruled that providing full faith and credit to another state’s judgment “does not mean that States must adopt the practices of other States regarding the time, manner, and mechanisms for enforcing judgments. Enforcement measures do not travel with the sister state judgment as preclusive effects do; such measures remain subject to the evenhanded control of forum law.”
Accordingly, in this case, while the California order may have been valid, the enforcement of the order against trusts administered in South Dakota was to be decided under South Dakota law. Because the California Order was based on an enforcement provision pertaining to a beneficiary’s creditor, and South Dakota’s protective trust laws do not allow judgments against beneficiaries to be enforced directly against the assets of a trust, the California child support order would not be given full faith and credit.
This case illustrates one of the many benefits of establishing trusts in and moving trusts to South Dakota, namely, that creditors asserting claims against trusts administered in South Dakota are subject to the creditor protection and enforcement laws of South Dakota.
Ballard Spahr's Private Client Services Group handles sophisticated tax, gift, and estate planning; estate, trust, and foundation administration; and related planning matters. The Group's Sioux Falls-based attorneys represent private trust companies and advise on trust administration—particularly for trusts that have migrated to South Dakota from other jurisdictions.
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