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    Family Law Legal Research Blog

    FAMILY LAW: Enforcing a Child Support Obligation Through Constructive Trust

    Posted by Sandra L. Thomas on Tue, Oct 4, 2016 @ 13:10 PM

    The Lawletter Vol 41 No 8

    Sandra Thomas, Senior Attorney, National Legal Research Group

          The Supreme Court of Montana imposed a constructive trust on $2.3 million of proceeds of two insurance policies in a case in which the husband ("Husband") in a divorce proceeding changed the beneficiaries on the policies in violation of a restraining order issued by the court while the divorce was pending. Volk v. Goeser, 2016 MT 61, 382 Mont. 382, 367 P.3d 378.

         Husband and wife ("Wife") were married in 1996, and they had a son, RBV, in 2000. In June 2010, Husband filed a petition for dissolution; that same day the trial court issued a restraining order under which the parties were not allowed to transfer assets while the divorce was pending. In December 2011, the parties entered into a settlement agreement in which, among other things, Husband agreed that "'[h]usband shall execute a will naming his son as beneficiary of his estate, giving all of his assets to his son.'" Id. ¶ 5, 382 Mont. at 384, 367 P.3d at 381.

         Attached to the parties' agreement was a list of assets for each party. Husband had listed life insurance Policy 936, with a benefit of $1 million, as an asset. Husband's business and Wife were designated as equal beneficiaries (50 percent to each) with a $200,000 collateral assignment to a bank. Not included on Husband's asset list was life insurance Policy 799, with a benefit of $1.5 million. The agreement provided that if either party failed to disclose an asset, that finding was grounds for the court to award the undisclosed asset to the other party. Wife was the sole beneficiary on Policy 799, although she did not know the Policy existed. In July 2010, while the restraining order was in effect, Husband designated his sister as beneficiary on both policies. The divorce was entered in December 2011.

         Four months after the divorce was final, Husband died unexpectedly at age 45. Husband did not have a will. Husband's sister received $2.3 million in insurance proceeds, which she invested in a home and real property in Newport Beach, California. Id. ¶ 8, 382 Mont. at 385, 367 P.3d at 382. Wife sent a subpoena to the insurance company to determine how the policy benefit was dispersed and, at that time, she learned of Policy 799 and also learned that Husband had changed the beneficiaries while the restraining order was in place.

         Wife filed two creditor's claims against Husband's estate, one on her own behalf for payments that Husband had agreed to, and the second on behalf of RBV for support and health insurance totaling about $77,500. Husband's estate did not have sufficient funds to pay the child support claim. Several months later, Wife filed an action against Husband's sister and Husband's estate seeking a constructive trust over the insurance policy payouts for the benefit of RBV. The trial court granted summary judgment to Husband's sister regarding Wife's constructive trust claim for RBV. In granting summary judgment to Husband's sister, the trial court reasoned that Husband could have changed the beneficiary designations after the divorce had become final and the restraining order was no longer in place. Moreover, under a Montana statute, Wife would have been removed as a beneficiary of the life insurance policies once the divorce was entered. Wife appealed.

         The Montana Supreme Court reversed, noting that under a prior decision, Montana courts "possess equitable power to order a return to the status quo when a party violating a temporary restraining order has died." Id. ¶ 25, 382 Mont. at 390, 367 P.3d at 384 (internal citation omitted). The court reasoned that if Husband had not changed the beneficiary, the statute would have automatically revoked the beneficiary designation when the divorce became final, with the result that Wife's 50% share of the proceeds of Policy 936 would have passed to Husband's estate. Id. ¶¶ 30-31, 382 Mont. at 392, 367 P.3d at 386. Since there was no will, the proceeds would then have passed to Husband's children. The same analysis would apply to Policy 799. Id. ¶ 36, 382 Mont. at 394, 367 P.3d at 387.

         The court then considered whether Husband's sister was unjustly enriched, and concluded that she satisfied the elements of such a finding. Id. ¶ 48, 382 Mont. at 398, 367 P.3d at 389. Accordingly, the court held that "a constructive trust was created on RBV's behalf" and that Husband's sister was obligated to return the insurance proceeds. Id. ¶ 55, 382 Mont. at 400, 367 P.3d at 391.

    Topics: family law, Sandra Thomas, The Lawletter Vol 41 No 8, child support obligation, constructive trust

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