The equitable constructive trust. In Texas, a court acting in equity may impose a constructive trust upon property held by a party to a transaction that belongs to another. The Austin Court of Appeals recently used this remedy to impose a constructive trust upon life insurance proceeds that, under a divorce decree, should have passed to the decedent’s minor children.

Factual background. “Kristi and Hugh divorced in February of 2013. The agreed final decree of divorce required them to each purchase $250,000 in life insurance, designate the other “as beneficiary in trust for the benefit of the children,” and maintain the coverage until both of their children had turned 18.”  Etcheverry v. Lankford, 03-17-00797-CV, 2018 WL 6615624, at *1 (Tex. App.—Austin Dec. 18, 2018, no pet. h.).  Kristi purchased the life insurance as required by the decree.  However, three days before her death she changed the life insurance beneficiaries to Thomas and Etcheverry. Kristi committed suicide in December 2016.

Two months later, Hugh filed suit against Thomas, Etcheverry, and the life insurance company and requested that the trial court impose a constructive trust upon the proceeds for Hugh to hold in trust for the minor children. Thomas agreed to assign his share to Hugh and Etcheverry contested the proceedings.

Court’s holding. The court stated, “Even though “breach of a special trust or fiduciary relationship or actual or constructive fraud is ‘generally’ necessary to support a constructive trust,” the remedy can be imposed in other circumstances where property is “obtained through bad faith or unconscionable acts.”” The Court held that even though Etcheverry had done nothing wrong, the policy against unjust enrichment supported the imposition of a constructive trust upon the life insurance proceeds in favor of the children.  Kristi (the decedent) violated the divorce decree by changing the beneficiaries and Etcheverry would not have received anything but for that violation. Etcheverry v. Lankford, 03-17-00797-CV, 2018 WL 6615624, at *2 (Tex. App.—Austin Dec. 18, 2018, no pet. h.).

Conclusion. The court acting in equity imposed a constructive trust upon the life insurance proceeds in favor of the minor children.