In a recent Texas divorce case, the court examined a divorce decree that named a husband as constructive trustee of property decreed to the wife. The property at issue was a 50% undivided interest in the shares of an LLC. The dispute in the case was whether the constructive trustee had to give the wife documentation showing the status of the shares and the LLC’s tax returns and financial statements.
The case arose when the couple divorced and a mediated settlement agreement was incorporated into their divorce decree. The couple had agreed that any shares of the LLC that had been awarded to the wife would still be managed by the husband, who also had the exclusive right to control, manage, possess, and exercise the rights associated with shares of the LLC held in his name. The decree also stated that the husband was the constructive trustee for the wife’s benefit with regard to any of the LLC’s shares to the extent he was obligated to pay her under that provision of the agreement. It also ordered him to pay her 1/2 of the sum of all of the monies he received due to selling shares of the LLC.
The wife wanted assurance that the husband was properly maintaining the values of the LLC shares when he didn’t answer her questions. She sued him and moved for the appointment of a Rule 172 auditor. Through several procedural mechanisms, she asked for an accounting of the LLC’s finances from 2011 to the present. She also wanted him to produce the tax returns and K-1 forms that were related to her ownership interest. To support her claims, she claimed that the husband owed her statutory and common law duties, including a duty to give her an accounting, as a constructive trustee.
The husband answered and counterclaimed, asserting she wasn’t entitled to any rights beyond what was specified in the divorce decree. A year later, he moved for summary judgment based on the affirmative defenses he’d raised. The trial court took the motions under advisement and went forward with the trial. Before calling the wife, her attorney stated that the wife only wanted four categories of information: tax returns for the LLC, Schedule K-1 forms issued to the husband, LLC financial statements, and documents to show whether the LLC had sold or transferred any shares.
The wife testified about why she wanted this information. The husband verbally agreed he’d provide documents about those four categories. Some months later, the trial court required the husband to give an annual written summary of the shares’ status, including whether there’d been any transfers and whether the wife’s interest stayed intact. It ruled in favor of the husband’s summary judgment motion without specifying a basis for its ruling.
The wife appealed, arguing that as a constructive trustee, her former husband owed her the same duties an express trustee owed a beneficiary. She argued that the trial court had made a mistake in declaring she wasn’t entitled to the specific information she’d requested. She also argued that it was improper to grant summary judgment, since the evidence showed that her former husband had a duty of full disclosure under the divorce decree.
The appellate court explained that the husband was named as a constructive trustee to the extent of his payment obligations. It didn’t impose the obligations on him that she claimed, however, only that he pay her. The appellate court affirmed the summary judgment.
If your divorce involves matters related to property distribution, contact the Texas attorneys at the McClure Law Group at 214.692.8200.
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