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McCarthy v. McCarthy

319 N.J. Super. 138, 725 A.2d 32 (App. Div. 1999)

CONSTRUCTIVE TRUSTS—A court can not impose a constructive trust on property owned solely by an obligor’s spouse if the property had not been fraudulently transferred from the obligor to the spouse.

In the context of a post-judgment proceeding in a matrimonial matter, a court awarded counsel fees to an ex-wife and imposed a “constructive trust” upon real estate owned by the husband’s second wife to secure payment of the counsel fees and stipulated arrearages. The lower court did not find that the husband’s second wife received the property fraudulently or that she had any financial obligation to the first wife. Instead, the lower court, relying on Jacobitti v. Jacobitti, 135 N.J. 571 (1994) and on N.J.S. 2A:34-23, thought it could require security for the payment of marital obligations. The Jacobitti case authorized a trial judge to require an obligor to obtain life insurance to insure the meeting of his obligations, including alimony, after his death. It recognized, however, that if age or health precluded the obligor from obtaining life insurance at a reasonable premium and if the obligor’s means permitted, the trial judge could impose a trust on the obligor’s assets in lieu of ordering life insurance to meet those obligations. In this case, the lower court, citing the husband’s age, some history of his being uninsurable because of medical circumstances, and the fact that there was no present likelihood that his income would ever return to its past heights, believed that it could impose a constructive trust. On the other hand, the lower court said, on the record, that it was not sure whether “that trust reaches a fee interest in the premises, or simply addresses the curtesy interest that [the husband] would have in the premises.” It then opined that the constructive trust, when properly docketed and filed, would constitute notice that the husband’s land interest was encumbered. The lower court further stated that the trust was not to be used as an enforcement mechanism because the husband’s interest in the property was not definable (i.e., it might have been a legal interest or simply only a curtesy interest) and there had been no showing that the husband’s interest ought to be so reachable. Recognizing that this was a remedy that might never be triggered by an event, the lower court suggested that it become operative upon the death of the husband, the death of the second wife, the dissolution of the second marriage, or the sale of the premises.

The Appellate Division, obviously disturbed by the lower court’s ruling, thought it “plain that there are fatal technical, legal and equitable flaws in [the lower court’s] reasoning.” For one, the lower court did not, in its written Order, establish a finite amount to be secured by the trust. Second, there was no defined trust res. The lower court was quite explicit in explaining that it was not attempting to define whether the trust was the husband’s legal interest in the fee or his courtesy interest. Curtesy was abolished in 1980, long before the property in question was acquired by the husband and his second wife. Consequently, there was no curtesy interest to which this trust could attach. Nor, obviously, could it have attached to the husband’s legal title since he had no legal title because of the conveyance to his second wife. The Appellate Division thought it plain, as a matter of substantive due process, that the property of a person who is not an obligor in any sense cannot be made answerable to the debt of another. According to the Court, the illogic of the trust mechanism was made clear by what the lower court judge considered to be enforcement-triggering events. The Appellate Division failed to see how the second wife could be made answerable, out of her separate property, for her husband’s debts after his death. After all, if she was the sole owner, his debts would be immaterial to the validity of her exclusive title. The death of the second wife was also found to be irrelevant to the husband’s obligations to his ex-wife. The second wife is free to devise the property as she wished and is not obligated to devise it to her husband. According the Court, she certainly is not obligated to devise any portion of it to her husband’s ex-wife to pay her husband’s debt. With respect to a triggering based upon the dissolution of the second marriage, the Court found that such an eventuality posed more problems than it solved. In such an action, the matrimonial court would have the right to devise an equitable distribution scheme that might, in fact, make the assumption that the second wife would be entitled to receive the whole and exclusive interest in the marital residence. Lastly, the Court found that there was no reason that a sale of the house by the second wife should be a triggering event because, if the husband has no right to reach the sale proceeds received by the second wife, neither do his creditors.


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