Choose your words wisely
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From time to time we publish summaries of interesting trust and estate cases. Today’s post concerns promises made (and then broken) as part of a divorce settlement. The Oregon Supreme Court overturned a 2009 decision of the Appellate Court and, in the process, established new guidelines that should be considered by all parties – and their legal counsel – when preparing divorce settlements, pre-nuptial agreements, and/or child support arrangements.
Tupper v. Roan, 227 Or App 391, 206 P.3d 237 (2009) (Reversed, See Below)
Background: As part of a divorce decree, the decedent promised to obtain a life insurance policy of $100,000 for the benefit of his child. The divorce decree included a provision that called for a constructive trust to be created over “the proceeds of any insurance owned by either party at the time of either party's death if either party fails to maintain insurance in said amount, ($100,000 fbo the child) or if said insurance is in force but another beneficiary is designated to receive said funds.”
Decedent obtained a $600,000 life insurance policy naming his girlfriend as the primary beneficiary. The decedent died several months after purchasing this policy. The ex-wife sued the girlfriend asking the court to impose a constructive trust on the portion of life insurance ($100,000 of the $600,000) that decedent promised to obtain in the divorce decree. The trial court held that $100,000 of the insurance proceeds was subject to a constructive trust.
Holding: The Court of Appeals reversed, holding that the trial court should instead have awarded summary judgment to defendant. The Appeals Court concluded that, “to prevail on an unjust enrichment theory against the person who had been named as the decedent's beneficiary, a plaintiff must prove both (1) that, by designating another person as his or her beneficiary, the decedent essentially gave that person property that previously had belonged to the plaintiff; and (2) that the person named as beneficiary either knew or should have known of the wrongfulness of the decedent's action.” The plaintiff had not and could not produce evidence that would satisfy the first requirement.
Tupper v. Roan, 349 Or. 211,243 P.3d 50 (2010)
Background: The Oregon Supreme Court reviewed Tupper v. Roan to consider whether and how the equitable concepts of unjust enrichment and constructive trust should be applied in the context outlined above. The Court declined to adopt the two-part test applied by the Appeals Court and instead set out the following three elements that the ex-wife had to prove in order to prevail on her unjust enrichment claim:
- First, she had to show that a property interest that rightfully belonged to her was taken by the girlfriend under circumstances that in some sense were wrongful or inequitable.
- Next, she had to show that the girlfriend was not a bona fide purchaser for value and without notice.
- Finally, she had to establish, with "strong, clear and convincing evidence," that the insurance proceeds, i.e., the property upon which she sought to impose a constructive trust, was in fact the very property that rightfully belonged to her, or was a product of or substitute for that property.
Holding: Justice Gillette began his analysis with the observation that, “When ‘the law employs a constructive trust, the doctrine of unjust enrichment governs generally all of the substantive rights of the parties.’” He next traced the common law doctrine of unjust enrichment and constructive trust as applied by the Oregon Supreme Court, and noted that the common thread was the acquisition or retention of property in a way that is in some sense wrongful, even if the one holding the property (here, the girlfriend) was not directly involved in wrongdoing. The Court then focused on the language of the stipulated divorce decree, which included the phrase, "a constructive trust shall be imposed over the proceeds of any insurance owned by either party at the time of either party's death." (emphasis added by the Court). The court evaluated where the property interest created by this language fell relative to two hypotheticals. In the first hypothetical, the divorce decree identified a specific policy that was in force at the time the decree was entered. The Court felt this scenario would create a protectable property right for the ex-wife. In the second scenario, the hypothetical decree language did not identify an existing insurance policy, rather it included a promise to take out insurance at some future time. The Court felt that while such language might not be sufficient to create a property right that belonged to the ex-wife, that issue was not before the court in this case.
Instead, the Court concluded that in this case the decree expressly contemplated a failure on Tupper's part to carry out the obligation and that the parties intended to impose a constructive trust on any policy owned by Tupper. The Court concluded that the decree language gave the ex-wife an interest in the insurance proceeds held by the girlfriend and overturned the Appellate Court decision. In the process, the Supreme Court has provided estate planning and family law attorneys with important new guidelines for assessing cases and drafting decrees. The Supreme Court ultimately remanded Tupper for further analysis of whether the girlfriend knew of the decedent's support obligation.
Insurance. We often view insurance the same way we view estate planning – “I’ll get around to that when I have time.” Yet life has a way of keeping us so busy that our spare time rarely gets allocated to such mundane topics. However, we must look at insurance for what it really is – a hedge against the unpredictable events that could damage our family’s financial security. 
Effective September 28, 2009, a new bill passed by the 2009 Oregon legislature imposes a new tax on what a .jpg)
Most clients who come to us for asset protection are looking for an offshore trust or maybe even a domestic asset protection trust. These are both viable options to protect one’s assets. However, there are a number of simpler options that one should consider first. 