New Case Law – Constructive Trust Over Life Insurance

Clients often feel very upset about having to provide a life insurance policy to secure their spousal or child support obligation. The most common complaint is with regard to the beneficiary designation for securing child support. Generally the other parent is designated as the trustee over the proceeds of life insurance for the benefit of the children. Clients feel upset that the other parent will receive a good sum of money at the time of their death.

As part of any life insurance provision in a judgment, a clause is always added stating that a “constructive trust” will be established over the life insurance proceeds. On April 15, 2009, the Oregon Court of Appeals ruled on this issue in the case of Tupper v. Roan v. Tupper.

Jerry Tupper and Heather Tupper divorced in 2004. As part of the divorce, Jerry was required to provide a life insurance policy in the amount of $100,000 to secure his child support obligation. In addition, the judgment stated that a constructive trust would be established over the proceeds of any life insurance policy if a party designates a different beneficiary on the policy.

Jerry started living with Danette Roan shortly after the divorce and designated her as the beneficiary on his life insurance policy in direct violation of the terms of the judgment. Jerry died in 2006 and the proceeds of his policy went to Danette. Danette received $600,000 and no money went to Heather to secure Jerry’s child support obligation.

Heather sued Danette claiming that she improperly kept $100,000 in violation of the terms of the judgment. Danette’s response was that she was not aware of Jerry’s obligation to maintain a life insurance policy for child support before he died. Danette further asserted that the court could not impose a constructive trust over the $100,000 because Heather could not prove that Jerry transferred property to Danette that rightfully belonged to Heather and that Danette either knew or should have know of that wrongful conduct.

The court of appeals ruled in Danette’s favor, holding that since Jerry created the life insurance policy after the divorce, Heather did not have an interest in it at the time of the divorce and it was therefore never her property.

For clients, this case creates a difficult situation. Unless a party has a life insurance policy in place at the time of the divorce, the other spouse will likely have a very difficult time obtaining the funds from that policy unless the other spouse follows the requirement to maintain the beneficiary designation required by the terms of the judgment.

If you have questions about life insurance provisions in divorce, custody, or other support situations, the lawyers at Stephens & Margolin LLP would be happy to answer your questions. The entire opinion can be viewed here: http://www.publications.ojd.state.or.us/A136095.htm.

About Daniel Margolin

Daniel Margolin is a founding partner of Stephens & Margolin LLP and a Portland, Oregon native. His practice focuses on all aspects of family law litigation. Dan applies his litigation expertise to provide additional expertise when assisting clients with Family Law Appeals and Collaborative Divorce matters. To find out more or contact Daniel Margolin, visit Stephens & Margolin LLP
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2 Responses to New Case Law – Constructive Trust Over Life Insurance

  1. Jeremiah canchola says:

    My divorce is almost complete. We have settled on everything and I am awaiting on paperwork from opposing side. My ex spouse texted me stating that her lawyer is finishing up the forms but needs info regarding my life insurance policy. This was not brought up in mediation and we have sworn on the settlement. Am I required to name her as beneficiary or to carry a policy for her? I am required to pay child support. I do already have a policy through work. Thanks JC

    • Jeremiah:

      Generally it’s a good idea to have life insurance to protect child support. However, the order of life insurance to protect a support stream is discretionary, and if it wasn’t specifically negotiated, and you have a complete mediated deal, you have a great argument to exclude it from the judgment.

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