A man agreed to set up a trust for his ex-wife that would leave her $100,000 upon his death. The man set up trust, but he did not fully fund the trust. Instead, he purchased an annuity for his new wife. The man dies and the ex-wife sues the man for making a fraudulent transfer to his new wife.
The divorce occurred in 2005, at which time the man entered into a divorce agreement requiring his funding of the testamentary trust for his ex-wife. He remarried in 2008, and he purchased an annuity shortly thereafter, and in 2012 he made his new wife the death beneficiary. The ex-wife filed suit in 2013.
The first issue whether the statute of limitations bars the action for fraudulent transfer. The ex-wife alleged that the transfer involved was the changing of the death beneficiary to the man’s new wife. I do not think this theory is correct because changing the beneficiary of an exempt asset is not a transfer within the fraudulent transfer statutes. I believe the “transfer” (actually, it’s a conversion) was the use of non-exempt cash to purchase the annuity in 2008. The annuity purchase was outside the statute of limitations for fraudulent transfers or conversions.
More to the point, I think the ex-wife’s theory is wrong; I would sue the ex-husband on a different theory such as breach of a constructive trust. She could argue that the ex-husband had held up to $100,000 of his money in a constructive trust pursuant to the divorce agreement which he was required to put into his testamentary trust. When he used part of this money to purchase an annuity naming himself, first, and his new wife, subsequently as beneficiary he breached his trust. I have not researched whether these facts (and I know only part of the facts) constitutes a cause of action under constructive trust theory. I think than constructive trust, or some similar equitable argument, makes a legally stronger case against the ex-husband than does the fraudulent transfer action.
People often use fraudulent transfer or conversion allegations inappropriately because they do not understand the statute, its definitions, and its applications.
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