The Court of Appeals in Gore v. Gore, imposed a constructive trust in order to protect the equitable property distribution of the spouse with no title to the marital property.

At the time the Gores had purchased the marital home, the wife’s unfavorable financial condition precluding her from qualifying as a borrower, the husband’s mother subsequently cosigned the loan and became a half title holder.

The husband later filed for divorce, seeking, inter alia, permanent possession of the marital home and equitable distribution of marital property, including any part of the marital home which the court determined to be marital property.

The specific question on appeal was whether the trial court had statutory authority to order the equitable distribution of the marital estate as part of a decree of divorce pertaining to real property in which the wife did not have any title to the marital property.

The trial court after applying the equitable distribution of property doctrine: distribute all other property accumulated during the marriage, regardless of whether title is held individually or by the parties in a form of joint tenancy or tenancy by the entireties, in a manner that is equitable, just and reasonable, concluded that:

• The husband’s mother had co-signed the first deed of trust “purely to facilitate acquisition of the marital home” and that,
• She did so “solely for the benefit of the husband and wife,
• The husband’s mother had taken title without any genuine intent to retain an interest in the house, to live in it, or to use it for her own benefit in any other way,
• The husband’s mother had been compensated by the parties for her contribution to the purchase price of the house, and that
• The husband and wife had made all of the payments on the note.

The trial court also concluded that as a matter of law the parties’ home was marital property, and that the wife was “entitled to an equitable lien upon the marital home and that the title holders, the husband and his mother, may continue to hold title only with a constructive trust in favor of the wife.

However, the trial court only granted wife a 25 percent interest of the home essentially half of the husband’s interest because husband’s mother was liable on the note and was part-owner of the home.

Specifically, because the husband’s mother, upon sale of the property could suddenly demand a one half share of the proceeds,  the trial court could not fashion any remedy to prevent that and thus the court was limited to distributing only half of husband’s interest in the marital home: a quarter interest.

Overall, the court ruled that the parties in this action, under normal circumstances, would be entitled to share equally (50/50) in the asset to be distributed. In the instant case however, the asset itself can consist only of one-half of the fair market value of the house.

The Court of appeal disagreed with the trial court analysis. The Court ruled that under an equitable distribution regime, a third party’s legal title cannot be permitted to extinguish all or part of a spouse’s equitable interest and thus to protect the 50 percent equitable rights of the wife a constructive trust may be imposed on the third party title holder.

A constructive trust is defined as: when a person who holds title to property is subject to an equitable duty to convey it to another on the ground that she would be unjustly enriched if permitted to retain it.

This form of trust is usually imposed wherever one unfairly holds title or a property interest and where the holder would be unjustly enriched if permitted to retain such interest.

The court has equitable powers to look beyond the labels of title in order to distribute property which effectively had not been individually owned during the marriage.  Thus, equity dictate establishing a constructive trust in favor of non-titled spouse in order to diffuse potentially destructive limitation on the rights of the non-titled spouse.  In short, wife’s equitable interest in the marital home supersedes the title holder’s rights.

Refer to our Washington DC Divorce lawyer page for more detailed on this subject.