Constructive Trust - KY Case Digest

Keeney v. Keeney, -- S.W.3d – (Ky. App. 2007), decided March 16, 2007, designated to be published, not yet final.

Issues and Holdings:
1) Whether the trial court erred in imposing a constructive trust. The Court held no, the trial court did not err.
2) Whether the trial court erred by finding that the wife was entitled to half the proceeds of the couple’s business inventory sold by the husband to his parents with the proceeds applied directly to an indebtedness. The Court held no, the trial court did not err.
Barbara Keeney filed a petition for dissolution of her marriage to Milton Keeney. Barbara then amended her petition to name Milton’s parents as additional defendants, to establish her rights to 6.6629 acres near Nancy, Kentucky, titled in his parents’ names, and to ask the court to impose a trust upon the

property for the use and benefit of herself and Milton.
Milton, with the help of his parents, intentionally avoided direct ownership of real and personal property in his name. The purpose was to avoid and defraud a creditor, from the 1970s, who was in the position to execute on any property she could have found belonging to Milton. Barbara married Milton in 1982, well after the creditor had obtained a civil judgment against Milton.
Before and during the marriage, Milton was self-employed and established his own businesses, K-Bar Trailer Manufacturing Company and a pig farm, which eventually failed. Barbara worked with Milton in building his two businesses.
In 1983, Milton and his father attended an auction and bid on the Nancy property for $61,700. It is unclear who did the bidding and who paid for the property. However, it is clear that $61,700 was paid directly from the K-Bar checking account, an account with Mutual Federal and the only account Barbara or Milton owned. Nevertheless, the property was deeded to Milton’s parents.
Milton’s father testified during his deposition that Barbara did not know anything about their “deal.” The “deal,” which existed throughout the marriage, included Milton and his parents making arrangements with Mutual Federal for a series of property acquisitions, loans and mortgages designed to avoid public records that would identify Milton as a property owner.
After the Nancy property was purchased, Barbara and Milton made improvements to the property. Barbara and her family did a lot of the remodeling themselves and independent contractors were paid from the K-Bar account. After the remodeling, the couple moved in.
Milton never told Barbara how the property was acquired, spoke of the property as “theirs,” and behaved in a manner that reinforced Barbara’s belief that they owned the property. It was not until the couple separated that Milton told Barbara that his parents owned the property.
The trial court found that Barbara was unaware that the property was in Milton’s parents’ names, imposed a constructive trust on the property, and ordered that the property be sold and the proceeds be divided equally between the couple. The court also awarded Barbara half the proceeds from the sale of K-Bar inventory, as it found that the transaction was made for the purpose of defeating Barbara of any interest in the property. The parties appealed.
First, the Court held that the trial court’s imposition of a constructive trust was not clearly erroneous. “[A] constructive trust is created by equity regardless of any actual or presumed intention of the parties to create a trust where the legal title to property is obtained through fraud, misrepresentation, concealment, undue influence or taking advantage of one’s weakness or necessities, or through similar means or circumstances rendering it unconscionable for the holder of the legal title to retain the property.” Fresh v. Dunakin. Milton and his parents’ efforts to avoid execution of the civil judgment and defrauding Barbara clearly falls into the category of “unconscionable.” The Court also found it against equity to allow Milton’s parents to retain the property, since they would be unjustly enriched. Finally, the Court found that a confidential relationship existed between Barbara and Milton’s father to the extent one is necessary to impose a constructive trust.
Second, the Court held that the trial court’s award to Barbara of half the proceeds from the sale of K-Bar inventory was not clearly erroneous. Milton argued that the sale was to satisfy a marital debt. However, without evidence to the contrary, the trial court decided that it was not marital debt. In addition, the trial court found that Barbara’s investment of time and labor in the company entitled her to an interest in the business’s inventory and equipment. The trial court having found the K-Bar inventory to be marital property, the Court found no error in the trial court’s ruling.

Digest by Sarah Jost Nielsen, Diana L. Skaggs + Associates,