Executor Can Impose Trust To Prevent Surviving Spouse's Unjust Enrichment

An executor may block a surviving spouse’s attempts to withdraw assets from a decedent’s estate where the couple was in the midst of a divorce at the time of his death and the transfers would result in unjust enrichment, a New Jersey appeals court recently ruled.

The ruling in kay-vs-kay, A-1594-07 (App. Div. January 28, 2009) overturned a trial judge who rejected an executor’s attempt to impose a trust on a decedent’s assets to prevent depletion by his widow. The ruling also upset a two-decade-old precedent on which the trial judge relied, established in Krudzlo v. Krudzlo, 251 N.J. Super. 70 (Ch. Div. 1990), which held that an estate could not asset equitable claims of constructive trust, resulting trust, quasi-contract or unjust enrichment against a marital estate.

George and Hildegard Kay were married in 1973. They each had children from a prior marriage. The couple separated in 2005. In 2006, Hildegard filed for divorce. At that time, George had about $87,000 in a brokerage account, among other assets. On August 30, 2007, during the pendency of the action for divorce, George Kay died. Hildegard transferred George’s brokerage account into her name and dismissed the divorce action. George’s executor asked the trial court to impose a constructive trust on the brokerage account assets to prevent unjust enrichment of the surviving spouse. The trial court, relying on Krudzlo,  said no.

The appellate court reversed. The court held that estates can move for equitable relief if there is enough evidence to show unjust enrichment. The court ruled that:

Public policy would be disserved if courts were to automatically foreclose equitable claims concerning marital property presented by the estate of a deceased spouse.  [Such a rule would] encourage[e] spouses contemplating divorce to deal unfairly with one another. … We conclude that the trial court should have accepted the pleadings and considered whether the equities stemming from the facts alleged call for relief from the strict legal effects of defendant’s death during the pendency of the divorce action.