April 20, 2020 – Establishing a constructive trust could be a remedy to hold life insurance proceeds for a decedent’s minor children, a Wisconsin Supreme Court has ruled, but the circuit court must first examine the relevant facts to make that decision.
James and Joan Pulkkila divorced in 2009. A marital settlement agreement (MSA) required each of them to maintain life insurance for their minor children as beneficiaries.
The agreement also set forth a remedy if either breached this aspect of the agreement: a lien would be placed on the breaching party’s estate.
Joan alleged that James breached the agreement when he remarried in 2013 and named his second wife, Lynnea, as the sole beneficiary of his life insurance policy. James died in 2015. At that time, both of his children were still minors.
James maintained a $250,000 life insurance policy and the insurance company distributed the proceeds to Lynnea upon his death. Joan filed a motion in the divorce proceeding to join Lynnea to the action and asked the court to establish a constructive trust for her children and order Lynnea to deposit the proceeds into the trust account.
The circuit court declined to establish a constructive trust, concluding the marital settlement agreement required a lien as an exclusive remedy for breaching the contract.
An appeals court reversed, concluding a lien against the estate was not an exclusive remedy because that remedy was “meaningless” – the estate had only $5,600 – and “equity requires the imposition of a constructive trust” to address the breach.
Majority Reverses
In Pulkkila v. Pulkkila, 2020 WI 4 (April 14, 2020), a Wisconsin Supreme Court majority ruled that a lien against the estate was not the exclusive remedy, but reversed the appeals court for imposing a constructive trust without fact-finding in the circuit court.
A lien was not the exclusive remedy, despite the MSA, the majority ruled.
“The MSA is clear on its face – although a lien on James’s estate is plainly an available and mandatory remedy for breach of the life insurance provision, there is no limiting language that would indicate that it is the only remedy for such a breach,” Justice Ann Walsh Bradley wrote. “[A]lthough the MSA is clear that a lien is a remedy, we decline to read in language indicating that a lien is the exclusive remedy.”
However, the majority also concluded that the appeals court’s decision to impose a constructive trust was premature.
“By imposing a constructive trust in the absence of any factfinding by the circuit court, the court of appeals in this case jumped the gun,” wrote Justice A.W. Bradley.
“Whether to impose a constructive trust is a discretionary determination that must be made through examination of the relevant facts.”
The majority noted that the circuit court had determined that a constructive trust was not an available remedy and thus “found no facts and took no evidence” on that issue.
The court remanded the case to the circuit court “to engage in factfinding and subsequently determine whether to impose a constructive trust in the first instance.”
Chief Justice Patience Roggensack joined Justice A.W. Bradley’s majority opinion, as did Justices Annette Ziegler and Justice Daniel Kelly. Justice Rebecca Dallet and Justice Brian Hagedorn did not participate in the case.
Dissent
Justice Rebecca Bradley was the lone dissenter. She concluded that James and Joan Pulkkila chose the contractual remedy for breaching the life insurance proceeds provision, and the circuit court approved that remedy in the divorce order.
“[T]he majority calls into question nearly century-old law, disturbs the long-settled expectations and reliance interests of thousands of divorced Wisconsin citizens, and leaves their negotiated marital settlements subject to the whim of judges,” she wrote.
“Divorced Wisconsinites beware: from this day forward, a court may at any time rewrite the terms of your marital settlement agreement if your former spouse comes to court pleading ‘unfair,’” Justice R. Bradley noted.
