Legal Memorandum: Establishment of Constructive Trusts in VA

Issue: Whether a constructive trust may be established through a separation agreement between two parties in the state of Virginia.

Area of Law: Estate Planning & Probate
Keywords: Constructive trust; Separation agreement
Jurisdiction: Virginia
Cited Cases: 458 S.E.2d 766; 457 S.E.2d 88; 272 S.E.2d 190; 594 S.E.2d 610
Cited Statutes: None
Date: 06/01/2012

Constructive trusts are a fiction of the law and arise as a device of a court of equity, irrespective of the intentions of the parties.  See Faulknier v. Shafer, 563 S.E.2d 755, 758 (Va. 2002).  In Faulknier the court explained how a constructive trust is established:

Constructive trusts arise, independently of the intention of the parties, by construction of law; being fastened upon the conscience of him who has the legal estate, in order to prevent what otherwise would be a fraud.  They occur not only where property has been acquired by fraud or improper means, but also where it has been fairly and properly acquired, but it is contrary to the principles of equity that it should be retained, at least for the acquirer’s own benefit.

Id. (quoting Leonard v. Counts, 272 S.E.2d 190, 195 (Va. 1980)) (emphasis in original).

Among the situations that will provide the foundation for imposition of a constructive trust is a breach of contract:

When property is given or devised to a defendant in breach of a donor’s or testator’s contract with a plaintiff, equity will impose a constructive trust upon that property in the hands of the recipient even though (1) the transfer is not the result of breach of a fiduciary duty or an actual or constructive fraud practiced upon the plaintiff, and (2) the donee or devisee had no knowledge of the wrongdoing or breach of contract.