What is a Constructive Trust?
A constructive trust is an equitable remedy for someone whose money and/or sweat have gone into a venture without having been adequately compensated. It gives a person a claim in a property or business even though he or she is not shown on title as an owner and there is no written agreement.
The following three requirements need to be proved in order to establish a constructive trust:
The Claimant needs to show that he or she has contributed to the acquisition, preservation, maintenance or improvement of a property. This may be money itself or money’s worth in contribution. A straightforward type of contribution may be putting money into the acquisition and preservation of the property, including its purchase, renovations and repairs. A less straightforward type of contribution would be a typical spousal claim, where the wife or husband stays at home to take care of the household and care for their children to free up the other spouse to develop his/her career and bring home the income.
The Claimant must show a connection between his/her contribution and the other party’s enrichment. For example, if you give your partner $100,000 to develop a business, then the $100,000 is a loss, namely deprivation, to you and becomes a gain, namely enrichment, to your partner. In matrimonial cases, it is often claimed that the time and labour spent on maintaining a household is a deprivation linked to the other spouse’s career success.
No Juristic Reason
The enrichment and corresponding deprivation must be without a juristic reason. A juristic reason may be an intention to make a gift, a contract, or a disposition in law. A disposition in law includes a valid statute that denies recovery, or a court order. Typical juristic reasons include an inheritance, a contract of sale and a legal title transfer. For example, if you give your child money to put in as his/her down payment, as a wedding gift or advance inheritance, you will not be able to establish a claim in the purchased property in the future.
What does it mean for you?
A constructive trust is typically used to compensate a stay at home spouse whose domestic contributions are not reflected in the net family wealth. For example, if you are a stay at home spouse and your working partner has purchased and developed properties, farmland and businesses in his/her own name, you can still establish an interest in those properties and businesses by way of a constructive trust regardless of the absence of any written agreement.