The Expert Podcast

A constructive trust is a legal theory that can many times be used to recover losses from a fraud from a scam from somebody that's trying to conceal assets from you whether it's a probate case maybe it's a lawsuit judgment could even be a divorce case if somebody's trying to hide assets and they're putting him in somebody else's name using a claim of constructive trust can help undo that now remember we're not attorneys we're not giving you legally advice but as investigators we very frequently work with attorneys that are looking to discover hidden assets and many times the theory that's used is a constructive trust now it's important if that's going to be the case or if you want to look into that you have to develop evidence through the investigation that a constructive trust uh is in play.

So let's take a look at an example case this one happens to be from Canada but many of the theories and strategies are the same uh this is a case where there was an embezzlement from a company and the company was trying to get their money back so the background of this case is a company discovered that an employee defrauded it of $2 million fired the employee and brought an application to recover its funds against the wife of the employee claiming that the funds were used to renovate a property that was in her name and that's the key many times when somebody steals money or when they have a judgment against them they'll put their money into other people's names to try to Shield it from that judgment or from that uh recovery.

At some point the plaintiff the company found out that the wife's property was sold and the company claimed it had a constructive trust over the proceeds of that sale because she was liable based on what they call the doctrines of knowing receipt knowing assistant and unjust enrichment so what that means is they're claiming that this spouse of the uh embezzler the employee um knew that that she was receiving funds from this fraud assisted in hiding the assets by letting the husband put it in her name and unjust enrichment meaning that she benefited from this unjustly she benefited from it because she was not entitled to that money that was the company's money the wife did denied knowledge of the fraud and claimed she had purchased and renovate the property from legitimate sources so she said the money was my own money it didn't come from this fraud however she admitted upon reviewing the banking records she discovered her husband made payments of 177,000 using the employer funds so right there she's admitted that some of the funds for this property came from this um embezzlement from the the husband.

What happened in court well the court said that except for the 177 the employer did not substantiate its claims because they did not show evidence that the wife had actual knowledge of the fraud the employer was unable to trace the balance of the funds into the wife's property so what happened was the net sale proceeds of that property were determined to be belong to the wife except for the 177 that she admitted came from the employer.

So what does this mean this means if you are going to claim constructive trust you have to have evidence to show it now the good thing in this case is that it does prove that constructive trust theories work because the company got back 177,000 what it also proves is if you want to recover assets you have to trace those assets going from whatever Source you're saying belongs to you to that trustee that nominee trustee and in this case they didn't prove that maybe the funds did actually come from the wife's own legal uh assets maybe they were part of the embezzlement but if they were they did not develop the proof of that you can't just assume or ask the court to assume that the funds belong to the plaintiff you have to go through the process of document it getting good asset search asset tracing is important not just an asset search but tracing the assets or develop other expert witness uh reports that show that these funds did belong to you in this case the company appealed but again it the appeal was overturned because the appeals court found that the application judge um did act appropriately it found that the application judge accurately identify the requirements for finding of unjust enrichment and that the plaintiff did not have sufficient evidence their investigation did not present evidence uh the application judge refused to Grant a constructive trust with respect to the other money because the company did not show that its money was used in the acquisition Improvement of the property they did have the evidence of the 177,000 but the rest of the money they could not directly trace it to that fraud in that scam maybe it was an oversight maybe it's that they just thought that if they could show some of it then all of it would be there that's why it's very important to have complete evidence of any claim that you're making because the court can't just take your word for it they can't assume it they have to have good evidence so making sure you have a complete investigative report which documents all the claims you're trying to make or discovers them sometimes you don't know what claims you're going to make until you do the investigation in that case you want to make sure that your investigator is is looking for the things that you're trying to prove if they're there then if they're being uh inquired about they'll be part of the report if they're not there the report will say they were looked for and it wasn't discovered make sure it's very clear what you're looking for an investigative report and have those documented in the final document.