In a recent Texas divorce case, the court examined a divorce decree that named a husband as constructive trustee of property decreed to the wife. The property at issue was a 50% undivided interest in the shares of an LLC. The dispute in the case was whether the constructive trustee had to give the wife documentation showing the status of the shares and the LLC’s tax returns and financial statements.
The case arose when the couple divorced and a mediated settlement agreement was incorporated into their divorce decree. The couple had agreed that any shares of the LLC that had been awarded to the wife would still be managed by the husband, who also had the exclusive right to control, manage, possess, and exercise the rights associated with shares of the LLC held in his name. The decree also stated that the husband was the constructive trustee for the wife’s benefit with regard to any of the LLC’s shares to the extent he was obligated to pay her under that provision of the agreement. It also ordered him to pay her 1/2 of the sum of all of the monies he received due to selling shares of the LLC.
The wife wanted assurance that the husband was properly maintaining the values of the LLC shares when he didn’t answer her questions. She sued him and moved for the appointment of a Rule 172 auditor. Through several procedural mechanisms, she asked for an accounting of the LLC’s finances from 2011 to the present. She also wanted him to produce the tax returns and K-1 forms that were related to her ownership interest. To support her claims, she claimed that the husband owed her statutory and common law duties, including a duty to give her an accounting, as a constructive trustee.