Property Remedies for Unmarried Couples

A 2010 N.C. Court of Appeals case (Cury v. Mitchell) gives options for unmarried couples to have a judge divide their property. You probably know that judges have always had the right to divide the property of married persons when they separate. The current version of the law is called, “equitable distribution.” Because equitable distribution only applies to married people, when an unmarried couple separates, this law is no help. Until recently, it was thought that there really weren’t any remedies for unmarried persons who separated – whoever had title to assets owned them, and the other person was out of luck. That was true for unmarried couples of different genders or of the same gender. That didn’t seem fair or practical, since many unmarried couples’ finances were as intertwined as those of married couples.

A recent case took a very practical approach. Judges applied an old, traditional legal rule to a new subject matter. The Court used the traditional rule of “constructive trust.”

What is a constructive trust?

You probably know that a “trust” is when one person (a “trustee”) owns legal title to an asset, but they are responsible for managing the asset for the benefit of another person (the “beneficiary”). Most commonly, someone sets up a formal, written trust by a trust agreement or in his will. A “constructive trust” is when there isn’t a formal, written trust, but the court acts like there is because that seems like what the parties intended.

Constructive trusts have been used for a long time in business partnership cases. For example, assume two friends go into a partnership together and contribute equal amounts of money to buy a piece of land for investment, but for convenience they title the land in just one partner’s name. If the partnership fails and the one who has title to the land claims it is just his, the Court will say, “No.” The Court will rule that this is a “constructive trust,” where the one with legal title is treated like a trustee for the benefit of the other party. The one who contributed money and trusted his partner will be treated fairly and equitably.

The Court of Appeals recently said this same model should apply to unmarried couples. If two unmarried people go in together to buy a residence, but for some reason title it in just one person’s name, the one who isn’t on the deed will still be protected. In a lawsuit, the Judge will recognize an ownership interest in the one whose name is not on the deed. The same is true for any sales proceeds if the one whose name is on the deed has sold the property before suit is filed. It appears likely that the Court will apply the same rule to other assets – vehicles and bank accounts, for example – to achieve a just and fair result.

It remains to be seen if this same theory will apply to retirement contributions one unmarried partner makes to his plan. A constructive trust result seems most likely if the other partner shows that they used her income to live on, intentionally to free up some money to be invested in one partner’s retirement for joint benefit. In other words, both lived off her income, and both planned to live off his retirement income later in life. It will be interesting to see what happens.

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