In Brief: Irrevocable Trust

IRREVOCABLE TRUST/SPOUSAL SUPPORT OBLIGATION

Do statutes of limitation for filing claims against an Estate for unpaid spousal support prevent a creditor (ex-wife) of the decedent from bringing a lawsuit against the  trustee of an irrevocable trust  on grounds of fraudulent conveyance and tortious interference with a contract?

CASE

Montgomery v. Montgomery, individually and as trustee of the James F. Montgomery Irrevocable Trust, decided by the Seventh Court of Appeals (Amarillo), December 6, 2016, opinion written by Justice Brian Quinn.

DECISION

The summary judgment granted by the trial judge in favor of the trustee is REVERSED, and the case is sent back to the trial court to allow the former wife to proceed with her claims against the trustee for fraudulent conveyance and tortious interference with a contract.

FACTS

Diane Montgomery was married to James Montgomery, but later divorced.  At that time, they executed a “marital settlement agreement” wherein James agreed to pay Diane $21,000 a month until she remarried or died. He paid this obligation for several years, but then ceased doing so. James’ son, Andrew (who was at one point a stepson of Diane), obtained a power of attorney from his father, James,  at which time he converted a revocable trust containing assets of over five million dollars into an irrevocable trust. James, the father, died the day after this irrevocable trust became operative.  Diane filed her initial claim against James’ estate, but it was denied by the administrator.

PROCEDURAL BACKGROUND

Diane filed suit, not against the estate, but against Andrew, the trustee of the trust, seeking damages of over one million dollars for past due spousal support payments. Two of the causes of action in the suit were fraudulent conveyance and tortious interference with a contract. Andrew (son), the trustee, moved for summary judgment arguing that he was entitled to judgment that Diane get no monetary recovery from her suit. His ground was that Diane’s lawsuit was based on her claim for unpaid spousal support, and that such claim was barred by the statute of limitations, therefore preventing her from pursuing these other causes of action against the trustee of an irrevocable trust. The trial court agreed with the trustee, Andrew, and granted summary judgment in his favor. Diane appealed, asserting that the trial judge made a mistake of law.

THE COURT’S (Seventh Court of Appeals)  ANALYSIS

The trustee argues that Diane’s claims for spousal support had become unenforceable due to her failure to abide by various California statutes. The trustee claims that since Diane never sued the estate, her claims against the trustee of the trust were barred.  “Tortious interference with a contract” is a cause of action recognizing that a contract not only confers rights on the parties to the contract, but that it also imposes on all the world a duty to respect that contractual obligation. When a person knowingly induces another to break his contract with a third person, such third person has a right to sue the one causing the breach of contract.  If Andrew knowingly impeded the performance of James’ spousal support obligation to Diane by placing the assets of the James F. Montgomery revocable trust into an irrevocable trust before James died, then it is that alleged misconduct which may serve as a basis for Diane’s claim for tortious interference with a contract.  Such liability is separate and independent from any liability that James F. Montgomery or his estate incurred to Diane due to breaching the spousal support agreement.  Because of this, whether limitations prevented Diane from recovering against James or his estate is irrelevant.  Furthermore, the cause of action for “fraudulent conveyance”  consists of recovering the property from whom it was transferred.  In Texas, a  transfer made by a debtor is fraudulent as to a creditor, such as Diane, whether the creditor’s claim arose before or within a reasonable time after the transfer was made, if the debtor made the transfer with actual intent to hinder, delay or defraud the creditor. A creditor is not required to file claims against the decedent’s estate before suing for fraudulent conveyance. This is true when the property pursued (i.e.- assets of a trust) is not part of the decedent’s estate, but where the decedent was divested of title to the property before his death. The Court stated: “…Diane’s claim underlying her suit to avoid fraudulent conveyance need not have been presented to, much less approved or rejected, by the administrator of James’ estate…nor was it barred by the [California] statutes of limitation when it was commenced; …the limitation periods had yet to lapse [at the time suit was filed]. Thus, her situation…could be the [basis] of a fraudulent conveyance action.”


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CRENSHAW, DUPREE & MILAM, L.L.P.
P.O. Box 64479
Lubbock, Texas 79464-4479
Phone (806) 762-5281
Physical Address: 4411 98th Street, Happy State Bank Building, Suite 400, Lubbock, Tx. 79424