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Constructive fraud can affect property division in a divorce

You may not have heard of the term “constructive fraud,” but it may affect you. The effect may be fully on display when it comes to the property division phase of your divorce.

If you allege constructive fraud, your spouse bears the burden of having to prove you wrong.

What it is

Constructive fraud has other names, such as waste of the estate and breach of fiduciary duty, but in reference to divorce, they essentially mean the same thing. Constructive fraud refers to either a secret or unauthorized transfer of a couple’s community funds.

For example, you may have discovered that your spouse replaced your name as the beneficiary of his life insurance policy with the name of his new lady friend. The insurance proceeds constitute community property. Therefore, unless your spouse can show “special justifying factors,” changing the beneficiary constitutes constructive fraud against your share of the insurance proceeds.

What the court considers

Here are the questions the court will ask:

  •         What is the relationship between the insurance policyholder and the new beneficiary?
  •         What is the size of the transfer amount compared to the total size of the divorcing couple’s estate?
  •         Will the remaining estate be sufficient to support you despite the change of beneficiary on the insurance policy?
  •         What are the special justifying factors, if any, for the transfer?

Dividing community property

Since you and your soon-to-be-ex cannot resolve the constructive fraud issue together, it will become a sticking point in dividing your community property. The court will look at several factors in working out equitable division, among them age and general health; work experience and earning capacity; the special needs of your children, if any; and of course, the matter of constructive fraud.

Taking action

The substitution of a beneficiary on a life insurance policy is but one example of how a spouse can waste marital assets in a divorce. If you are facing this kind of issue, you can explore your legal options to ensure the protection of your rights and that you will receive an equitable divorce settlement.

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