Florida Appellate Court: Girlfriend Cannot Keep Wrongfully Transferred Tenancy By the Entireties Assets

In Wallace v. Torres-Rodriguez, a May 11, 2022 opinion from the Florida Third District Court of Appeal, the court determined that where a husband transferred assets to his girlfriend without his wife’s consent, a constructive trust was the proper remedy to recover wrongfully transferred tenancy by the entireties assets, and that the girlfriend’s “change in position” defense did not prevent the imposition of the constructive trust.

The Facts of Wallace v. Torres-Rodriguez

In 2010, Milton Wallace was diagnosed with a degenerative neurological condition that diminishes memory and mental capacity.  Milton’s wife, Patricia, advised their estate planning attorney that Milton and Patricia wanted to make estate planning arrangements to protect their marital assets, worth millions of dollars.  Patricia was worried that Milton would deteriorate and that his judgment and capacity to handle their financial affairs would be affected, and also that Milton could be unduly influence by third persons to convey their marital assets.

The Irrevocable Trust

Milton and Patricia signed an irrevocable trust (“Irrevocable Trust”) which stated:

We intend to enter into a marital agreement after the execution of this trust agreement. Our marital agreement will provide that upon the death of the first one of us to die, all assets of any nature (including our residence) owned by us as tenants by the entirety or as joint tenants with right of survivorship, wherever located, will be conveyed by the survivor of us to the trustee of the trust created by this trust agreement. We are executing this agreement to set forth the terms of the trust upon which those jointly owned assets will be held when conveyed by the survivor of us to the Trustee.

The Marital Agreement

Milton and Patricia then signed a marital agreement (“Marital Agreement”) which stated that the surviving spouse was required to convey all of the couple’s joint marital assets into the Irrevocable Trust within sixty days of the spouse’s death.  Critically, the Marital Agreement also prohibited either spouse from transferring joint marital assets while they were alive without the “direct and personal joinder” of the other spouse.    Except for Milton’s IRA, all of the parties’ marital assets were owned as tenants by the entireties.

In addition, Section 1 of the Marital Agreement granted authority:

to allow the successor trustees and beneficiaries under the Trust Agreement to be able to bring whatever legal proceedings may be necessary to require the survivor of us to convey all of our jointly owned assets to the then serving trustee or trustees under the Trust Agreement, and to rescind any transfers of assets that might be made by the survivor of us contrary to the requirements of this Marital Agreement.

Patricia Dies

Patricia died in 2016, and the couple’s son, Mark, became the personal representative of her estate.  A few days after Patricia’s death, Milton told Mark that while he was married to Patricia, he had a girlfriend, Yanelin, for approximately 14 years before Patricia’s death.  Milton told Mark that he paid Yanelin for sex and admitted that he transferred millions of dollars of joint marital assets to her.

Mark sued Yanelin to recover millions of dollars that Milton had given to Yanelin without Patricia’s consent and in contravention of the Irrevocable Trust and Marital Agreement, including claims for constructive fraud, avoidance of fraudulent transfers, aiding and abetting breach of fiduciary duty and aiding and abetting fraudulent transfers, and imposition of a constructive trust.

The Transfers of Tenancy By the Entireties Assets

The evidence at trial demonstrated that Milton had used tenancy by the entireties assets to purchase three condominiums in Yanelin’s name and stocks worth millions in Yanelin’s name, including:

  • A $105,000 condominium
  • $2.0 million in cash
  • Stocks worth $1.2 million on Deposit at Fidelity
  • 2,000 shares of Exxon Mobil Stock
  • A $220,000 condominium
  • Merrill Lynch Securities Account
  • $975,000 in cash and a $510,000 Condominium
  • $14,000 in cash

 

Yanelin testified that all of the transfers were gifts.  Milton conceded that Patricia did not directly or personally join with him in making any transfers of the marital assets to Yanelin.

The Trial Court

The Florida trial court found that all the assets accessed by Milton to make transfers to Yanelin came from the Wallace’s joint marital assets that were owned by Milton and Patricia as tenants by the entireties. The trial court also found that Milton conceded at trial that Patricia did not directly and personally join with him in making any transfers of joint marital assets to Yanelin. The trial court wrote in its order:

The burden is on the recipient of the property to establish the consent of the other spouse. . . . [T]he case at bar does not involve a “Grande” from Starbucks. It involves millions of dollars given by a married man to his mistress. Here consent is not reasonably implied but must be proved. Because Yanelin cannot carry the burden to prove that those millions of dollars were given with Patricia’s consent, Yanelin was unjustly enriched and equity will impose a remedy in the form of a constructive trust.

* * *

To recap: Over the course of a decade and a half, Milton Wallace gave millions of dollars in money and property to Ms. Torres-Rodriguez, with whom he was carrying on a romantic liaison. The money and property was held in tenancy by the entireties by Milton and his late wife Patricia. Without Patricia’s consent to these gifts, which consent I found that Ms. Torres-Rodriguez had not established by clear and convincing evidence, Milton had no legal right to give them and Ms. Torres-Rodriguez no legal right to receive and retain them.

* * *

Milton Wallace’s transfer of funds and assets to Yanelin Torres-Rodriguez was wrongful, and he knew it. Yanelin Torres-Rodriguez’s receipt and retention of those funds and assets was wrongful, whether or not she knew it. Ms. Torres-Rodriguez has been unjustly enriched.  The trial court found that Mark had made a showing for imposition of a constructive trust because Yanelin was unjustly enriched by Milton’s transfers.

 

However, the court also concluded that Yanelin had changed her position in reliance on Milton’s support, and refrained from finding whatever employment she would otherwise have been obliged to find.  The court allowed Yanelin to keep three out of the seven contested marital assets, or about $1.7 million of the transferred assets.  Both Mark and Yanelin appealed.

What Is Tenancy By the Entireties Under Florida Law?

“It is well settled in Florida that an estate by the entireties is vested in the husband and wife as one person, and neither spouse can sell, forfeit, or encumber any part of the estate without the consent of the other, nor can one spouse alone lease it or contract for its disposition without such consent.” Douglass v. Jones, 422 So. 2d 352, 354-55 (Fla. 5th DCA 1982).

Neither spouse may sever or forfeit any part of the [marital] estate without the assent of the other, so as to defeat the right of the survivor.” Sitomer v. Orlan, 660 So. 2d 1111, 1113 (Fla. 4th DCA 1995).

Read about Florida cases involving tenancy by the entireties disputes here, here, and here.

When Is a Constructive Trust Appropriate?

“A constructive trust may be imposed against a recipient of funds who has not engaged in the wrongful conduct that justifies the imposition of the trust.” Joseph v. Chanin, 940 So. 2d 483, 487 (Fla. 4th DCA 2006) (citing Browning, 784 So. 2d at 1148).

The correct remedy here was exactly as the trial court did, which was to impose a constructive trust because it is imposed as “an equitable remedy in a situation where there is a wrongful taking of the property of another.” Abele v. Sawyer, 750 So. 2d 70, 74 (Fla. 4th DCA 1999). In addition, the trial court may impose a constructive trust against a recipient of funds who has not engaged in any type of wrongful conduct. Browning v. Browning, 784 So. 2d 1145, 1148 (Fla. 2d DCA 2001).

Read What Is a Constructive Trust?

Who Has the Burden Under Florida Law Of Proving Transfers Of Tenancy By the Entireties Assets Was Proper?

In Florida, when a spouse or the legal representative of a spouse challenges a transfer of tenancy by the entireties property by the other spouse, the transferee has the burden of proving that the transfer does not adversely affect the interest of the other spouse and that the transfer was done with the full knowledge, assent and acquiescence of such other spouse.  The transferee has the burden of proving these two factors by clear and convincing evidence.

Here, Yanelin alleged that Patricia consented to Milton’s transfer of tenancy by the entireties assets.  The court did not believe her story. The court found that Yanelin did not carry her burden of proof in establishing that Patricia consented to the transfers.

Can a Defense of Change In Position Prevent The Imposition Of a Constructive Trust?

Maybe, but the defense has to be plead, and the defendant must change his or her position without being on notice that the receipt of the property was subject to question.  Neither of these requirements happened here.

If receipt of a benefit has led a recipient without notice to change position in such manner that an obligation to make restitution of the original benefit would be inequitable to the recipient, the recipient’s liability in restitution is to that extent reduced.

Here, Yanelin was not “without notice.” Yanelin knew she was receiving marital property — she kept inquiring whether Milton had filed the U.S. Gift Tax Return documents with the IRS, but she never determined if Patricia had consented to the transfer of Patricia’s assets. Yanelin cannot now claim that by not pursuing a job or going to school, she changed her position because she was on notice that she was receiving marital property that belonged to Patricia.

The Florida appellate court determined that the trial court erred when it allowed Yanelin to keep some of the marital tenancy by the entireties assets wrongfully transferred. Under the facts of this case, a constructive trust was the proper remedy to recover tenancy by the entireties assets wrongfully transferred by Milton to Yanelin during his marriage to Patricia, without Patricia’s consent.

The Florida appellate court ordered that all of the marital assets were to be disgorged by Yanelin to Mark so that they could be placed into the Irrevocable Trust.

 

 

 

 

 

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