Wife’s Fraudulent Transfer Claim Against Husband For Transferring Business Interests To Trust Failed Due To The Statute Of Repose

Winstead PC
Contact

Winstead PC

In Austin v. Mitchell, a wife filed suit alleging her ex-husband fraudulently transferred a portion of his limited partnership interest in a family limited partnership to a trust for the benefit of his children. No. 05-19-01359-CV, 2021 Tex. App. LEXIS 4536 (Tex. App.—Dallas June 8, 2021, no pet. history). The trial court granted summary judgment for the husband and the wife appealed.

The court of appeals first discussed the husband’s statute of repose defense. The wife alleged that the transfer of the husband’s partnership interest to the trust was fraudulent because it was made: without fair consideration and the husband was left insolvent as a result (Tex. Bus. & Com. § 24.006(a)); with the actual intent to hinder, delay, or defraud the wife (id. § 24.005(a)(1)); or without receiving reasonably equivalent value at a time when the husband believed or should have believed his debt to the wife was beyond his ability to pay as payments became due (id. § 24.005(a)(2)(B)). The court discussed the statute of repose for fraudulent transfer actions:

Section 24.010 provides that a cause of action with respect to a fraudulent transfer “is extinguished” unless action is brought: (1) under Section 24.005(a)(1) of this code, within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant; (2) under Section 24.005(a)(2) or 24.006(a) of this code, within four years after the transfer was made or the obligation was incurred; or (3) under Section 24.006(b) of this code, within one year after the transfer was made… Statutes of repose are absolute in nature and, while they may work inequitable hardship in some cases, the “Legislature has balanced this hardship against the benefits of the certainty that a statute of repose provides by extinguishing claims upon a specific deadline.”

Id. Because the evidence showed that the wife should have known of the transfer more than four years before the suit due to the husband’s testimony in a deposition attended by the wife’s attorney, the court affirmed summary judgment on the repose defense.

The wife had also asserted an accounting and disgorgement claim against the trustee of the trust. The court of appeals held that the wife did not have a sufficient connection to the trust to have standing to bring those claims. Regarding standing, the court stated:

The property code provides that an “interested person” may bring an action against a trustee for an accounting and to make determinations of fact affecting a trust, including determinations regarding trust administration and distributions. Tex. Prop. Code §§ 115.011, 115.001. An “interested person” is: [A] trustee, beneficiary, or any other person having an interest in or a claim against the trust or any person who is affected by the administration of the trust. Whether a person, excluding a trustee or named beneficiary, is an interested person may vary from time to time and must be determined according to the particular purposes of and matter involved in any proceeding. Tex. Prop. Code § 111.004(7).

Id. The wife alleged that because she had a claim against the trust, she had standing. The court disagreed, and held that because the wife’s claim was meritless, she did not have sufficient connection to the trust:

Absent her fraudulent transfer claim against Mitchell, Austin has no claim against the trustee. She did not allege and there is no evidence that the trustee owed any duty to Austin. Any claim she has is through claims against Mitchell, and the only claim alleged was fraudulent transfer, but that claim is extinguished by the statute of repose. Thus, she does not have a “claim against the trust.” Prop. § 111.004(7). Mitchell testified in his affidavit that he does not control the trust and has never used its accounts for his personal expenses. Mitchell created the irrevocable trust for the benefit of his children; its purpose is to provide for the health, education, maintenance, and support of the beneficiaries. Austin is not a beneficiary or trustee of the trust. She is not named as a contingent beneficiary and the trust document expressly excludes her from becoming a successor trustee. Considering the purpose of the trust and the matter involved in this proceeding, Austin is not an interested person and does not have standing to bring her claims against the trustee.

Id.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Winstead PC | Attorney Advertising

Written by:

Winstead PC
Contact
more
less

Winstead PC on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.