Second Wife Loses Homestead Protection Because She Bought Homestead with Proceeds from Property Husband Placed in Trust for Children Prior to His First Wife Dying

By Zana Holley Dupee, Esq., B.S.C.

Board Certified Real Estate Attorney

     The homestead protection that homeowners have in the state of Florida helps prevent Floridians from losing their homes due to debts owed to creditors.  However, Florida law does allow equitable liens to be imposed on homestead property, particularly in cases of fraud.  In the recent case of Hirchert Family Trust v. Hirchert, 36 Fla. L. Weekly D1290 (Fla. 4th DCA 2011), the Florida Appeals Court found that the Husband violated his fiduciary duties as Trustee, so that the beneficiaries of the Trust were entitled to an equitable lien against his 2^nd wife’s homestead property.

     In that case, the Husband and his first wife lived in California. They created two trusts which provided that upon the death of the first spouse, all their assets, including their marital home in California, would be divided into a Survivor’s Trust for the benefit of the 2^nd spouse to die and a Residuary Trust for their children. The first wife died and pursuant to the trusts, the marital home was divided between the two trusts with 75 percent placed in the Residuary Trust for the children and the remaining 25 percent was placed in the Survivor Trust.

     The Husband was Trustee of both trusts, and the Residuary Trust only permitted him to access the earnings of the Residuary Trust, but not the assets held in the trust. He married a second wife and signed a deed transferring the title of the marital home from the Residuary Trust to himself, which violated the terms of the trust.  This transfer was a breach of his fidiciary duty as Trustee.  Later, he sold the home and used the proceeds to purchase a new home with the second wife.  They subsequently sold that property and bought another one in California as joint tenants. The husband died, and his second wife sold their home and used the proceeds to purchase a home in Florida.

     The successor trustee of the residuary trust subsequently filed suit against the second wife to require her to convey to the Residuary Trust 75 percent of the proceeds that the Husband obtained from the sale of the original home.  The court found that the Husband had breached his fiduciary duty as Trustee by conveying the title of the original home from the Residuary Trust to himself and held that 75 percent of the proceeds were traceable to the second wife’s current Florida homestead property.

     The Florida Appeals Court held that the Husband’s breach of his fiduciary duty was “constructive fraud” and thus may form the basis to apply the equitable lien exception to the homestead protection rules. Accordingly, the court held that the second wife’s homestead property was subject to an equitable lien for 75 percent of the proceeds that the Husband had obtained from the sale of the original home.

     If you need assistance with real estate, probate or trust litigation, you can call Zana Holley Dupee to schedule a consultation at (352) 379-5900.