Do you know anyone who has given their married child an acre or two out of a larger tract so they could build a home? Transferring the title up front relinquishes all control over the property, so it is easy to put off hiring the lawyer and surveyor to prepare a deed to the couple prior to construction. But if the marriage ends, the consequences of that procrastination, both financially and emotionally, can be devastating. Informal agreements that result in construction of a residence on real property owned by a spouse's parent is more common than you think. What does the law have to say about it?
Section 26.01 of the Business and Commerce Code contains what is commonly referred to as the Statue of Frauds. It contains a list of agreements that must be in writing in order to be enforceable. One such agreement that must be in writing is a contract for the sale of real estate. No deed, no lawsuit, right? Trumping the Statute of Frauds is the concept of constructive trust and civil conspiracy. Spouses are in a fiduciary relationship to each other, as a matter of law. That means that each owes the other a duty of utmost good faith and fair dealing. If the grandparents and the spouse are also in a "trusting" relationship, a fiduciary relationship is formed between them. Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 176 (Tex. 1997);
How does the case usually play out? Presume that husband's family allowed he and his wife to build a house on the family property. When the marriage ends and wife realizes that the house she and the children are living in belongs to the in-laws, wife will rightly express outrage and demand part of the value of that asset. The most common allegation is that the husband's parents and the husband were involved in a conspiracy to commit fraud against the community estate. She will further allege that the grandparents were unjustly enriched by the home built on their property. Since there is normally a close relationship between husband's parents and their daughter in law, and that relationship necessarily involves trust between them, wife's attorney will attempt to establish a fiduciary relationship between them, and allege a breach of that trust relationship. The grandparents surely knew that a house was being built on the property, and if they are allowed to keep the improvements, they will be "unjustly enriched." They intended for their son and his family to live there. It is unlikely that the wife had a conversation (at least one that she will remember) with husband's parents in which it was made clear to her that she did not own anything, and never would. Wife's attorney will attempt to impose a constructive trust on the property, ask the judge to appoint a receiver, and sell the property. In the course of the litigation, the land owner grandparents will be added to the divorce as third party defendants. Surveyors, appraisers and lawyers will be hired and paid.
There are defenses to the suit, depending on the fact situation. The statute of limitations is four years, but it is not hard and fast. When should wife have learned that she did not own the property? If the transaction amounted to fraud, when should she have discovered it? Who was paying the taxes on the property? Did the wife have reason to believe that the title had been transferred to them? Waiver, estoppel, ratification and laches round out the most common defenses.
The suit is guaranteed to produce sleepless nights and a big hit to the bank account. If your child's family needs an acre to build a house, remember that this particular good deed will only go unpunished if the property is conveyed by warranty deed. You may lose control of the property in the event of a divorce, but look at it this way - is it better to have your ex daughter in law and her biker boy friend living in the house, or spend a year in litigation culminating in three days at the courthouse in which your integrity and motives have been on public trial before your friends and neighbors?