145 F. Supp. 3d 278
S.D.N.Y.2015Background
- Suzanne and Lawrence McCarthy divorced in 2012; their Marital Settlement Agreement (MSA) required Lawrence to maintain $4,000,000 of life insurance with Suzanne (50%) and their two daughters (25% each) as beneficiaries and to pay college expenses.
- From 2011–2013 Lawrence made roughly $357,106 in transfers/payments for the benefit of his girlfriend, Kateryna Zakharenko, without receiving consideration and while owing significant debts (tax liabilities, unpaid credit cards, and unmet MSA obligations).
- Prior to his death in December 2013 several required life policies lapsed or were misissued; Plaintiffs recovered only ~$50,000 from one policy and learned of a $500,000 Aetna policy whose enrollment form listed Zakharenko as beneficiary, while employer records suggested Suzanne was the beneficiary.
- Aetna deposited $495,000 with the Court and was dismissed; Plaintiffs and the Estate settled conditionally that the Estate would be liable for $3,949,785.17 less any recovery from Zakharenko.
- Zakharenko largely failed to participate in discovery and pretrial obligations, offered no trial evidence, and advanced few defenses at the bench trial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Were transfers to Zakharenko constructively fraudulent under N.Y. Debtor & Creditor Law § 273? | Transfers were without consideration and Decedent was insolvent, so transfers are constructively fraudulent. | (Zakharenko presented no evidence to rebut presumption of fraud/insolvency.) | Yes. Decedent was insolvent; transfers (2011–2013) were constructively fraudulent and Zakharenko is liable for $357,105.83 (less any returned funds). |
| Are Plaintiffs entitled to Aetna policy proceeds despite a named beneficiary dispute? | Plaintiffs have an equitable right under the MSA and a constructive trust should be imposed on proceeds. | (Zakharenko argued she was beneficiary; also raised ERISA concerns.) | Yes. Court imposes a constructive trust on the $495,000 deposited with the Court and orders distribution to Plaintiffs per MSA shares. |
| Does ERISA preempt imposition of a post-distribution constructive trust on plan proceeds? | Post-distribution equitable adjudication does not conflict with ERISA’s objectives and thus is not preempted. | ERISA objectives favor finality/administration; may limit state-law remedies. | ERISA does not preempt here: Aetna deposited proceeds and was dismissed, so equitable claims may be adjudicated post-distribution. |
| Are Zakharenko's crossclaims for fees and expenses viable? | N/A (Zakharenko claimed fees/expenses). | Plaintiffs opposed; Zakharenko offered no proof or argument at trial. | Dismissed with prejudice for lack of proof. |
Key Cases Cited
- United States v. Watts, 786 F.3d 152 (2d Cir.) (discusses elements of constructive fraudulent transfer analysis under New York law)
- In re Sharp Int’l Corp., 403 F.3d 43 (2d Cir.) (explains insolvency and fair consideration elements for fraudulent transfer claims)
- Simonds v. Simonds, 45 N.Y.2d 233 (N.Y.) (equitable right and constructive trust for life insurance proceeds pursuant to separation agreement)
- Rogers v. Rogers, 63 N.Y.2d 582 (N.Y.) (similar equitable remedies for life insurance where contractual obligation existed)
- Kennedy v. Plan Admin. for DuPont Sav. & Inv. Plan, 555 U.S. 285 (U.S.) (articulates ERISA objectives relevant to preemption analysis)
- Andochick v. Byrd, 709 F.3d 296 (4th Cir.) (post-distribution equitable remedies do not necessarily conflict with ERISA objectives)
- Cadle Co. v. Newhouse, 74 Fed.Appx. 152 (2d Cir.) (creditor may recover money damages from transferees/beneficiaries of fraudulent conveyances)
- Neshewat v. Salem, 365 F.Supp.2d 508 (S.D.N.Y.) (money judgment may be entered where fraudulently transferred assets no longer exist)
- Boggs v. Boggs, 520 U.S. 833 (U.S.) (ERISA’s special protections for surviving spouses in certain contexts)