## Facts

- Roger Allen, an employee of United Mortgage Company (UMC), embezzled more than $500,000 from UMC.
- Embezzled funds were used to construct or increase equity in the marital home and to acquire or enhance other assets later divided in the dissolution.
- In the dissolution decree incorporating stipulated permanent orders, Pamela Allen received $93,200 in cash and a $75,000 promissory note secured by a deed of trust on the marital home.
- Pamela conveyed her interest in the marital home to Roger after receiving the cash, note, and deed of trust.
- Roger funded the cash payment largely through a bank loan secured by a second deed of trust on the marital home; Pamela used most of the cash received to purchase a new residence.
- After the embezzlement was discovered, UMC intervened in the dissolution proceeding seeking equitable relief against property received by Pamela that was traceable to the stolen funds.
- The trial court denied relief, finding Pamela was a bona fide purchaser for value; the court of appeals reversed and ordered the permanent orders set aside and property redivided considering UMC’s interests.

## Issues

1. Whether a dissolution property settlement incorporated into permanent orders may be reopened when the division was based on a spouse’s fraudulent concealment and misrepresentation that marital assets were derived from embezzled funds.
2. Whether the embezzlement victim may pursue equitable remedies (constructive trust or equitable lien) against dissolution-distributed assets traceable to the stolen funds held by the innocent spouse.
3. Whether the receiving spouse qualifies as a bona fide purchaser for value as against the defrauded third party’s equitable claim.
4. Whether Colorado’s stolen-property statute independently authorizes constructive-trust relief, or whether equitable relief rests on nonstatutory principles.

## Decision

- The Colorado Supreme Court affirmed the court of appeals’ judgment remanding for reconsideration of property rights in the dissolution proceeding.
- The Court held the permanent orders could be set aside and the property division reopened because the division was premised on fraudulent concealment and misrepresentation about the nature and source of the marital estate.
- The Court held UMC could pursue equitable relief, including a constructive trust or equitable lien, against assets in Pamela’s possession traceable to embezzled funds.
- The Court rejected the trial court’s conclusion that Pamela was a bona fide purchaser for value, determining she did not give value sufficient in relation to the embezzled property she received.
- The Court held the stolen-property statute did not itself create a constructive-trust remedy, but equitable doctrines supported relief based on tracing and unjust enrichment.

## Legal Principles

- A dissolution decree’s property provisions may be reopened when the division rests on fraud that materially misstates the marital estate, including concealment that property is derived from theft or embezzlement.
- A marital property division cannot cut off a defrauded third party’s superior equitable interest in identifiable property or proceeds traceable to misappropriated funds.
- Constructive trust and equitable lien remedies may be imposed on property held by a transferee who is not a bona fide purchaser for value, to prevent unjust enrichment when stolen funds are traced into the property.
- A transferee’s status as a bona fide purchaser for value depends on whether value was given that is sufficient relative to the property received; disproportionate value may leave the transferee subject to equitable claims for the excess.
- Statutory remedies related to stolen property do not displace traditional equitable remedies; equitable relief may be granted independent of the statute when tracing and unjust enrichment are shown.

## Conclusion

The court permitted reopening of dissolution property orders procured through concealment that the marital estate was built with embezzled funds and allowed the embezzlement victim to seek a constructive trust or equitable lien on traced assets received by the spouse who did not qualify as a bona fide purchaser for value.


In re Marriage of Allen, 724 P.2d 651 (Colo. 1986)