When general contractors or upstream subcontractors handle payment draws for construction projects, the laws in Wisconsin impose especially strict rules. For contractors seeking guidance, the role of theft by contractor statute experts is crucial to understanding how Wisconsin law can impose personal liability on business owners and executives who misapply funds. This article explains what Wisconsin’s theft by contractor statute (Wis. Stat. § 779.02(5)) covers, how it works in practice, common defenses and risks, and what contractors should do to protect themselves.

What the Statute Covers

Wis. Stat. § 779.02(5) creates a trust-fund obligation for any contractor or subcontractor that receives payment from a project owner. Essentially, when an owner pays a general contractor, those funds are held in trust for the benefit of subcontractors and suppliers who worked or will work on that project. If the contractor uses those funds for any purpose other than paying labor and materials—such as overhead, payroll for unrelated jobs, or unrelated business expenses—that misuse can trigger liability under the statute.

Importantly, the statute imposes both civil and potentially criminal exposure. Under the statute, liability can extend to officers, directors or other agents of the contracting entity. The core goal: protect the chain of payment so that subcontractors and suppliers are paid before funds are diverted elsewhere.

How It Works in Practice

Consider a scenario: A general contractor receives a draw from the owner intended to cover subcontractors. Instead of directing those funds to the subs, the contractor pays unrelated corporate expenses first. A claim under Wisconsin’s statute could allege a breach of the trust obligation and lead to personal liability—even if the contractor eventually pays the subs later.

One illustrative case involved an arbitration award awarding the contractor payment, but the subcontractors were not paid; the Wisconsin appellate court emphasized the contractor’s continuing trust obligation for all funds received, not just the one draw.

In essence, each dollar paid by the project owner is earmarked—legally—for the subcontractors and suppliers first. Failure to pay them before diverting those funds may bring claims of theft by contractor.

Key Risks and Personal Exposure

The liability under the statute can be severe. Contractors not only are at risk of civil exposure requiring repayment of misused funds, but officers and agents may face personal liability. Moreover, in some cases, criminal charges can be pursued under complementary statutes (for example Wis. Stat. § 943.20) when the trust fund misuse aligns with theft by fraud. 

This exposure makes the statute particularly significant: one contractor’s failure to pay subs can trigger liability for the business entity and its managers. Contractors underestimate the reach of these laws at their peril.

Defenses and Mitigation Strategies

While the statute is strict, there are defenses and strategies contractors can adopt. Key steps include maintaining clear segregated accounts for each project, ensuring timely payment of subcontractors and suppliers, tracking all payments and job draws, and avoiding commingling funds from multiple projects or using project funds for unrelated business purposes.

Contractors faced with claims often raise defenses such as: (1) arguing that the funds received were insufficient to cover subcontractor claims, (2) asserting that they promptly used funds when available, or (3) contending that the trust obligation ceased once all subs were paid. But courts in Wisconsin have made clear that the obligation persists until all valid subcontractor and supplier claims are satisfied.

What Contractors Should Do Now

If you’re a general contractor or upstream subcontractor operating in Wisconsin, proactive steps are essential. First, have your books reviewed by legal and accounting experts to confirm each project fund is properly managed. Second, ensure your contracts, draws and payment schedules reflect the trust-fund nature of the statute. Third, train your staff on the statute’s obligations: when funds are received, they are not available for business-as-usual expenses until subcontractors and suppliers are paid. Fourth, if you face a claim under the statute, engage counsel experienced in construction-lien and trust-fund statutes immediately to evaluate exposure and strategy.

Final Thoughts
Wisconsin’s theft by contractor statute is powerful and far-reaching. It transforms ordinary project payments into legal trust obligations and can impose personal liability on contractors and their management. By understanding the statute, maintaining disciplined financial practices, and seeking expert guidance early, contractors can significantly reduce the risk of catastrophic claims. For industry participants, the time to act is now—because once funds are misused, the statute’s consequences can be swift and severe.