Texas Divorce Attorney Blog
In a Texas divorce, “special community property” is community property that is under the sole management, control, and disposition of one spouse. Tex. Fam. Code § 3.102(a). Although special community property is under the sole management, control, and disposition of one spouse, disposition of that property must be fair to the other spouse.
When a spouse shows the other spouse disposed of community property without their consent or knowledge, there is a presumption of constructive fraud. The other spouse then has the burden of showing the disposition was fair. The court considers the relative size of the property to the total community estate, the adequacy of the rest of the estate, and the relationship of the parties involved in the disposition. In a recent case, a husband challenged the divorce decree that stated he had committed fraud on the community estate.
The parties had two children together. The husband’s two children from a previous relationship were adults by the time of the divorce. Each party alleged constructive and actual fraud on the community estate by the other.
The divorce decree stated both parties committed “waste” and actual fraud on the community estate. The decree valued the reconstituted community estate at $1,059,605.14 and awarded the wife 55%. It confirmed that certain real property in China was the wife’s separate property. It also awarded the debt for the wife’s attorney’s fees to the husband.
The husband appealed, arguing there was insufficient evidence supporting the fraud finding against him.
Constructive Fraud
The husband argued the trial court only found he committed actual fraud so the appeals court could not uphold the judgment based on a finding of constructive fraud. The appeals court rejected this argument, noting the trial court had found the husband “wrongfully conveyed community property. . . without the wife’s knowledge or consent.” The trial court also found the parties “had a fiduciary relationship during their marriage.” It stated it considered the “[f]raud and waste of the community” in its property division.
The language used by the court referred to constructive fraud. The trial court’s findings supported a conclusion it found the husband committed constructive fraud.
Lack of Wife’s Knowledge or Consent
The decree itemized the findings of constructive fraud by the husband, including transfers and allowances to his children, payment for their accommodations and tuition, support of and transfers to his mother, and a transfer to his sister.
The husband argued there was legally insufficient evidence the tuition and expenses for his children had been made without the wife’s consent or knowledge because her testimony was ambiguous.
The wife testified through an interpreter. When asked if she ever knew of or gave consent to the use of community property to pay their university accommodations, the wife responded, “I don’t know. I don’t agree either.”
The husband argued there was not any other evidence to support a finding she did not know about this use of the community funds.
The wife’s sworn inventory, however, indicated the husband had “wasted” $781,884.00 in community funds and listed the tuition and related expenses under a heading “Waste of Community Funds without knowledge and consent of wife.” The trial court’s finding of constructive fraud matched those allegations. The appeals court therefore concluded the wife’s inventory was some evidence the transactions had been made without her knowledge or consent, so there was legally sufficient evidence to support the finding.
The husband also argued the evidence was factually insufficient. There was evidence, however, that the parties agreed to have separate bank accounts and that the wife did not have access to or know about an account under the husband’s and his mother’s name. Many of the transactions were made from that account. The trial court could therefore reasonably infer the husband controlled the account and made the payments without the wife’s knowledge or consent. The appeals court concluded the evidence the husband made the transactions listed in the divorce decree without the knowledge or consent of the wife was factually sufficient.
Community Assets
The husband also argued the wife had not shown the funds were community assets.
The appeals court noted that there was a presumption the funds used to pay for the tuition and related expenses between 2014 and 2019 was community property pursuant to Tex. Fam. Code § 3.003(a). The husband therefore had the burden to show they were his separate property. Because he did not do so, there was legally sufficient evidence he used community funds.
The husband testified he set up 529 accounts for each of his children before the marriage and closed them in 2012. He could not remember why he closed them, but thought he sent some of the funds to China for an investment. He said the money had “already come back” and he used it on his children’s education. He did not provide any documentation and did not trace the funds that paid the education expenses to his separate property. There was also evidence he deposited part of his employment income into accounts that did not include the wife, including the one he shared with his mother that was used to pay some of the education expenses and for large transfers to his adult children. The appeals court concluded the evidence the husband used community funds to pay his children’s education expenses was factually sufficient.
The appeals court also concluded the evidence was legally sufficient to support a finding he committed constructive fraud with regard to the transfer to and support of his mother and rejected the husband’s argument the evidence was factually insufficient.
Separate Property
The husband also argued the trial court erred in finding the property in China was the wife’s separate property.
The husband testified the wife had not disclosed the property in China during discovery and had amended her sworn inventory to list it as her separate property only after he discovered it. He also said she had not provided evidence of its current value or documentation to support her claim it was separate property. He said she informed him it was bought during the marriage.
The wife’s sibling testified regarding the property and how it was acquired.
The wife had the burden to rebut the community property presumption because the property was purchased during the marriage. Testimony that real property was bought with separate property funds without tracing is generally not enough to rebut the community presumption. The appeals court stated the sibling’s testimony was “contradictory and unclear. . .” Combined with the wife’s initial failure to disclose the property and to present supporting, the appeals court could not conclude there was clear and convincing evidence to rebut the presumption and show the property was her separate property.
The trial court had not considered the property in China in its property division and the husband valued it at approximately $110,762. The appeals court concluded the erroneous characterization of the property had a greater than de minimis effect on the property division.
Attorney’s fees
The appeals court also concluded the trial court erred in awarding the husband the wife’s attorney’s fees debt without evidence the fees were reasonable and necessary. The appeals court concluded the award of fees was authorized but there was insufficient evidence supporting the amount.
The appeals court reversed the property division and award of the debt of the wife’s attorney’s fees to the husband and remanded to the trial court for a new property division and a new hearing on attorney’s fees.
Protect What’s Rightfully Yours
It can be easy for a spouse with sole control over bank accounts or other assets to improperly transfer assets to a third party. This issue can often arise when the spouse has adult children from a previous relationship. If you are concerned your spouse may try to transfer community assets to a third party before your high net worth divorce, a knowledgeable Texas divorce attorney can help you fight for your fair share. Schedule a consultation with McClure Law Group at 214.692.8200.