Texas Divorce Attorney Blog
Large inheritances, trusts, and gifts can complicate the property division in a Texas divorce. A spouse’s separate property includes the property they received during the marriage through gift, descent, or devise. Tex. Fam. Code § 3.001. In a recent case, a former husband challenged his divorce decree that characterized mineral rights he obtained from his mother’s trust as community property.
According to the opinion, when the husband’s mother died, she left a trust for the benefit of the husband’s father during his lifetime. The trust included mineral rights to certain property, which the husband’s father transferred to the husband and his siblings on November 1, 2009. The deed stated the grantor transferred the mineral rights to the husband and his five siblings “[f]or an adequate consideration paid and received.”
The husband testified his father gifted each sibling $12,000 from their mother’s estate to purchase the mineral rights. He presented a carbon copy check for $12,000 dated November 19, 2009, but it did not have an account number, payor name, or signature. A bank statement for the parties’ joint account reflected a $12,171 deposit on November 23 and a check for $11,130.50 on December 3. Those records did not indicate the source of the funds or who deposited them. They also did not show who wrote the check or who received it.
The husband’s sister testified the siblings got equal shares of the mineral rights from the trust when their father gave them $12,000 and told them to deposit it and write a check to buy the rights. She said she got the check after the deed was executed.
The wife testified it appeared the husband used the check to buy the mineral rights, but she did not “know what the purpose of [the $12,000 check] was.”
The husband testified he had created entities and opened accounts to separate his inherited property and the resulting income from the community estate. His expert testified regarding tracing the various assets. The wife’s expert testified that tracing the mineral rights failed and the mineral rights and resulting income were community property.
The trial court determined the mineral rights were community property. The court noted the transaction amounts did not match and the deed stated adequate consideration had been “paid and received.” It found the clearinghouse and identical sum inference tracing methods did not apply. The court held the deed indicated the transfer had been completed on November 1, before the financial transactions occurred. Additionally, it did not find the husband’s testimony regarding the check credible. The court found the mineral rights deed did not contain any recitation of gift and was not a gift deed. The court also found the mineral rights were sold for an unspecified amount and that transaction was completed well before the later financial transactions. The trial court concluded the mineral rights and resulting royalties received during the marriage were community property. The trial court also concluded the husband had not established that he used separate property to obtain his interest in a particular limited partnership. The value of the reconstituted community estate was over $10 million.
The husband appealed, arguing the court erred in concluding the mineral rights were community property.
Parental Gift Presumption
He argued the court erred in failing to consider and apply the presumption that a property transfer from a parent to their child is a gift.
The appeals court concluded the trial court had not failed to consider the parental-gift presumption with regard to the deed. The court had rejected the argument, but had discussed evidence that rebutted the presumption.
The husband argued the mineral rights were his separate property because of the parental gift presumption.
The appeals court concluded the husband’s own evidence rebutted the presumption. The deed stated adequate consideration had been paid for the rights. Additionally, the husband testified he wrote a check to buy the mineral rights. The husband’s expert witness testified the husband received the mineral rights “as a result of a purchase of one-sixth of the mineral interest from his mother’s estate. . .” and bought the rights with a gift from his father. The appeals court concluded there was sufficient evidence supporting the finding the deed was not a gift.
Tracing Methods
The husband also argued the trial court erred in failing to consider all applicable tracing methods, but the appeals court disagreed.
The husband argued he had shown by clear and convincing evidence that he purchased the mineral rights with his separate property gifted by his father. He argued he traced the separate funds from being deposited into the joint account to the check used to purchase the mineral rights through community-out-first, identical-sum, and clearinghouse methods.
The appeals court concluded there was sufficient evidence to support the determination the funds were not adequately traced as separate. The carbon copy of the check did not reflect the account number or signature, nor did it include a memorandum stating its purpose. The bank statement did not indicate which party was involved in the transactions or identify the other party. The appeals court noted there were a number of transactions between the deposit and the check. Additionally, there were $25,182 in deposits and $24,063.73 in withdrawals that month.
The wife’s expert testified he did not think there was sufficient support that the $12,171 was separate property and he would want documentation the funds from the check were part of the deposit for $12,171.
The appeals court determined the record supported a finding the husband had not shown by clear and convincing evidence that he received $12,000 in separate funds. It then considered whether he had traced separate property through three methods.
Community-Out-First
The appeals court also considered whether the husband had traced separate property through three different tracing methods. The husband’s expert testified documentation of the funds was not sufficient to support the community-out-first method. The community-out-first method presumes community funds are withdrawn before separate funds from a commingled account. The wife’s expert testified that, even if the deposit had a separate component, there would still be a community component to the outgoing check this method. He also testified he would trace it all as community property because he did not believe there was sufficient support there was a separate property component to the $12,171.
Clearinghouse
Under the clearinghouse method, there is a presumption that when separate property is deposited into a commingled account followed by a withdrawal of a similar amount, the withdrawal is also separate property. Under the clearinghouse method, the withdrawal does not have to be the exact amount deposited.
Without documentation, however, the appeals court could not conclude the husband had shown that the court’s finding was against the great weight of the evidence.
Identical Sum Inference
The identical sum inference method is similar to the clearinghouse method, but involves a single deposit and withdrawal in amounts that are identical or close to it. The appeals court reached the same conclusion with regard to the identical-sum-inference as it did with the clearinghouse method based on the lack of documentation.
The appeals court affirmed the decree.
Call a Dallas Divorce Lawyer
If you are considering divorce and have received or are anticipating receiving an inheritance, gift, or trust assets, a skilled Texas family law attorney can advise you on your options to protect your assets. Schedule a confidential meeting with McClure Law Group at 214.692.8200.