Texas Appeals Court Concludes Stock Issued by Husband’s Employer Was Community Property

There is a presumption that property possessed by a spouse during or on Texas marital dissolution is community property. A party claiming separate property must prove its separate character by clear and convincing evidence.  Tex. Fam. Code § 3.003.  In a recent case a wife appealed the trial court’s characterization of stock shares granted to the husband by his employer.

Stock Shares

According to the appeals court’s opinion, the parties got married in December 2006.  The husband started a new job in February 2015 and the next year received a million shares of the company’s stock.  The husband stated he had entered into an agreement with the company when he received the stock, but could not find it and could not get a copy from the company. The stock certificates did not indicate why they were issued.

The husband’s employment contract provided that he would receive an annual salary of $100,000.  Additionally, he would receive a signing fee, an additional payment upon the next fundraising event, and an annual payment for four years, as compensation for “assets, access to ‘[husband’s] IP,’ and inventory” the husband provided pursuant to the employment agreement.  The company also agreed to take on certain debts and liabilities the husband owed.  The contract indicated the husband would receive “a total compensation of over $750,000” for the use of the husband’s assets and intellectual property, without referencing the stock shares.

The wife argued there was insufficient evidence to rebut the community asset presumption with regard to the stock.

The husband presented a letter from the company’s CEO that stated the company gave the husband the stock in exchange for a right and license to use his intellectual property.  The CEO testified he was referring to the husband’s “experience developing rocket technologies. . .” from 2000 until he started working with the company.

The husband testified, however, that his intellectual property was “core technologies” he developed before the marriage. He claimed the intellectual property he developed after the marriage was “derivative. . .” He did not provide documentation identifying those core technologies or showing when they were created, nor did he have any patents, trademarks, or copyrights for them. He claimed the intellectual property was “in [his] head” and embedded within the “deliverables” he provided to the company, but could not identify that embedded intellectual property.

The trial court concluded the stock shares were the husband’s separate property because they were issued in exchange for property he had before the marriage.

The Wife’s Appeal

The wife appealed.  The appeals court concluded the evidence presented by the husband “was both vague and unsupported. . .” The employment contract reflected more than $750,000 as compensation for the license to use the intellectual property without mentioning the stock.  The CEO testified that the company granted the stock to the husband in exchange for the use of his intellectual property, which he identified as the husband’s experience from 2000 until 2015, which included the period of the marriage.

The appeals court noted the husband did not have any documentation regarding his intellectual property or when he developed it.  He testified he could not identify the intellectual property the company used.  The appeals court concluded the husband did not meet the burden of proof of showing by clear and convincing evidence that the stock was community property.

The appeals court further concluded that, even if the stock had been granted in exchange for the use of the husband’s intellectual property created before he got married, it would not be characterized as separate property.  There is Texas case law that holds that revenue generated while the parties are married from intellectual property created prior to the marriage is community property. Alsenz v. Alsenz. The husband argued that the proceeds of a sale of separate property constitute separate property.  The appeals court disagreed, however, noting that the husband’s evidence showed he had granted the company a non-exclusive license and had not sold the intellectual property outright.  The appeals court therefore concluded that the stock constituted revenue generated from the intellectual property instead of an exchange of assets.  The revenue was generated while the parties were married and was therefore community property.

The appeals court concluded the trial court abused its discretion in characterizing the stock as separate property. The appeals court reversed and remanded so the trial court could re-divide the marital property.

Call an Experienced Family Law Attorney

If you are considering divorce, a skilled Texas divorce lawyer can work with you to determine if some of your assets may be separate property. Set up a consultation with McClure Law Group at 214.692.8200.

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