Texas Divorce Attorney Blog
High net worth divorces and business divorces can often be contentious. In some cases, spouses may allege fraud or other improper actions by the other spouse. There is a presumption of fraud when a spouse disposes of the other’s one-half interest in a community asset without their consent or knowledge. Cantu v. Cantu. The presumption shifts the burden to the spouse who disposed of the property to show that the transaction was fair. Key v. Key. In a recent case, a former wife appealed issues related to alleged fraud and the property division.
The parties operated a jewelry business during their marriage. The wife petitioned for divorce in January 2019. The parties agreed that the fraud and reconstitution of the community estate issues would go the jury and the property division would be tried by the bench. The jury found that both parties committed fraud on the community. The jury was asked to evaluate the fairness of certain transactions from the wife to her mother and found that the wife unfairly depleted the community estate by $1,269,720.35.
The court determined the reconstituted estate had over $4.5 million in assets and over $470,000 in debts. The court allocated 50.51% of the assets to the wife and 49.49% to the husband. More than half of the assets allocated to the wife was the value of her unfair transactions as determined by the jury. The assets allocated to the husband included properties valued at about $1.9 million and the jewelry business. The court also allocated 70.36% of the debts to the wife. The court also ordered the wife to pay the husband a $131,710 equalization payment. Ultimately, the husband received 55% of the reconstituted estate and the wife 45%.
Court’s Refusal to Disregard Jury Findings
The wife appealed, arguing the court erred in refusing to disregard jury findings that three transactions were unfair. Those transactions were: a $215,000 deposit into the mother’s account, a $250,000 transfer to an undisclosed brokerage account, and a $200,000 transfer to another of her mother’ s accounts.
$215,000 Deposit
The wife argued the jury question regarding the $215,000 deposit on January 18, 2019 duplicated two other questions which asked about a check she wrote for $65,000 on January 17 and a check for $150,000 on January 18. She argued the $215,000 deposit was from the same funds as the two checks.
The evidence showed the wife wrote her mother a $65,000 check dated January 17 from a joint account and $65,000 was deposited into the mother’s account from that joint account. The evidence also showed the wife wrote the mother a $150,000 check dated January 18 from a different joint account and that $150,000 was deposited into the mother’s account from that joint account.
The analysis by the wife’s expert found that the $65,000 deposit and the $150,000 deposit the only two deposits into that account belonging to the wife’s mother in 2019. The account summary also showed a total deposit of $215,000 and indicated two deposits were made.
The appeals court determined there was “conclusive evidence” that the jury’s finding regarding the $215,000 duplicated its findings regarding the two checks. The appeals court further determined that there was legally insufficient evidence to support a finding that the deposit and the checks were all unfair.
The appeals court concluded the court abused its discretion in not disregarding the duplicate finding.
Brokerage Transfer
The wife also argued she had not made the $250,000 transfer to a brokerage account and the husband had not provided any other evidence indicating she did.
The parties agreed to submit specific transactions to the jury and the jury was charged with considering those transactions. The question asked the jury, ““Were the following transfers or transactions made by [the wife] to her mother. . . fair?” The question did not ask the jury to determine who made the transfers but instead indicated they were all made by the wife to the mother. The wife did not object to the language, so the appeals court determined she had waived any claim that the charge should have included a determination of who made the transfer.
The appeals court further found the wife had not met the burden of showing this transaction was fair. The appeals court concluded there was no abuse of discretion in the court’s refusal to disregard this finding.
$200,000 Transfer
The wife also argued there was insufficient evidence she had made a $200,000 transfer from a joint Chase account to her mother’s Chase account. The appeals court determined there was no evidence this transfer occurred. The appeals court concluded the trial court abused its discretion when it refused to disregard the jury’s finding.
Reconstituted Estate
The wife also argued the court erred in calculating the reconstituted estate. The reconstituted estate included the amount by which the jury found she depleted the estate and three instances of fraud totaling $242,582.28 that had not been submitted to the jury.
The wife argued the parties agreed on the specific questions to submit to the jury and the jury had found constructive fraud in the amount of $1,269,720.35. She argued the court abused its discretion when it added these allegedly fraudulent transactions to the reconstituted estate.
The appeals court noted the transactions were presumed fraudulent because the wife had not presented evidence the husband knew about or consented to them. The presumed fraudulent transactions should have been submitted to the jury as trier-of-fact. Omitting them from the jury charge waived them. The trial court therefore abused its discretion by including these transactions in the reconstituted estate.
Offset
The wife argued the court erred by failing to consider funds her mother returned to the estate in reconstituting it. She claimed that the mother had transferred $1,013,033 to the community estate and argued those funds should have offset the amount of fraud.
The appeals court stated, however, that she had the burden of proving she was entitled to an offset. She had not presented evidence tracing the returned funds to the community estate. She claimed the funds “had dissipated through other means.” The appeals court concluded she had shown she was entitled to an offset.
Business Valuation
The wife challenged the court’s award of the business solely to the husband. She argued there was not any reliable evidence of the business’s value, but the appeals court pointed out she had not provided a valuation. Previous case law has held that a party who does not provide a property values cannot argue on appeal that the court did not have sufficient information for a proper property division. An appeals court, however, will not uphold a property division with no evidence supporting it.
The appeals court pointed out that property to be divided is generally valued based on market value. A property owner may be allowed to testify about their property’s market value without being an expert if they are familiar with the asset and its market value.
The husband did not opine on the fair market value of the business, but testified about the business’s assets, debts, and average income for the past two years.
The husband’s testimony showed his knowledge of the finances and operations of the business and the appeals court concluded it was some evidence of the business’s value. With some evidence supporting the valuation, the appeals court concluded there was no abuse of discretion in the court’s valuation of the business.
The appeals court also considered the husband’s cross appeal and determined the court erred in not considering the registry funds in the division of the community estate.
The appeals court reversed the property division portions of the divorce decree and remanded with instructions for the trial court to make a new determination and property division.
Call McClure Law Group
Fraud allegations can complicate an already complex property division. If you believe your spouse may be improperly transferring funds in anticipation of a high net worth divorce, you should contact a knowledgeable Dallas divorce attorney. Set up a consultation by calling 214.692.8200.