Texas Appeals Court Reverses Restitution and Reconstitution of Community Estate

A party to a Texas divorce is entitled to reimbursement to the marital estate when community time, labor, or skills are used to benefit the other party’s separate estate beyond what is needed for maintenance of the separate property.  The trial court has broad discretion to apply equitable principles.  A former wife recently challenged a divorce decree that granted her former husband’s requests for reimbursement and reconstitution of the community estate.

According to the appeals court’s opinion, the husband requested a disproportionate share of the community property and reimbursement to both the community estate and his separate estate.  He argued the wife’s separate estate had benefited from both the community and his separate estate.  He also alleged the wife conspired with her daughter “to accomplish an unlawful purpose and/or to accomplish a lawful purpose by unlawful means” to dispose of the proceeds from the sale of a house. He sought actual and exemplary damages as well as attorney’s fees.

The wife also requested a disproportionate share of the community estate. She argued the civil conspiracy claim was barred by both the statute of limitations and the statute of frauds.  She also argued that the parties freely granted their interest in the property to her daughter and that the husband had agreed to and ratified her actions.

Each party owned property when they married. They bought two properties during the marriage and built a house on one of them.  In 2016, they executed a general warranty deed conveying their interest in the property with the house to the wife’s daughter for $10 “and other good and valuable consideration.”

The wife’s daughter testified her mother had breast cancer and told her they wanted to have the house “under [the daughter]” or wanted the daughter to take it over in case anything happened to her.  The daughter sold the property in January 2021.  She testified she had taken out several bank loans on behalf of the parties because she had good credit.  The loan funds and proceeds from the property were deposited in a joint checking account with her mother.  She said only her mother and stepfather used the funds in that account until she started using it for her own expenses after the proceeds were deposited.  She said they had not discussed who would receive the proceeds.

The wife testified the husband said they could place the house in the daughter’s name for “her peace of mind” in case something happened to her.  She took her name off the joint account after the proceeds were deposited. She said the house belonged to her daughter and there was no reason for her to withdraw from it anymore.

The husband testified through an interpreter.  He only reads and writes in Spanish “[a] little” and does not speak English.  He testified they were concerned about what would happen because he was undocumented and they had young children.  He said they discussed the daughter taking care of the children and property in the event he was deported and the wife was sick.  He said he did not intend to gift the property to the wife’s daughter, but agreed that no documentation prevented her from selling it or required the proceeds go to him and the wife. He said the deed was not explained to him or translated, but said he was not forced to sign it.  He said that the wife agreed to give him $250,000 from the house.

He testified some proceeds from his separate property were used to purchase the two properties the parties bought together.  He said he spent at least $12,000 improving the wife’s separate property during the marriage and the value increased by $84,000 partially due to his efforts.

The decree awarded the husband a $200,000 equalization judgment against the wife, but denied his civil conspiracy claim and requests for exemplary damages and attorney’s fees.  The court found that he worked toward enhancing the wife’s separate rental property and that his reimbursement claim should be granted.  The court also found that the division was just and right. It found no credible evidence supporting the wife’s allegation the parties intended to transfer the property to the daughter as a gift.

Reimbursement Claim

The wife appealed, arguing the court erred in granting the husband’s reimbursement claim.  She argued his testimony was vague, inconclusive, and not specific enough to support the finding.

The husband needed to prove the value of the time and efforts he spent enhancing the wife’s separate property and that this value was greater than reasonably necessary to manage and preserve it.

The husband pointed to his trial testimony and the circumstances.  He testified funds from the proceeds of his separate property were used to purchase the joint properties, but did not say they used those funds to enhance the wife’s separate property.  He testified that he spent at least $12,000 to improve the wife’s separate property, but did not present any evidence that amount exceeded the amount reasonably necessary to manage and preserve the property.  The appeals court therefore found there was insufficient evidence to support the claim for reimbursement.

Fraud against the Community

The wife also argued the court erred in finding she had committed fraud against the community.

Pursuant to Tex. Fam. Code § 7.009, if it determines a spouse committed fraud, the court must calculate how much the community estate was depleted and the amount of the reconstituted estate, and divide the reconstituted estate in a just and right manner.  In doing so, the court may grant any necessary legal or equitable relief, including a money judgment.

Fraud against the community estate can occur through either actual fraud or constructive fraud. Actual fraud occurs when a spouse transfers or expends community property to deprive the other spouse of those assets.  For actual fraud, there must be an intent to deceive or dishonesty of purpose.  Constructive fraud, however, occurs when there is a breach of a duty that violates a fiduciary relationship between the spouses. There is a presumption of constructive fraud if a spouse disposes of the other’s interest in community property without their consent or knowledge.  Once the presumption arises, the spouse that disposed of the assets has the burden of showing it was fair to the other spouse’s community ownership. The court considers the relative size of the disposed property, the adequacy of the remaining estate, and the relationship of the parties to the transaction.

The appeals court concluded there was not sufficient evidence to support a finding of fraud.  The husband was charged with knowledge of the deed’s contents because he signed it voluntarily.  The deed did not indicate the property was transferred in trust or that the parties would keep any interest in the property or the proceeds upon a sale.  The appeals court also noted that there was nothing indicating any misrepresentation or intent to deceive.

Furthermore, there was no indication the wife disposed of the property without the husband’s knowledge or consent.  Although the husband testified there was an agreement he would receive $250,000 from the proceeds, that agreement was not put in writing as required by the statute of frauds.

Without sufficient evidence to support a finding of fraud on the community or that the property had been transferred “in trust,” the trial court abused its discretion by reconstituting the estate.

The appeals court reversed the portion of the judgment awarding the husband an equalization judgment and affirmed the rest of the judgment.

Call a Skilled Texas Divorce Lawyer

If you believe you may be entitled to reimbursement or reconstitution of the community estate, an experienced Texas divorce attorney can advise you regarding your case and work with you to identify the evidence needed to prove your claims.  Schedule a consultation with McClure Law Group by calling 214.692.8200.

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