Texas Court Finds Distribution of “Net Payment” in Texas Divorce Did Not Address Pre-Tax Deductions

In Texas divorces, it is common for the parties to agree to a property division and ask the court to approve the agreement and include it in the decree.  Once the court does so, it generally may not modify or alter the property division included in the agreement.  It may, however, still divide property that was not divided in the agreement and decree.  It is therefore important for the parties to be sure the agreement to clearly divide everything, or they may have to go back to court to address something that was omitted.  This can be difficult in some cases, however. What happens, for example, when the agreement and decree divide the net amount of a bonus, but do not address pre-tax deductions that go to one of the parties?  A recent case addressed this issue.

The divorce decree incorporated the agreement between the parties, which included a detailed division of the marital estate based on the informal agreement the parties executed at a settlement conference.  The agreement stated the husband would receive 47% of the net amount of his 2013 year-end bonus and wife would get a 53% portion of the “net amount after taxes and deductions.”    The agreement also stated the wedding and engagement ring were the wife’s separate property.

The husband’s pay stub showed he received $460,000 for his 2013 bonus, but reflected two pre-tax deductions totaling $81,000.  The deductions included $75,000 for deferred annual bonus and $6,000 for personal savings account contribution. Taxes totaled $108,711.10 and the pay stub listed $270,228.90 as the “net pay” for the bonus.  The husband paid the wife 53% of the net pay amount.

The wife petitioned for enforcement of the property division.  She sought an order directing the husband to pay her 53% of the $81,000 that was deducted from the bonus.  She argued in the alternative that the court should treat the deductions as undivided assets and award her 53% of each.

The husband moved for partial summary judgment, arguing that the wife could not meet the elements of an enforcement action.  The court granted the motion as to the enforcement action.  The wife filed a second amended petition, seeking enforcement as to the pre-tax deductions, a claim to divide the pre-tax deductions as undivided assets, a breach of contract claim related to the husband’s failure to pay her a share of the pre-tax deductions, and a breach of contract claim regarding the ring.

The court ordered the husband to pay the wife 53% of the bonus after the federal income tax deduction.  It also awarded the wife any insurance funds for claims related to the ring.  The court also awarded the wife attorney fees. The husband appealed after his motion for a new trial was overruled.

The trial court found the pre-tax deductions were undivided assets.  The husband argued the original order for summary judgment barred relitigation of the decree’s terms.  The appeals court found the order did not dispose of the alternative claim that the pre-tax deductions were undivided assets.  The order therefore did not dispose of all of the claims in the case, and was therefore not a final judgment barring further litigation.

The husband also argued the trial court erred in finding the pre-tax deductions were undivided assets.  He argued they were excepted from distribution under the agreement and the decree.  The wife argued the agreement unambiguously did not distribute those funds, so they were undivided assets.

The appeals court found the agreement was not ambiguous.  It divided the “net amount” of the bonus, but did not divide deducted amounts.  Although a court may generally not amend, modify, alter, or change the division of property after it approves an agreement between the parties, it can divide property that was not disposed of in the agreement.

The husband also argued that the wife had not presented evidence supporting her claim of breach of the agreement related to the ring and that the trial court abused its discretion in awarding her any insurance proceeds related to the ring. The appeals  court found there was sufficient evidence to support the breach of contract claim.  The wife had testified she last saw the ring when she left the marital residence and traveled to California, and did not see it when she came back.  The husband was in the home while she was away.  The husband testified he had the ring appraised after the wife left the marital residence and the appraisal was admitted into evidence, including a photo.  The husband testified he had last seen the ring before his wife left and that the photograph included with the appraisal had been “a picture of a picture” that was taken for a previous appraisal.

The appeals court concluded that a reasonable factfinder could have found the husband had the ring at the time of the appraisal and after.  The appeals court also found the husband had failed to preserve his challenge regarding the award of insurance proceeds.

The appeals court did, however, reverse the award of attorney’s fees and remanded to the trial court to determine and delete any amounts based on work performed by non-attorneys.

If pre-tax deductions are not addressed in the property division, it may be possible for the spouse receiving a bonus to change deductions and structure the payment to lower the net payment and avoid giving the other spouse a share.  This case suggests that parties should consider potential deductions any time distribution of a net payment from an employer is considered.  If you are facing divorce, the experienced Texas divorce attorneys at McClure Law Group can help you through the process.  Call us at 214.692.8200 to discuss your case.

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Property Division in Texas Divorce Must Be Equitable But Not Equal

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