Texas Divorce Attorney Blog
A court dividing property in a Texas divorce may consider a number of factors, including fraud or waste of community assets by a party. A spouse may commit constructive fraud or waste by unfairly depriving the other spouse of the benefit of community assets. There is a presumption of constructive fraud when a spouse disposes of the other’s interest in community property without their knowledge or consent. A former husband recently challenged a property division after the court found he had committed fraud and waste on the community estate.
The parties married in February 2011 and the wife petitioned for divorce in July 2018. Both parties alleged constructive fraud and wasting of community assets by the other and sought reconstitution and a disproportionate share of the community estate.
The court granted divorce and ultimately confirmed $46,000 in an IRA as the husband’s separate property. The court found the husband committed fraud on the community estate and reconstituted the community estate. Included in the reconstitution was $71,483.33 for depletion of an IRA, $81,321.98 for dissolution of the husband’s interest in a limited liability company, and $17,000 for unpaid medical expenses for the children. The court also awarded the wife a disproportionate share of the community estate.
The husband appealed, arguing the court’s reconstitution and disproportionate division were not supported by sufficient evidence.
IRA
There was evidence the IRA’s balance was $491,466.44 at the end of September 30, 2021, and $419,982.67 on March 11, 2022. The IRA balances were included in the husband’s inventories and appraisements, but account statements were not in evidence. The husband acknowledged these numbers reflected a significant loss, but testified he had not made any withdrawals or changes. He said the balances were based on market value conditions. There was no evidence in the record of the market conditions.
He argued the trial court could not disregard his uncontroverted testimony he had not withdrawn funds or made changes to the account.
The wife had testified the husband managed their finances and she did not have access to accounts. The court could have reasonably concluded that the wife was not in a position to reasonably controvert the husband’s testimony. The court also could have reasonably determined the husband’s testimony was not credible.
The appeals court concluded there was legally and factually sufficient evidence to support a constructive fraud presumption ad that the husband had failed to rebut it.
The husband also argued there was insufficient evidence to support the court’s valuation of the IRA account. He argued there was no evidence of improper withdrawals and that the court failed to consider evidence of the account’s gains.
The appeals court noted that evidence of improper withdrawals was not required when the wife had presented evidence that there were community funds in the husband’s control that had not been accounted for. The court calculated the reconstituted estate based on the difference in the balance. The appeals court concluded there was sufficient evidence supporting this calculation and the trial court had acted within its discretion.
Limited Liability Company
The husband had paid $25,000 in March 2018 to join the limited liability company and become a member and manager. The company owned an office building. In his deposition, the husband testified he used community funds to make the investment and that he received “maybe $3,000” in monthly distributions. At trial, however, he testified that the distribution went to the company and he was unable to recall of the company was profitable.
The husband testified the members owed dues, but he had not been able to pay. He said the other members applied his equity to the outstanding dues and “let him go.” He testified he received $1,200 in a buyout. There was an undated letter that stated the husband would be removed and that he would receive $1,200 “as dues owed to [him]. . . “
The wife testified the husband had not informed her of the investment or discussed the company with her.
The husband argued he had not deprived her of the use of community property. Generally, an unwise investment made in good faith does not support an unequal property distribution. The appeals court noted, however, that the husband had invested in the company and then stopped paying dues within months. The trial court could have reasonably believed the husband had sufficient funds to pay the dues. Additionally, the husband’s testimony at the deposition was inconsistent with the trial testimony. The trial court could have believed the deposition testimony and not found it credible that he had lost nearly all of his equity just a month after the deposition.
The appeals court concluded there was sufficient evidence that wrongful depletion of the community assets resulted from the husband’s actions related to the limited liability company, without the wife’s knowledge. There was sufficient evidence to raise the presumption of constructive fraud and to support the determination the husband failed to rebut it.
The husband challenged the court’s valuation of his interest in the company in reconstituting the community estate. The wife presented evidence related to the property owned by the company. The husband did not contradict her sworn valuation of the property, which she had calculated based on a valuation he had provided in an earlier inventory and appraisement. The husband did not present his own evidence as to the valuation of the interest in the company. The appeals court concluded the evidence was sufficient to support the court’s valuation.
Medical Expenses
The husband also argued the court erred in reconstituting the community estate after it found he committed waste by failing to reimburse the wife for the children’s medical expenses. He argued his failure to reimburse her was not waste because she had sought payment of the expenses through enforcement of the temporary orders.
The appeals court noted that the $17,000 by which the court reconstituted the estate for medical expenses was less than 2% of the net community estate. The court concluded the husband had not shown that this reconstitution resulted in such an unjust and unfair division that it rose to the level of an abuse of discretion. Even if the court did err, the appeals court concluded the husband had not shown that it had more than a de minimis effect on the property division.
Disproportionate Division
The appeals court also rejected the husband’s argument the trial court abused its discretion by awarding the wife a disproportionate share of the community estate. The appeals court noted the trial court has broad discretion and concluded there was sufficient evidence for the court to exercise that discretion.
Mischaracterization
The husband also argued the trial court had mischaracterized his separate property. The court confirmed $46,000 in the IRA was his separate property, but then divided the whole balance between the parties. The appeals court reversed the division of the community estate and remanded for a new division.
Seek Legal Advice
This case illustrates how complex property divisions can be when there are significant assets. If you are considering divorce, the skilled Dallas divorce attorneys at McClure Law Group can review your case, advice you of your options, and fight for a favorable outcome for you. Schedule a consultation by calling 214.692.8200.