The Supreme Court of Texas recently considered the property division in a Texas divorce case involving a complex estate, including an outstanding employee bonus, claims of separate property, and a retirement plan.
The parties got married in 2020 and were divorced in late 2019, with litigation regarding the property division continuing beyond the divorce.
Bonus
During the marriage, the husband worked for a large bank. He received an annual cash and stock bonus contingent on the bank’s and his own performance. The bonus was paid around February 15 each year.
The wife moved to have the husband’s 2019 bonus tendered to the registry of the court. The hearing occurred February 12, 2020. A compensation executive with the bank testified at the hearing, confirming the husband would receive a bonus of tax and equity with a total value of $140,000 on February 15. He further testified that the bonus was based on the husband’s 2019 performance. He stated the husband’s manager recommended the bonus in November 2019 and the board of directors approved it in January. He testified the bonus was discretionary and that an employee was not entitled to a bonus if he was not employed by the bank when the bonus is distributed.
The trial court concluded the bonus was the husband’s separate property and the court of appeals agreed. The Texas Supreme Court, however, held that characterization of a bonus is determined based on when it was earned. The Texas Supreme Court further held that, when a discretionary bonus for work performed during the marriage is paid after the divorce, it is community property. The Texas Supreme Court concluded the trial court erred in characterizing the husband’s bonus as his separate property and the court of appeals erred in determining the trial court had not abused its discretion.
Marital Residence
The husband also challenged the court of appeals’ reversal of the trial court’s award of the marital residence to him as separate property.
The husband bought the home five years before the marriage. He refinanced it in 2016. The general warrantee deed listed both parties as grantors and grantees. The parties also signed a deed of trust that identified them both as “borrower” and made them jointly liable for the mortgage.
The wife testified that the parties had discussed the home’s ownership. She testified that she expressed concerns to the husband that it “never felt like it was [their] home. . .” because he had owned it before they got married. She wanted to buy a different home together, but the husband did not want to move. She testified that he told her he would “take care of it and make sure that [she] knew that it was [her] home.” She testified he told her he would gift her part of the home and put her name on the deed. She said they refinanced and put the property in both their names to make it jointly owned. She said she had not given the husband money for her share in the house and that “It was a gift.”
The husband testified he noticed the wife’s name on the deed but that she did not own the property. He said it was “strange” to him that her name was included. He did not testify that he had not intended to gift an interest in the property to the wife.
The trial court determined the home was the husband’s separate property. The court of appeals reversed that decision and rendered judgment that each spouse owned an undivided one-half interest in the property as separate property.
Texas law recognizes a gift presumption, pursuant to which a court presumes that property conveyed to one spouse to the other under certain circumstances is a gift. Those circumstances include a spouse who executes a deed conveying an undivided half interest in property purchased before the marriage to the other spouse. It also includes situations in which a new deed lists both spouses as grantees when they refinance a marital home that was acquired by one spouse before they got married.
The husband argued the gift presumption could be rebutted with evidence no gift was intended. The husband argued he had testified he believed it was “strange” the wife was listed as grantee on the deed. He also pointed to the wife’s inclusion as a grantor on the deed when she did not have an interest in the property before it was refinanced. He also pointed out that the deed arose from refinancing and the parties were not attorneys and did not have knowledge about the gift presumption.
The Texas Supreme Court pointed out the husband had to present evidence that clearly established he did not have an intention to make a gift and concluded the evidence presented by the husband was insufficient. See Cockerham v. Cockerham. The wife, however, presented evidence supporting the presumption. She testified the husband told her he would “gift [her] part of the house and put [her] name on the deed” and they refinanced for that purpose. The husband did not dispute or even address the wife’s testimony on this issue. He did not testify about why he refinanced. The Texas Supreme Court affirmed the portion of the court of appeals’ judgment that awarded the parties each an undivided one-half interest in the home.
401(k)
The husband also challenged the appeals court’s reversal of the trial court’s characterization of most of a 401(k) account as his separate property.
The husband started participating in a retirement plan before the marriage. Both he and the bank made contributions toward the 401(k). The wife presented evidence he had contribution $20,648.23 to an account with Fidelity between 2005 and 2010, but did not present evidence of the account’s balance when the parties married or how much the husband contributed before 2005.
The husband opened a new 401(k) account with Merrill Lynch in 2015, initially depositing $124,323.36. The husband presented pay stubs showing he had contributed $62,042.77 in the 401(k) accounts between 2012 and 2018. The Merrill Lynch account had a balance of $353,091.43 at the time of the divorce.
The appeals court determined the husband had not met the burden of tracing the character of funds in the initial deposit to the Merrill Lynch account. The appeals court held he “failed to overcome the community property presumption. . .” The appeals court concluded the trial court abused its discretion, which affected its just and right property division.
There is a presumption that a 401(k) account possessed during the marriage is community property. With clear and convincing evidence, a spouse can prove through tracing that contributions made before the marriage and any investment return attributable to those contributions are the spouse’s separate property.
The Texas Supreme Court noted the husband made contributions to the 401(k) with wages earned during the marriage, so the community property applied. The husband had only sufficiently traced the $20,648.23 he had contributed to the Fidelity account prior to the marriage. The husband had not accounted for funds contributed before the marriage of for the earnings on those contributions. The Texas Supreme Court affirmed the portion of the appeals court’s judgment that remanded to the trial court to reconsider the property division.
Call a Skilled Dallas Divorce Lawyer
Employee compensation plans that involve large bonuses, stocks, and other benefits beyond wages can make property division difficult and contentious. An experienced Texas family law attorney can work with you to identify the evidence needed in a case involving a complex estate. Schedule a consultation with McClure Law Group by calling 214.692.8200.