Text: Texas Marital Property Rights, 2004-2005, Pamela George
1) General Rule: Anything acquired during marriage other than by gift, devise, or descent is “community property;” each spouse has a one half interest. There’s a presumption that property acquired during the marriage is community property.
a) Question, p. 2: Ask, how did you get the car? if you bought it, then where did the money come from? Tracing the asset, from the original money all the way through to the acquisition of the assets. Tell me about the car, tell me about everything.” Tell the client that half of anything acquired in the marriage is presumed to be community. After filing for divorce, each spouse has to file an inventory of assets, to be classified as community or separate property. If the client says “I purchased it” then you have to do tracing, to prove that the funds used to purchase it were separate. If you can’t prove this, then the presumption is community.
2) History of Community property.
a) the 1876 constitution doesn’t mention the husband, only “property of the wife”, because it was meant for protecting spouses and children; to help keep the land in the family. If a marriage produced only daughters, and there were no sons, the daughter’s husbands would not automatically acquire the property.
b) In Texas, unlike other states, the income from separate property is community property.
c) “Joint efforts.” RULE: Any increase in value of separate property is community property. Which is to say, “The Principle that lies at the foundation of the whole system of community property is, that whatever is acquired by the joint efforts of the husband and which, shall be their community property.”
i) EX: Judgment creditor of H tried to execute against upon cotton grown on W’s separate property. H and W say, “no, this is separate property, so it can’t be used to satisfy community debt.” Court disagrees. W planted cotton, her slaves worked the property, but because of coverture, H had sole managing power over the property By law, the husband had control of her property; the wife by law didn’t have the right to control her separate property. Thus, the increase in value received from separate property is community property. It resulted, by law, from their joint efforts. Accordingly, the creditor could execute aginast the cotton. Deblane v. Hugh Lynch, 23 Tex. 25 (1859), p. 4
ii) NOTE: In Judge Smith’s Law Review Article, she suggests that few states, only 9, have adopted community property, because following divorce, women and children are hurt the most. The husband’s earning capacity continues at the same level. Future earnings are not community property. Texas should provide for alimony, which it doesn’t. You can contract for alimony in Texas, but this is infrequently done because then you have to prove up the contract. Smith suggests characterizing the wife’s earning capacity while she’s at home with the children, as community property to which she’s entitled to reimbursement. Usually disbursement is 50/50, but not always.
iii) NOTE: Deblane contrasts with a California case decided at the same time, applying a constitutional provision identical to that of the Texas Constitution, held that dividends from separate property of the wife were themselves the wife’s separate property.
d) Mule Rule. Stringfellow v. Sorrells, p. 6
i) Held, the increase in value of W’s mules, from $35 at the time she acquired them, to $75, is not an “increase in value” such as to be community property.
ii) Held, DeBlane was interested in protecting, not destroying, the wife’s estate. Increase in value, when applied to livestock, means the progeny of the original stock or their descendants. Here, the mules are the same animals W owned at the time of her marriage, and it would entirely destroy the corpus of the wife’s estate to declare that an augmentation in weight or value should be deemed an “increase” of the property itself, so as to constitute a part of the community to that extent.
iii) MULE RULE: the value of the increase which typically comes at the expense of the community, this increase will typically be recognized as community property. Later, we will see the idea of reimbursement. Deblane is acting in the best interest of the husband.
iv) COMMENTS: “increase in wife’s land” must be bales of cotton, or offspring, anything that doesn’t destroy the original corpus of the separate property.
e) Prohibition against converting separate to community. Kellett v. Trice, p. 8:
i) F: W tried by contract to convert her separate property into community property.
ii) Held: The wife is pretending to divest her whole separate title, the effect of which would be to invest in herself an interest of a difference character. So instead of separate property she would have an undivided interest in community property. This is not the way to create community property. this could act solely to the benefit of the husband. Wives needed protection because otherwise she might agree to convey her property against her will, by duress.
iii) Had she sold her separate property to the community, then she would have had consideration, and this would have been ok.
f) Statutory changes: p. 10, intended to enlarge the powers of married women.
i) 1911 W allowed to obtain a court order releasing her from the laws of coverture, then she would have been able to act as though she were single.
ii) 1913 W given power to manage her separate property. Before this she lost her right when she married.
g) Arnold v. Leonard (1925), p. 11—
i) Implied exclusion doctrine:
ii) Held, the rental income from W’s separate real estate may not constutionally be characterized by statute as separate property. If property was acquired during marriage by any other means than gift, devise, or descent, it was and is necessarily community property. However, Legislature may exempt the income from attachment. Therefore, thought normally a judgment creditor against H could attach the rental income, the statutory exemptions alone prevent him from doing so, even though it is community property. So the net effect is the same.
iii) CN: What if the Deblane case had been heard concurrently? Had there been a law at the time saying that the income was exempt, it would have come out differently.
h) “Right to sue” is community property. Northern Texas Traction v. Hill (1927), p.16
i) Wife is injured. The right to sue is considered community property because it arose during the marriage. The court views the right to sue as property, which arose during the community.
ii) NOTE, p. 19 later cases have made changes to this rule.
(1) note 2: Legislature passed many laws during this time to address some of the inequities. in 1899 – no conveyance of W’s separate property land was effective of unless she was privately informed by a an officer that she was selling her separate property. this acted for the protection. There was a specific form for a married woman to fill out.
i) In 1948 the Constitution was significantly amended, which provided a manner by which spouses could create separate property by the partition of community property, or by the exchange between themselves of community property. Now they could make separate property out of what was once community property.
i) EX: spouses own two lots, Blackacre and Whiteacre. Instead of owning both as community property, they could both own them as an undivided interest in separate property. Why would you want to do that? protection from creditors or any kind of execution, at least the wife would continue to have half.
j) Even with this new ability to create partitions, there were still hoops to jump through
k) Hilley v. Hilly – held that community property could not be used to create jt w/ros between the spouses, because such a transaction was not an interspousal gift . This case says you can’t do this simply by agreement.
l) Williams v. McKnight, p. 24
i) For the partition to be effective, the partition has to take place first. First, Community has to be separated into separate property. But if you get it out of order, you’re screwed. If you happen to sign the wrong form first, then it won’t work. But why is this so important?
ii) NOTE 3. p, 27 Jameson v. Bain, the partition JT card was signed in the wrong order. So you have to make sure the partition came first, followed by the creation of the JT.
iii) Management. State of the law before 1968 when the Matrimonial Property Act went into effect, the coverture existed. 1968 removed the coverture as a disability. The effect of the removal was illustrated in Few.
m) W can sue for workers compensation without joining H. FEW v. Charter Oak (1971), p. 28
i) Mary Few sued her employer for permanent incapacity suffered in the course of her employment. Her husband was not joined. the accident occurred while Mary and Milburn were married, therefore her workman’s compensation award was their community property, ie., joint ownership. The Rules of Civil procedure said that persons having joint interest shall be made parties. This rule lead the trial judge to dismiss because the husband was an indispensable party. However, when a Rule of the court conflicts with legislative enactment, the rule must yield.
ii) It used to be the rule that, except in limited situations, only the husband could bring suit for community recoveries arising out of a wife’s loss of earning capacity.
iii) New rule: the injured spouse has the power to manage that community which she would have owned if a single person, including recoveries for personal injury. the wife to sue without joining her husband, but in the case of joint and several liability claims, the spouses “may be joined under the rules relating to the joinder of parties generally.”
iv) Held, Mary Few properly sued without joining her husband for the recovery of workman’s compensation benefits arise out of her own injury.
v) CN: She joined her husband pro forma because of the old rule that required joinder. She was seeking workers compensation, which is for lost wages, which is community property, because had she continued to work, her wages would have been community. Held, H is not really an indispensable party. The rule here doesn’t have to be followed. The statute says that the husband may be joined. If that’s the case, what’s the harm in requiring that a in a rule of procedure that the H be an indispensable party. The statute says “may,” but the rule says “shall or must.” In this conflict, the statute controls.
i) § 3.001(3), p. 605: “The spouses separate income consists of: recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.”
ii) §3.102 – Managing community property. H is not an indispensable party because H doesn’t have sole control anymore, because of the statutory change, and W can make settlements.
o) H’s negligence not imputed to W so as to bar PI recovery. A PI claim is separate property. Graham v. Franco (1972), p. 31
i) Tex. Fam. Code § 3.001(3) -- the recovery awarded for person injuries sustained by either spouse during marriage shall be the separate property of that spouse except for any recovery for loss of earning capacity during marriage.” Held, this is constitutional.
ii) Acts of negligence of the H as found by the jury are not imputed to the W so as to bar her recovery.
iii) F: Car A stuck Car B in a rear end collision. Mr. Franco was found to be contributorily negligent for stopping Car B on the highway. Wife Mrs. Franco was a passenger in Car B.
iv) Character of Personal injury: Art. 16, §15 of the Constitution provides that “All property, both real and personal, of the wife, owned or claimed by her before marriage, and that acquired afterward by gift, devise, or descent, shall be the separate property of the wife.”
(1) Arnold v. Leondard held that if property was acquired during marriage by any means other than gift, devise or descent, it was community property.
(2) Doctrine of onerous title: that property is community which is acquired by the work, efforts or labor of the spouses or their agents, as income from their property, or as a gift to the community. Under this test, it is clear that the personal injuries to the wife are not “acquired” by the efforts of the spouses and would not belong to the community.
v) A chose in action for injuries to the person – as opposed to injuries to property – was not regarded as property at the time of the adoption of the constitution, because personal torts die with the party. At common law, a cause of action for damage to property was “property” and could be transferred and inherited. Thus, a cause of action for personal injuries was not property at all.
vi) CN: At the time this case was decided, before comparative negligence, contributory negligence was a complete bar to recovery. (Today in Texas, if the plaintiff is 50%, he recovers, but if he is 51% he recovers nothing.). What should be the effect of the husband’s contributory negligence? Should the wife also be barred from any recovery? Is the Wife’s negligence action “property”? The old rule is that if your wife is injured, the action for the recovery is property of the community. 34 .. it’s not property in the sense of real property or personal property acquired after marriage. One’s own body that you bring to the marriage is separate property. So in a real sense, recovery for personal injuries are really reimbursing your separate property for the injuries to it. The medical expenses do come from community property.
vii) What other kinds of damages could be included in an action like this?
(2) loss of consortium? The answer to the loss of consortium is cloudy. In Dawson v. Garcia, 666 s.w. 2d 154, characterized both loss of consortium and community damages as community property. But there’s evidence that personal injury recover is separate property.
p) Wyly v. Comm’r (1980), p. 39
(1) H gives $ to W. (property received by gift is separate property)
(2) Interest (income) received on separate property is community property.
(3) When H dies, does half of this “community property” go into his estate? No; W has control over separate property. Separate property is controlled by the owner (W). So if there is a gift binding to the spouse, it is her sole property under her management and control. Do I have any interest? No; the gift giver cannot get any control unless there is fraud. The real limits translate into a minuscule interest. Thus, “it doesn’t rise to the level of a right. The spouse has none of the traditional indicia of ownership. He had no control over the principal from which the income is produced. He is not entitled to possess, control, use, or enjoy, the income in which he has been given a technical interest.”
ii) p. 47. The donor’s interest in the income produced by the transferred properties is to limited contingent, and expectant that it does not amount to a “right to the income” within the tax code.
iii) NOTE, Wyly lead to an amendment of the tax code relating to interspousal gifts. Now a gift is solely the property of the other spouse and it as well as the income therefrom become solely her property.
q) Prenuptial agreement recognized. Williams v Williams (1978)
i) Prenup agreement waiving the constitution rights of a spouse to homestead if upheld.
ii) Prenup agreement stating that income or other property acquired during marriage should be the separate property of the party who earned or whose property produced such income or acquisition is not upheld.
iii) This case was decided before the amendments (see below).
iv) This case upholds the premarital agreement on freedom of contract and public polic grounds:
(1) they were mature individuals,
(2) no showing of fraud, etc.
(3) they already had lots of property of their own,
(4) no minor children
(5) both had been honest with respect to their holdings.
(6) other jx allowed for premarital agreements.
(7) Each party was fully informed as to the resources they were giving up.
(8) The homestead exemption exists so the surviving spouse can’t be turned out onto the street. The protection was for widows and orphans, but none of that applies.
r) Interspousal Transfers, p. 57
i) Either spouse possesses power to make a gift to the other spouse of his separate property or of his interest in community property, so that the property becomes the separate property of the donee spouse.
ii) It is not possible for a gift to be made to the community estate.
iii) CN: if all I say is take my pen, is that a gift? No; intent is not clear, and there’s no delivery. In a marital situation, the delivery part is difficult because it won’t look like there’s any delivery. Bishop v Bishop involved cars and furniture gifts within the marital situation. The only showing of intent was the wife’s testimony that H said “I’m giving you the car, I want to you to have it, but I’m keeping it in my name because I’m making payments on it.” Held, H made statements that show his intent. Same with delivery. H told W he was giving her the car and gave her the keys, which is all that is required for “delivery” within the marital relationship. You have to look at how the gift was made within the marital relationship.
s) Equal Rights Amendment (ERA)
i) Tex. Const. art. I, §3a: Equality under the law shall not be denied or abridged because of sex, race, color, creed, or national origin. Two effects. Change in the constitution and change in tort law.
ii) Constitution: It used to say only “wife’s separate property”; now it’s gender neutral.
iii) Tort law:
(1) criminal conversation, i.e., adultery. H, but now W, used to have a tort claim against the third party for screwing his spouse.
(2) alienation of affection, didn’t require sexual intercourse. If you prove criminal conversation, could you also recover for alienation of affection.
3) The Constitution as Amended in ‘80, ‘87, ’99, p. 58-9.
a) The provision
i) art. XVI “All property, both real and personal, of a spouse . . . .
(1)  Separate property for the first time is defined in terms of “spouse” instead of “wife.”
(2)  for the first time, a pre-nuptial agreement to partition property is allowed.
(3)  the spouses may by written agreement, make the income from separate property be separate property of the spouse [William v. William]
(4)  if one spouse makes a gift of property to the other, that gift is presumed to include all the income from the gift. [The Wyly Amendment.] the gift is presumed to include all income from the separate property. The dividends from the separate stock will be separate property.
(5)  spouses may agree that all or part of their community property becomes the property of the surviving spouse on the death of the spouse. [this was added in 1988. I.e., spouses can set up JT w/ ROS. it need not be partitioned first.]
(6)  spouses may agree in writing that all or part of the separate property owned by either or both of them shall be the spouses’ community property.
ii) These are the provisions that define community property in Texas today.[ passed in 1999. Previously there’s been the partition of community into separate property. now you can make separate property community.
b) Prenuptial Agreements, p. 59
i) Before the ‘80 amdts, prenupts were ineffective to the extent they purported to change the character of property to be acquired after marriage.
ii) The only waiver to rights that were allows were in the Williams case with the waiver of homestead rights. But the 80s amendment allows for a more expansive waiver.
c) Separation Agreements, p. 62
i) There is no legal separation in Texas. Though separation is a legally recognized status in other states, it is not in Texas. In Texas, until you actually get divorced, you are married.
d) Statutes and Decisions 1980 – Present, p. 63
i) Patino v. Patino, p. 63
(1) Was this a separation agreement or a partition agreement?
(2) R: Both the Tex Const (Art. 16, § 15) and the Tex. Fam Code (§5.42) provide a way for spouses who contemplate continual conjugal relations to partition or exchange community property and change its character to separate property. The only requirement for a husband and wife to effect a division of their property on permanent separation is that such agreement be fair and equal.
(3) The trial court found that the agreement was not just, fair, and equitable. The trial court also found that the agreement was not a partition agreement, but rather an agreement incident to divorce (which required a just and right finding in order to be enforced. Tex. Fam. Code 3.631).
(4) CN: They had a separation agreement initially, but the trial court said it was not fair and equitable, and awarded the H the entire retirement income. Was military retirement personal or separate?
(a) In the early 80s there was a great deal of change with regard to military retirement, because of the McCarty case, where the Sct said that Military retirement benefits was separate property, because of federal preemption. p. 65. There was a cry of protest which resulted in the Uniform Services Former Spouses’ Protection Act passed by congress, stating that beginning with pay periods after june 25, 1981, retirement pay would be divided according to the Texas community property laws .
(5) Back to the separation agreement. Why was this not followed in this case. W took the house.
(6) What do you need to know with regard to a separation agreement. Is it a partition? If it meets the requirements for being a partition, [than] whatever is covered by the agreement is separate property. Why isn’t this a partition agreement? It was just a statement of the parties’ intention of divorce. It didn’t express an intent to divide the property at that time. Though a court might look to this document for guidance, it has no legal effect.
(7) As a result the agreement as to the set aside, and is not subject to being overturned.
(1) The primary question in analyzing an agreement between spouses is to determine if it is an
(a) agreement incident to divorce or if it is a
(b) postnuptial agreement for the purpose of changing the character of the property.
(2) CN: Who bears the burden in attacking the agreement? Does the proponent have to prove it’s true or the opponent prove it’s wrong. IN Texas, until 1987, the party wanting the agreement upheld had to prove that it is valid, not the other way; after 1987 courts have taken the view that it is like any agreement, and the party attacking it has the burden of proof.
(3) Is this a high burden? yes, the agreements are now presumed to be valid, so if you’re attacking the agreement, the burden is harder to satisfy.
iii) Bradley v Bradley, p. 66
(1) F: W and H executed a prenupt. During marriage W was not gainfully employed and H got income from his medical practice. Trial court included the H’s income as separate property.
(2) However, the “respective personal efforts” do not acquire separate property character until they have partitioned and exchanged their respective community property in the income from each others’ personal efforts. ...Upon acquisition, H’s earnings from his personal efforts became community property. They remained community property until partitions and exchanged pursuant to Constitution and Fam. Code 5.42. The prenuptual agreement does not itself effect a partition and exchange of the parties respective community interests in each other’s personal earnings. It merely evidence an intent to do so in the future. H testified that hey have never done so.
(3) The Tex const requires a “written instrument” in order to partition and exchange community property interest.
(4) CN: there’s a prenupt but it didn’t address “earnings.” bottom p. 67. This is an agreement to partition but is not itself a partition. It only contemplated a partition and exchange in the future.
(a) § 7 of the agreement was ineffective because it said, “we will partition,” i.e., in the future they would partition every April 15. But they never actually did it. If §7 was ineffective, what would you have to say? -- Mr Bradley intended to keep his income as his separate property. Put in the agreement that this includes everything in existence now and all after acquired property, so that the spouses earnings remain the separate property of the person who earns them. But sometimes you get spouses with higher earning capacity, which brings into question the possibility of duress. It must say “future acquired property.”
iv) Dewey v. Dewey, p. 69
(1) First, did the parties in executing the premarital agreement, intend to make the income of each party the separate property of the party receiving the income? The premarital agreement states that all profits, dividends, interest, and proceeds that accumulate after marriage from each of the parties’ separate property will remain that parties’ separate property. H lists his PC. ... Since H’s income was not expressly listed in the premarital agreement and it was apparently acquired during marriage, it was community property. Tex. Fam. §5.01, 5.02.
(2) Was the pension plan of his P.C. community property? yes; An employee spouse’s accrued benefits in an retirement and pension plan which have been earned during marriage, but which have not vested and matured at the time of divorce, constitute a contingent interest in property and a community asset subject to division upon divorce. Therefore it was community property.
(3) H claims that because the Defined Contribution Plan was commenced prior to the partie’s marriage was separate property. Held, inception of title does not apply in pension plan situations.
(4) CN: First issue: Trial court erred in granting a new trial on both the divorce and the division. while they are in tandem, they are different issues involved. in divorce, if there are children in the marriage, those minors have to be supported. So a divorce decree is separate from the property settlement, which involves one of the spouses providing support. Sometime spouses try to link the support to the property agreement. What’s wrong with that? They are totally separate. When a child becomes 12, the child gets to choose. Say W gets $1k per month in child support. The child then decides to live with dad. Then the support payments stop; and W may be required to pay H. Child support can be changed at any time. Suppose the supporting ex-spouse loses his job and can’t find a new job at his former income level, then child support can be reduced.
(5) Don’t allow your clients to give up community property in exchange for child support.
(6) p. 69
(7) Recap: this section deals with the effect of the 1980 et seq. amdts with regard to partition of community into separate as well as a recognition of the earnings of future income or earnings as being separate property. In particularly we’re looking at these amdts with respect to agreements. In Dewy, the main holding involves the language of the agreement and certain findings of fact that the court made. EX: gift situation, three requirements of gift of jewelry. Here, found she didn’t have the intent to make a gift of jewelry, of separate property, in fact it set aside the divorce decree, because she was mentally incompetent.
(8) p. 72-3. There are conditions under which courts will recognize an unequal division of property. But the mere fact that the property is not equally divided does not constitute an abuse of discretion as long as there is a reasonable basis,
(9) the factors.
(a) 1) relative earning capacity and business experience of the parties;
(b) 2) the educational background of the parties,
(c) 3) the size of the separate estates,
(d) 4) the age, health, and physical condition of the parties,
(e) 5) the fault in breaking up the marriage
(f) 6) the benefits the innocent spouse would have received had this marriage continued, and
(g) 7) the probable need for future support.
(10) courts generally make a straight 50/50 division; they don’t want decisions appealed.
(11) Are retirement plans which have not yet vested . . . these are community property because they are part of the earnings. in the real world, often the court will issue a QUADRO to make the party to make a calculation of how much was in that parties’ pension plan, and then pay out that half. But you can require the administrator to calculate to the penny how much the plan is worth. And then they pay this out.
v) NOTE, p. 73: How could this have been done better? The drafter should have set out the intentions of the parties that there be no community estate. If you are the doctor’s lawyer, then call the malpractice carrier . . . the doctor’s salary from the corporation wasn’t covered. Same with the retirement plan, there was nothing specific regarding the retirement plan. When you’re drafting these agreements, don’t tie it to a specific retirement plan, say “now and in the future.”
vi) Collins v. Collins, p. 73
(1) RULE: Language of intent to partition must be in the partition agreement.
(2) H is dead; surviving spouses is Clada.
(3) Did the spouses enter into a valid premarital agreement? no.
(4) Both spouses brought into the marriage separate business and separate property. During the marriage, they kept records characterizing the income from this as separate property, and listed it as such on their income tax return, which was signed by both parties. But did this constitute a partition under Tex. Fam Code 5.54? No. The tax return did not contain word of agreement to partition.
(5) CN: Holding: a tax return signed by both parties is not a partition, even when it lists columns of separate property. There has to be language in a partition agreement showing the intent of the parties.
(6) It is actually common for folks to attempt to take some sort of legal steps through a tax return; when it comes down to determining that characterization of property, courts will not look at how parties attempt to treat it in a tax return.
vii) Daniel v. Daniel, p. 75
(1) Was the postnuptial property agreement valid?
(2) Five years after marriage the parties agreed that all income from separate property would be separate and trustee distributions from separate trusts would be separate
(3) Historically, a H and W could not by “mere agreement” change their community property into separate property. Trice v. Kellett.
(4) Tex Const. XVI §15 allows H and W to enter into written agreements for the partition or exchange of their community interest into separate owned properties. This is codified in the fam. code, §5.52, 5.53, 5.55, dealing with postnuptial agreements.
(5) Legislature intend income arrangements between spouses, under §5.53, to be enforced in the same manner as partition and exchange agreements covered by § 5.52.
(6) CN: Issue: did she disclose the income that had collected in the trust during the 5 years of marriage, because this goes to his knowledge when signing the agreement. The point is, you can make waivers and partitions but they must be knowing, you have to know what you are giving up.
(7) Was this defense effective? no. He was a lawyer and CPA. Here, he is knowledgeable in this field of law, and the tax returns divulge the income from the trust, which he signed. So he had notice.
(8) NOTES, this case was instrumental in adopting fam Code provisions.
(a) 4.006(c), 4.105(c), p. 612 –“A premarital agreement is not enforceable if the party against whom enforcement is requested if “. . . there is a means to attack for lack of knowledge. These are the exclusive remedies. If you can prove that you didn’t sign it voluntarily, ie, there is a duress or mental incompetence situation, then it falls within the (a)(1)(A). But the consequences are staggering.
viii) Beck v. Beck (1991), p. 83
(1) I: Whether the retroactive application of the 1980 amdt can uphold the premarital agreement? RULE: the 1980 amdt applies retroactively.
(2) Is a premarital agreement entered into in 1977 enforceable?
(a) Williams v. Williams states that any agreement attempting to re-characterize income or property acquired during marriage as separate property was void under the 1948 amdt. Thus, this agreement would be void under that version.
(3) Doctrine of Implied Validation: when legislature impliedly validates an invalid statute by passing a constitutional amendment to cure it. One of the purposes of the amdt was to uphold the intentions of spouses who entered into premarital agreements before 1980. Legislatures sought to supercede the effect of this Williams decision.
(4) CN: It was the 1980 amdts that made it so easy for enter into premarital agreements. If this divorce had taken place in 1979, it would have turned out differently. the purpose of the 1980 amdt is to let people do what they wanted to do all along: make the change to avoid the harsh result. So because it had a remedial purpose, as long as there is no injustice, then it seems logically to apply it retroactively. So as long as the agreement is legal under the 1980 amdt and the dissolution of the marriage is effective after the 1980 amdt, then it’s covered by the amdt.
(a) 1. What do you believe Cornyn was alluding to when he said “Lillian is a member of the class intended to be protected by our earlier community property laws ....”? Here, she’s trying to enforce the agreement. Because she’s a member of the class intended to be protected, she’s allowed to enforce it. Is the Court limiting this holding to women wishing to enforce it? In Fanning it’s the husband trying to enforce the agreements, and one of the arguments made by Mrs. Fanning was that under Beck only women could enforce.
ix) Fanning v Fanning (1993), p. 87
(1) H&W entered into a on August 15, 1980.
(2) Constitution was amended in Nov 1980. Prenupt says 50%-50% split of community property. The trial court didn’t follow this, Nita got a lot more than Whitney. H is trying to enforce it in order to get a 50/50 division of the property.
(3) RULE: the 1980 amendments permit “persons about to marry and spouses” to partition or exchange community property “then existing or to be acquired, in the future” and for spouses to “by written instrument, agree between themselves that the income or property from all or part of the separate property then owned by one of them, or which thereafter might be acquired shall be the separate property of that spouse,” but it does not permit “persons about to be married” to agree that all future income will be separate, though it allows spouses to do so.
(4) Thus, the 1980 amdt did not authorize person intending to marry to enter into agreements that the income from one spouses separate property would thereafter be the owner’s separate property.
(5) the 1980 amdts are designed to allow married people to enter into agreements that the income from the spouse’s separate property remain separate. The amdt doesn’t cover premarital agreements. You cannot enter into a premarital agreement to partition income from separate property.
(6) Paragraph 2—partitioning future earnings. Do the 1980 amdts apply to future earnings. Held, here the amdt does apply, Beck applies retroactively, and it is enforceable.
(7) Paraph 10—equal division. Does the 1980 amdt apply to this situation? No. Even though the 1980 amdt does not apply, another section of the constitution allows enforcement p. 91 “Because an agreement to equally divide community property . . .”
(8) What constitutes duress? He told her that if she didn’t sign he would take the children, and he was a lawyer with ten consecutive wins.
(9) Where talking about whether this agreement was entered into voluntarily, there’s a threat of divorce and taking the children and its given substance because of the H success in custody suits.
(10) Breach of Fiduciary Duties. p. 96.
(a) He had a lover, whom he spent money on. It is common, that one of the partners tries either to hide or eliminate community property. So when you file a divorce you also file a restraining order for maintenance of community assets. The order allows you to hold him in contempt of court. It’s easy to show a violation of the restraining order. This doesn’t just extend to property, but also to credit. So a restraining order may restrain someone from filing bankruptcy. Here he mailed money to hundreds of charities. Usually parties are under restraining orders not to makes this kinds of payments.
x) Fanning v Fanning, Tex S Ct, p. 98
(1) Held, the trial court found the contract unenforceable, and therefore W did not present evidence of unconscionability and duress. Because at least some of the prenuptial agreement is enforceable, the case should be remanded to give Mrs. Fanning the opportunity to voice defenses.
(a) What constitutes duress so the agreement should not be enforceable? He was a great lawyer, he threatened to take away the children. Would you feel duress if your H said “sign this or . . .?” You’d feel taken advantage of. But she was an atty herself, she knew his record and reputation? Were there any indications of physical or mental abuse? Would that be a factor that courts could take into account to find duress?
(b) 2, that case sites Mathews v. Matthews, because the court found duress in a custody case when the father said, “do this or you’ll never see your child again,” coupled with a history of psychological abuse.
(c) What are the standards for finding a contract unconscionable? widely disparate bargaining position, fraud, incapacity. It must be completely unjust to enforce this contract. The same standard attaches to premarital agreements. It must be completely outrageous that shocks the conscience. So there really is a high standard, which rarely happens.
4) Characterization of Marital Property, p. 101
a) The Community Property Presumption, p.
i) Rebutting the presumption. Foster v. Christensen,(1934) p. 101
(1) Father conveys Blackacre to his son in law, George (H) Newgent, and daughter; deed was in H’s name alone. George goes bankrupt and trustee is trying to sell the land because he listed as an asset. Father and daughter claim that the land was conveyed to the daughter as separate property. If it’s the wife’s separate property, it’s not subject to execution.
(2) “The land presumably became community property of MR. and Mrs. Newgent when it was conveyed to them jointly with not recital of her seprate ownership; but her ownership of the land as her separate property would have been established by proof of that the cash payment was made out of her separate funds and that it was agreed at the time by the parties to the deed that the land should be her separate property and that the balance of the purchase money should be paid out of her separate funds.
(3) CN: She has to be given the opportunity to show, if she can, that she has some separate interest in the land, but the court didn’t allow this. If it were in the husband’s name alone, the presumption is still that it is community property. It doesn’t matter whether her name was on the deed. She’s trying to show that it was her separate property not subject to community debt, through tracing.
(4) Legal vs. Equitable. There is an important distinction here between equitable title and legal title, because equitable title may be divested. “Since the wife’s separate property or interest is equitable in its nature when the title appears of record to be community, she may lose her title through its acquisition from the husband by an innocent purchaser for value.” Case remanded so she could establish that it was her separate property.
ii) Maples v. Nimitz, p. 104
(1) Frank owned Land as separate property before marriage. Ruth and Frank Maples were married. Frank had a son from prior marriage, Jack. Jack tried to prove that the Land had been conveyed to him in 1955, and then reconveyed Frank in 1972 as a gift (i.e., separate property). Jury finds that all the realty and personalty was community property.
(2) Basic presumption that property coming into the estate during marriage is community property. The son argues that the second conveyance was without consideration, and therefore a gift. But as long as there is some evidence to back up the jury’s verdict, it will be upheld. The deed recited that there was consideration. There is evidence that there was consideration. They jury may have relied on this.
iii) All property possessed during marriage or on dissolution of marriage is presumed to be community property and the party claiming that such property is separate, must prove so by clear and convincing evidence. Fam Code. §5.02. Kyles v. Kyles(1992), p. 107
(1) EX: Years prior to divorce, H settled a personal injury case for $190k. Trial judge found that the net settlement was $120k and that H still had $69k in his possession.
(2) R: All personal injury is separate property. The release signed by the H didn’t make it into the record. H has the burden of proving that the original settlement was his separate property in order to prove that the $69k remaining is in fact his separate property.
(3) Without evidence to the contrary, it must be presumed that at least some of the settlement proceeds were attributable to lost wages or lost earning capacity which are community property. When a spouse receives a settlement from a lawsuit during marriage, some of which may be separate property and some of which may be community property, it is the spouse’s burden to demonstrate what portion of the settlement is his separate property.... absent such evidence the entire amount is presumed community property.
(4) CN: if you don’t have that kind of break down, the person claiming it is separate property bears the burden of proof. If it’s received during the time of the community, it is community unless proved otherwise, but Osborn.
iv) Personal injury—presumption of separate property. Osborn v. Osborn, p. 109
(1) Lon was injured during marriage; both file suit against the doctor; while the suit is pending, Lon and Sara file for divorce. Who bears the burden? She does, who ever is trying to prove it is community. Sara says it’s Lon’s burden to show what is separate and community property.
(2) PI his separate, loss of consortium which is her separate, medical expenses was community property.
(3) There is no presumption that a potential recovery for a personal injuries to the body of a spouse is community property. A recovery for PI to the body of a spouse is separate property of that spouse. Graham v. Franco. Had the money already been received, there would be a presumption of community property. Kyles. But here, the presumption didn’t attach because they hadn’t yet received it.
(4) Sara’s attys needs to argue that she’s an indispensable party in the settlement or if it goes to trial, that there be specific mention as to the amount that each goes to each.
v) NOTES p. 113
(1) If the case is settles, the parties should specify what damage amount go to what: loss of consortium, PI, medical expenses, etc. This can be troublesome because insurance co’s like to pay in a lump sum check without allocating. Can you go back and retroactively, look at a vacation-home purchased with these funds.. can you trace and then seek a division? But if there is an ongoing suit, and the wife has a loss of consortium action, then it would behoove her to intervene and retain separate counsel. If the cause of action doesn’t go to trial but settles, and you represent the wife, then you want to make sure that the settlement states what part of the settlement represents loss of consortium, PI, pain and suffering, lost wages, etc.
b) The Doctrine of Inception of Title, p. 113
i) Welder v. Lambert (1898), p. 113
(1) A fixed contract right acquired before marriage was property the character of which takes its impress from the date of the contract.
(2) EX: Before marriage H enters contract with Spanish govt to colonize. Held it is at this point that title incepts, at the time of the right, which predated marriage. Even if the contract was completed after marriage, it would still be H’s separate property because all choses in action owned by either spouse before marriage remain the separate property of the spouse. If contracts be property, and if all property held by either spouse at the time of the marriage be separate property of the spouse who held it, it follows that the right of acquisition secured to H by the contract remained his separate property upon his marriage, and did not fall into the community. Title emanating from the contract incepts at the time the contract is formed, not when completed.
(3) I: Whether the land grant was community property? If separate they get one 7th. If community they get her half plus one seventh of his.
ii) NOTES, p.
(1) claim of homestead incepts at the time the parties move on to the land. When one the spouses dies, the surviving spouse has a life estate. For the duration of the widow’s life, she has a right to remain on the homestead. If they move, they lose it.
(2) A claim of adverse possession incepts when the statute has run.
(3) Notice the contrast: with homestead, inception is at the beginning, with adverse possession it is at then end. Why would this be different? With adverse possession the legal owner has superior title until the statute has run. With regard to homestead, homesteaders have superior rights, thus the widow has a life estate that lasts above all others.
iii) Earnest money contract. Carter v. Carter, p. 119
(1) RULE: Title incepted with the earnest money contract, which occurred before marriage.
(2) On Oct, 1974, H signed an earnest money contract for a house; on Dec., 1974 he was married. The house closed on Jan, 1975.
(3) R: RULE: the character of title to property as separate or community depends upon the existence or nonexistence of the marriage at the time of the incipiency of the right in virtue of which the title is finally extended, and that the title, when extended, relates back to that time. H acquired a right to title to the property when he entered into the earnest money contract. As the earnest money contract was entered into prior to the marriage, H’s right to title preceded the marriage and the separate character of the property was thereby established.
(a) The fact that the deed is in both names does not change the character of the property. Though a deed that names both of them is prima facie proof of community property, it can be rebutted.
(b) Property acquired on the credit of the community is community property
(4) Does an earnest money contract give you the right to possess the house? no, it’s just an option to buy. It just binds the seller, not the buyer. So how can this be an inception of title? While it doesn’t give you the right to possess immediately, it does give you the right to exercise. Held, this is where the rights begin.
iv) NOTES, p. 122
(1) Is this a bad result for the wife? wife would be entitled to reimbursement of community resources spent on improving separate property. On divorce, the house is often sold to liquidate, so neither party would end up with the homestead. Look at the economics: if this is separate property worth $100k, now increase in value to $150k, This increase in value is separate property. But what has the community likely paid? If there is a mortgage, the first payments go to interest, for which she would get a reimbursement, so she might not lose out on the value of the property.
(2) 5. fam. §§ 3.401-3.410, 7.007.
v) Brown v. Foster Lumber, p. 122
(1) RULE: When title to land is acquired through adverse possession during the marriage, it is community property.
(2) What if the nature of the title? -- legal, equitable, or adverse?
(3) F: Smith settled on a piece of land in 1874. In 1875 he sold X acres to Mrs. Brown for $150. But Smith had no interest, no title, to convey. He simply moved onto the land, and then two years later, conveyed it. He wasn’t there long enough for adverse possession, he was just a naked trespasser. So Mrs. Brown received absolutely nothing for the $150. It was not equitable title because he had nothing to convey. Mrs. Brown’s husband lived on the property for the next 13 years. In Texas, you can adversely possess within 5 years. For adverse possession title incepts when the statute runs. They were married when it ran, so the land is community property.
(1) Why didn’t Mrs. Brown’s title relate back to her purchase from Mr. Smith? Because there was no interest to relate back to. The only claim she could have in the property was through adverse possession.
(2) It didn’t matter that the purchase was made with Mrs. Browns separate funds, because the sale from Smith conveyed nothing to mrs. Brown; so there was not title so incept at that time.
vii) Strong v. Garrett, p. 125
(1) Original purchase. James bought tract No. 3, which Anderson Strong then bought from James, but the deed erroneously described it as Tract No. 2.
(2) Divorce. Anderson divorced his wife and was awarded the land in the divorce decree. Then Anderson Strong remarried Ida Young, who had a daughter Leuvinia. Anderson dies intestate. The probate court ordered the homestead set aside for Ida, subject to a vendor’s lien. But the vendor’s lien described Tract 2, not Tract 3. Ida remarries Garrett. Both live on Garret’s land. Ida dies. Garrett marries Evie.
(3) D: There is no question that Anderson was not in possession of the land described in his deed, which he acquired while single. But he did have an equitable right upon which he could successfully have maintained a suit to reform the deed. the statute of limitations of four years would not have barred a suit by him for reformation, but it is a bar to his children.
(4) I: Was this title “acquired’ during marriage to Ida and thus community property, or was it acquired by Anderson before his marriage, and thus separate property?
(5) Had Anderson entered the land as a trespasser without any property right, he would have not claim until the full period of limitation had run. Property acquired by pure limitation, where the period began before marriage and ended during marriage, is community property. But he was not a trespasser.
(6) Ida attempted to convey the land to Gerrett. But because she could only have a 1/3 interest in a life estate, that is all she could convey, and Garrett would have to take by limitation, which would begin at her death, or when Anderson’s son reached majority.
(a) 1902____JamesàStrong #3 (#2 description) [even though she meant to convey no. 2 because that all she owed.]
(b) 1905____Strong moves onto tract # 3,
(c) 1906__Strong & Fannie divorce. Then a year later, 1906, he marries,
(d) 1911, they divorce and Anderson is awarded the property, described in the divorce decree as “the Anderson place.” So the award is for wherever Anderson is actually living, which is tract # 3.
(e) 1912 Anderson marries Ida.
(f) 1916 Anderson dies intestate, leaving Ida, and two children from marriage with Fanny.
(i) Ida à Charlie Garrett.
(ii) Charlie and Ida marry.
(h) 1936 Ida dies.
(i) 1937 Charlie marries Evie.
(7) Who owns tract #3 and when did title incept? If it incepts in 1902, then it was Anderson’s separate property, and when he dies, then under the law of intestate succession it goes to his children. Held, the land was separate property. Title incepted in 1902 when Anderson was single. Though the description was faulty. He had colorable title. The deed should be given the effect intended by the parties. If someone had sued him in 1902, he could have reformed the deed, to correct the mistake, so he has at least equitable title, but it really is legal title because the intent of the parties was clearly to convey Tract #3. So title incepted while he was single. Therefore, the children have title by reasons of intestate inception. Ida had only a life estate.
(8) Why were the claims of Anderson and Garret treated differently? From a strictly legal standpoint, Garrett’s title came from Ida, who had only a life estate. So he would have to prove adverse possession, where title comes only at the end. The time of limitation period begins to run only after Ida dies.
c) Insurance policies.
i) Life insurance proceeds incept when title is issued, even though premiums are paid for out of the community estate. McCurdy v. McCurdy, p. 130
(1) CN: The insurance policies are issued before marriage, H pays some premiums; then he marries, after marriage he pays some premiums from community funds. Are the proceeds entirely separate, in which case the beneficiary estate gets all the money, or whether the estate gets a pro rata portion of the premiums.? No. This is entirely separate property but they’re entitled to reimbursement. But the reimbursement is just a few hundred dollars.
(2) Whether the proceeds of life insurance policies issued to the insured husband before marriage naming his estate as beneficiary (a) belong to the separate estate of the husband after his death, only in proportion to the amount of premiums paid by him before marriage; or (b) belong entirely to his separate estate, with right of reimbursement to the community based on the amount of premiums paid from community funds during marriage. Held, the proceeds of life insurance policies issued to the insured H before marriage naming his estate as beneficiary belongs entirely to the separate estate with right of reimbursement.
(a) Under Tex incept of title, the life insurance title obtained is separate property, and the proceeds are separate title, subject to right of reimbursement, but this is only half of the premiums paid.
(b) Tex Fam Code 3.401 et seq.
ii) Parson v. US (5th Cir.), p. 133
(1) When title incepts in common law states—retains separate character.
(a) H purchased 14 policies, 2 before marriage, and the rest before moving to Texas, thus in a common law jx, all of which where paid for from H’s separate property before 1945. H and W married in 1926, resided in Texarkana, Arkansas, then moved to Texarkana, Texas, in 1945.
(b) R: In Texas, Property acquired by a H and W in another state prior to their moving to Texas will retain the character of ownership it had in the state from which it was removed. Property characterized as separate at the time acquired remains separate, although subsequently paid for with community funds, subject to the community’s right to reimbursement. Under McCurdy, inception of title rule controls. The policies are separate property because purchased in a common law jx, whether acquired before or after marriage. Therefore, they are included in his gross estate for tax purposes.
(c) However, by signing it over to W he is making her the owner, he has no control any more for naming the beneficiary or keeping her from transferring it to someone else. So this in essence is a gift, from him to her of his community interest in the property.
(2) “Affirmative act” for assignment.
(a) whether H could assign or gift his community interest in an insurance policy to his wife? Yes; H performed an affirmative act which clearly reflected an intention to make a gift of his community share. A Husband may unconditionally make his W the owner and beneficiary of an insurance policy on his life when it is issued, or later if he desires, so as to bar inclusion of it in his estate. Therefore, the policy should not be included in his estate.
(b) Cf. Freedman p. 138--W applied for a 50k life policy and H was named as primary beneficiary. Under the policy, all values, rights, and privileges would belong to the person who signed as owner. H signed. Held, even though H signed the policy as owner, W “did not perform an affirmative act which would clearly reflect an intention to make a gift of her community share.”
(3) Effect of divorce. What if instead of dying, Mr. had divorced? See fam. code 7.002(a)(1), p. 628 (“In a divorce proceeding, the court shall make a just and right division of “property that was acquired by either spouse while domiciled in another sate and that would have been community property if the spouse who acquired the property had been domiciled in this state at the time of the acquisition.”) Because they were domiciled in another state and it would have been the spouse’s separate property in the other state, but community if acquired in this state-- this section is designed to transform property acquired in another state into community property laws.
iii) Right to Worker’s compensation—incepts at time earning capacity is lost. Lewis v. Lewis, p. 138
(1) A workers’ compensation settlement paid during marriage is not community property if the claimant’s disability occurred prior to the marriage.
(2) F: H was injured at work; 7 months later he married. The proceeds of the settlement were deposited into W’s acct and then used to purchase 15 acres deeded to both H and W. W filed for divorce, contends the land was community property
(3) R: a spouse’s separate property includes “the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.” Fam. Code 5.01(a)(3). The character of compensation benefits paid during marriage is determined not by when the injury occurred, but by when the loss of earning capacity occurred. Here, it was before marriage.
(4) Sometimes there is a large lapse of time between the injury and the determination that he is disabled, with a marriage in between. Then it would be community, because it’s the disability determination that matters. Normally, it is so close in time that it is not an issue. Here, however, both the injury and disability determine occurred before marriage.
(5) RULE: the disability does not necessarily occur when the injury occurs. At the point the disability occurs, the inception of title for the disability payments occurs; even if payments are made during marriage, these are still the disabled worker’s separate property.
(a) Nature of Worker’s compensation. Worker’s comp is an alternative tort system, it is strict liability; if you are injured on the job, you’re covered for lost wages, not pain and suffering, but you don’t have to prove fault. Wages are recoverable only to the extent you are injured while on the job.
(b) Nature of disability insurance. Disability insurance is similar, it is only for recovery of lost wages, so the issue of pain and suffering is never addressed; insurance companies are prohibited from paying the full amount of your wages, only say 80%.
5) Tracing, p. 140
a) Tracing relates to the inception of title principle. You can bring property out of the presumption of community property even if commingled with community assets. But sometimes you have to go far back in the line of progression to show it was separate property. In one case, W had to use 60 exhibits. In a divorce situation where you are required to show tracing, do so in a timely manner. If you fail to, you cannot reassert it later. Tracing is an affirmative defense, so get your documents early, because you will have to show tracing in discovery.
b) Tracing must be proved by clear and convincing evidence. Fam. Code 3.003(b).
i) Hardee v. Vincent, p. 140
(1) RULE: Mere testimony by a spouse that he claims no interest in the property, is not sufficient evidence to prove the property is the separate property of the spouse.
(2) Creditor of H wants to execute on property claimed to be W’s separate property. H brings suit to enjoin execution of levy stock in merchandize, allegedly belonged to the W. Although H conveyed the merchandize to W two years before the judgment, new inventory was purchased. It must be proven that this new inventory was also separate property. the property was paid for out of funds from the business.
(3) H’s testimony that the “business belonged entirely to W” does not overcome the presumption of community property. All they showed was the husbands testimony: “He didn’t claim any interest in the business,” “it belonged to the wife.”
(4) EX: W on date of marriage owns separate inventory, worth 750k; at date of divorce it’s worth 1500k, so it’s doubled. There’s no question that it’s separate property.
ii) NOTES, p. 142
(1) 1. problems in establishing the character of a retail businesses. If the spouse cannot establish the tracing, then the spouse would be entitled to reimbursement. For the amount that she .... the inventory on the date of marriage is usually separate, and as long as you can arrive at that amount, then you can seek reimbursement.
(2) 2. Schechter v. Schecter (Dallas Court)—quotes Smidt “while the specific articles that made up the original stock had been sold, and their places supplied by others from time to time as the exigencies of the business required, the property was in fact the same, a stock of the merchandise, and we think that there was not such a change in the property as would divest it of its separate character to the extent of the goods owned by appellant at the time of the marriage.” what does this mean? Schecter was not a characterization case, but an reimbursement case. “we think the spouse furnishing such separate funds is entitled to be reimbursed, therefore”.
iii) Oil and Gas lease, traced to separate funds, is separate property. Norris v. Vaughn, p. 143
(1) H married W in 1941. W died intestate in 1947. W had a daughter from a prior marriage, Norris, who is suing H. H acquired several oil and gas leases in 1937.
(2) R: The oil and gas lease obtains a determinable fee in the oil and gas in place, and thus an interest in realty. The lessee’s determinable fee interest will last only so long as oil or gas is produced, and oil and gas producing territory will become exhausted in time. Production and sale of the natural gas is equivalent to a piecemeal sale of the separate corpus, and funds acquired through a sale of separate corpus, if traced, will remain separate property. Royalty payments from the wells are separate. The royalty payments are separate because this is no different from taking the surface estate and to dividing it up. Even though it requires effort to bring it up, it’s still separate property. Thus, oil and gas in place when produced from separate property remains separate property and part of the corpus. So long as separate property can be definitely traced and identified it remains separate property.
(3) Petitioner claims that even if the gas produced was separate property, community effort impressed a community character on the gas. Held, there was no effort involved.
(4) Shamrock Gas Co. interest: acquired before marriage, therefore separate property, though the income from it during marriage was community. But the delayed rental is a community right, because it has nothing to do with taking away the corpus. The delayed rental is just like any other kind of asset and therefore presumed to be community.
(5) Any property rights acquired by one of the spouses after marriage by toil, talent, industry, or other productive faculty is community property.
iv) NOTES, p. 149
(1) 3. Most H’s activities related to his own separate property. So what if one of the spouses is working almost exclusively with the separate estate instead of the community estate, can the character of a separate estate be transformed into community property? No. Properly characterized property does not change its characterization depending on the amount of time one spouse spends on an estate. If I spend all my time on my separate property, it won’t become community, but it may be entitled [to economic contribution]. see p. 609. § 3.401-3.406.
(2) So how much time and effort would be reasonable? No court has answered that question specifically. 47% of one’s time invested in enhancing a separate estate will trigger the contribution.
(3) Duty to provide for the community. Court denied [H’s claim of] reimbursement for living expenses. p. 149: Should H be reimbursed for separate funds expended for the community living expenses? no. “It is fundamental that the husband is obligated to furnish support for community living and if no community funds are available he should utilize his separate funds. It is his duty to provide for the community. Separate funds spent for community living in such a manner should be deemed a gift to the community for its well being and use..” Is there a loophole? yes “if no community funds are available.” So what if community funds are available, but it is more tax advantageous to use separate funds instead of community funds?
(a) EX: H has inherited100 shares of Microsoft, worth $40 per share, with a tax basis of $35 per share. The community also owns 100 shares of Microsoft, with a basis of $10 per share. H, to minimize tax liability, sells his separate shares. Norris speaks of “if no community funds are available”.. but here he chooses to use his separate property for the purpose of tax advantage. Can he get reimbursed? He didn’t have to sell his separate shares; They could have sold the community shares but paid tax on $30 instead of $5? should there be an equitable argument that he should be entitled to reimbursement?
v) Partnership distributions—Community property/entity theory. Marshall v Marshall, p. 150
(1) How to characterize the partnership distributions?
(2) The partnership agreement provided it would pay H $700 as salary ($22.4k during the marriage), and that all other distributions are from a share in the profits (total of $550k). H claims only $22.4k is community.
(a) the Uniform Partnership Act discarded the aggregate theory and applied the entity theory: that the partnership property is owned by the partnership itself and not by the individual partners. The individual partners merely have a partnership interest. Thus, if the partner receives his share of profits during marriage, those profits are community property, regardless of whether the partner’s interest in the partnership is separate or community in nature.
(b) CN: the payments received from partnerships, are community property. Today, the partnership, the entity, owns the truck, so there is no separate property, just a partnerships interest. Held, all partnership distributions to H during the marriage were community property.
(c) His second point is that the distributions from the partnership were distributions of his capital account. Held, it can’t be traced. So there is no ownership interest in the capital of the partnership, it is the partnership as an entity that owns the resources. So it’s either partnership income or profits, and therefore community property and not separate.
(i) Pre-Marital agreement. Woody’s First point, “we had a premarital agreement that the income from separate property was to remain separate, and not community.” The wrinkle: this is a remarriage. The agreement is no longer good, because that agreement is measured by the length of the first marriage. When the couple divorced the first time, that agreement ended.H and W were married twice. The first time, they execute an agreement that separate property will remain separate property. Held, this did not survive the divorce and therefore didn’t apply to the second marriage. Therefore, the agreement is not a basis for characterizing the partnership distributions as separate.
1. cf. Sorrels-- H was obligated to pay the W alimony. The agreement specifically stated that the W’s remarriage would have no effect on the alimony obligation. Then they divorce, and then remarry. So the remarriage had no effect. Woody tries to argue that it applies, But the court says that this agreement stopped at the time of the first divorce. Here, there was no second pre-marital agreement.
vi) CONSTRUCTIVE FRAUD: W argues that the gifts to the kids and the grandson constituted fraud on the community. Court rejects this; consider 3 primary factors in determining whether constructive fraud exist:
(a) the size of the gift in relation to the total size of the community estate,
(i) CN: the larger the gift and the smaller the community estate, the more likely the court will find fraud.
(b) the adequacy of the estate remaining to support the wife in spite of the gift,
(i) CN: if there is enough in the estate to support the W in the manner and style in which she has become accustomed
(c) and the relationship of the donor to the donee. Are the donees the natural objects of the donors bounty?
(d) Here, the community estate was $540k, and the gift was $60k, 11%; the remaining amount $470k was sufficient to support the wife; the gifts were to H’s daughter and grandson, the natural objects of his bounty. Held, no constructive fraud.
vii) Tracing aids:
(1) Community out first-rule (aid). p. 160. Trust theory. The community property that was taken out first to purchase property, were presumed to have been community funds. Thus a constructive trust. If you commingle the community funds money, it’s presumed that community funds are spent before any separate property.
(2) Clearinghouse method. It takes into acct the intent of everyone involved. EX: grandmother gives daughter a check to buy a car, she deposits in community acct, which is commingling. Daughter buys car. Where you have isolated transaction like this -- a single gift for a particular purpose -- then this method makes sense. But there are difficulties when it’s over a long period of time with many transactions.
c) Tarver v. Tarver, p. 161
i) RULE: Children of a former marriage who were minors at the time of their mother’s death are not relieved of the burden of tracing in order to over come the presumption that all property possessed by H and his second W is community property at the time of the dissolution of marriage.
ii) F: the community estate of H and Minnie was $348k when she died intestate. All three of their children were minors at the time. At the time of H’s marriage to Arlene, the community property from the first marriage was valued at $282k. Children sue to recover one half of the property in the possession of H and W.
iii) Children claim this rule should not control; but rather the law of trusts should be controlled the case. children from the first marriage intervene after death of the father, trying to assert a trust relationship for them, [i.e., that when their mother died, their father held their half of the community estate in trust for them because they were minors at the time].
iv) I: do the intervenor children have the burden of tracing? yes.
v) There is a rebuttable presumption that all property possessed by H and W when their marriage is dissolved is their community property and imposes the burden upon one asserting otherwise to prove the contrary by satisfactory evidence. When the evidence shows that separate and community property have been so mingled as to defy desegregation and identification, the burden is not discharged and the statutory presumption that the entire mass in community controls its disposition.
vi) CN: Children say that some of it is theirs in trust, because it was up to H to keep it separate. The children have the burden because of the community property presumption. The children didn’t offer any good proof with regard to tracing, they failed in their burden. They say they don’t have the burden because H was the trustee and in a trust relationship, the trustee bears the burden saying that it’s not their property. Held, the person challenging has the burden of tracing.
vii) The children say they should be relieved of the burden of tracing.
d) McKinley v. McKinley, p. 166
i) H had on deposit $9,500 of separate funds in a bank account, earning interest, until the account balance was 10,453.81. H thereafter withdrew 10,400 to purchase a CD. Held, the 9,500 was clearly identified as separate property..
ii) Does the W benefit when H commingles his separate property to purchase a CD? Yes, because the interest received from the $9,500 is separate, so she still receives a benefit from it. Had it been under a mattress, she would get nothing.
iii) So why is this case criticized as being the most liberal? They didn’t count dollar for dollar. The court says with $9.5k going in as separate property, and there is 9.5k going out must be separate property.
iv) The McKinley approach was not the community-out-first-rule, because there was $53.81 left in the account. The court considered this to be community property as interest, but this violates the community out first rule. The community interest should have come out at the first, not the last.] Held, The federal savings CD was clearly traced to be H’s separate property and therefore remains separate property.
e) Latham v. Allison, p. 169
i) RULE: When tracing separate property, it is not enough to show that separate funds could have been the source of a subsequent deposit of funds. Such conjecture does not constitute sufficient evidence to sustain P burden of tracing to overcome the community property presumption of the Fam Code 5.02.
(1) EX: W owned stock before the marriage as separate property. This stock was later sold. During the marriages, H and W had a joint checking acct. Held, W must prove that the accts were actually funded with the proceeds from the sale of the separate stock.
ii) CN: You must be able to show the transactions directly. Not that it could have been this way; you must show exactly how it happened.
f) Gibson v. Gibson, p. 171
i) W sold a piece of separate property during the marriage for $8k, $5.5k paid at closing, which she deposited into her separate acct but then transferred to her joint acct.
ii) R: A spouse must prove separate property by clear and convincing evidence. When tracing separate property, it is not enough to show that separate funds could have been the source of subsequent deposit of funds.
iii) Three modes of tracing.
(1) “dollar for dollar” accounting. P must prove dollar for dollar separate funds used to purchase an asset. If there’s any commingled you have to show the deposit receipts: check in, deposit slip out.
(2) Community out first-- dollar value approach. There can be no commingling by the mixing of dollars when the amount owned by the claimant is known. Community funds will be presumed to have been drawn out before separate funds from a joint bank acct. Each dollar has the same value. Sibley.
(3) Community exhaustion proving that community withdrawals equaled or exceeded community deposits. EX: income from W’s separate property was $1k per year, while family living expenses were $200-$500 monthly. Held, community funds could not have been used to pay for the property in question since they had already been depleted in paying for living expenses. CN: show that the community has exhausted all of the community property so whatever is left is their separate property. This requires understanding that the expenses are community. and then that separate property is just being maintained for preservation.
(1) 3. which of the three methods would have best served Mrs. Gibson, with a lot of in-and-out. If it’s hard to trace, community exhaustion would probably be the best. he tried to show that it would have been impossible for the community to purchase the property.
(2) Standard of proof required for tracing: clear and convincing evidence.
g) Snider v. Snider, p. 174
(1) Date of marriage: Beginning balance (separate): 27k.
(2) within first few weeks of marriage, 8k was spent, leaving, $19 – Separate
(3) Add’l deposit of 10k
(4) Balance 29k
(5) other deposits and withdrawals, but it never falls below 19k
(6) Ending balance, at death: 35k
(7) Held, because the account never fell below, the $29k .H’s separate interest in the acct to the extent of $29k has been proven. he 29k in separate property was in the 35k. The remainder is community property. for this to work. you have to be able to show . . ., he had an account book.
h) Dividends of separately owned mutual funds are community. Bakken v. Bakken, p. 175
i) But capital gains retain their nature as separate property. The original shares were her separate property as well as the increase in value. As the mutual fund grows and makes money and as shares are sold and new stock purchased, the value of the account grows.
ii) EX: I buy a piece of property, tomorrow I marry, a year later I divorce. I buy for $1k, I is sell for $1,200. the 200 increase is separate property. This is not like cotton grown on separate property. the increase in value is separate property.
i) Carter v. Carter, p. 176
i) ’70 father gives H $159 stock in MPI.
ii) ‘74. Marriage:
iii) ‘76— Steuffer buys MPI, and the $159 is converted to 4,645 of Steuffer stock.
iv) ‘79—stock split, doubling: 4,645x2
v) ‘81—son sells some stock
vi) ‘82—sells more stock
vii) The stock could have been purchased during marriage, but this was conjecture. Held, the evidence was factually sufficient to support the trial court’s characterization of the stock as separate property. Increases came from gift of stock. H received the stock by gift, offered detailed financial records regarding the character and nature, the stock splits.
6) Presumptions Arising from Conveyance through Which Title is Acquired, p. 178
a) Resulting trusts: When record title is conveyed to one or both of the spouses during marriage, the conveyance places legal title in the spouse or spouses named as grantee, and the equitable title is presumed to be in the community.
i) Restatement of Trusts.
ii) 440 general rule: Where a transfer of property is made to one person and the purchase price is paid by another, a resulting trust arises in favor of the person by whom the purchase price is paid. CN: placing title in a third party, the presumption is a resulting trust, and the person whose name appears on the title is the trustee and holds it for the benefit of the purchaser. A is the purchaser/settler, B owns legal title and is the trustee.
iii) 441 Rebutting the presumption: a resulting trust does not arise where a transfer of property is made to one person and the purchase price is paid by another, if the person by whom the purchase price is paid manifests an intention that no resulting trust should arise.
(1) rebutting the presumption:
(a) if the person to whom the transfer was made is the natural object of your bounty.
(b) to manifest intent that even though X is not the natural object of my bounty I intend to make a gift. EX: I want to give a Maseratti to Stewart, so I tell the dealer give it to him.
iv) 442. Purchase in Name of a Relative. When it is to a natural object of your bounty then the presumption is automatically overcome.
b) Bybee v. bybee, p. 181
i) 1978—boyfriend and girlfriend purchase 25 acres for $26k, with a down payment of $2k, paid in the following manner: 1k by Michael’s grandfather, $800 by Michael, and $200 by W. The note and the deed were in Michael’s name only. Held, under the inception of title rule, this alone dictates that the property must be characterized as H’s separate property.
ii) 1979—couple marries.
iii) 1981—boyfriend (now husband) conveys ½ to grandfather
iv) Trial court held that H and W were joint purchasers. This could only obtain if there was a resulting trust in favor of W. The inception of title applies because it was purchased before marriage. A trust must result at the very time a deed is taken and title vested in the grantee.W paid $200 towards the down payment on the land. Thereafter the parties paid for the property with community funds, which simply gave rise to a claim by W for reimbursement for such funds expended to enhance the value of Michael’s separate undivided interest in the property. Thus, her share must be proportionate to the total price, i.e., $200/26,000=1/144.
v) The issue concerned the $200, which H claimed W had loaned, before marriage. Held, for there to be a resulting trust, the W would have to show she had paid part of the purchase price.
vi) At the time she paid the 200 she was not married and therefore H was not the natural object of her bounty as is required under 442 to raise the presumption of gift. So this case revolves around timing. What about the grandfather? he helped with the grandfather of 1/26. But W agreed that grandfather was half owner.
c) Significant recital, p. 184
(1) Recital in a deed is considered to be significant recital if it states that the consideration is paid from the separate funds of a spouse, or it states that the property is conveyed to a spouse as his or her separate property, or out of love and affection or as a gift.
(2) The [resulting trust] presumption is overcome by significant recital in the deed. Clearly identify in the recitals the intent of the parties. Where there are no significant recitals, that’s when the presumptions kick in, because . . .
ii) b. If it says “we’re doing this as a tax avoidance” then....typically. since 1968, removal of coverture, there are no cases of W granting to H.
d) Smith v. Strahan (1856), p.
i) W & H. Plaintiff’s wife has died, he joins the other three, they become parties for partition. Father Defendant said that the land was paid with his separate property, even though put his Wife, Delilah on the deed. Does this fit the rebuttable presumption?
ii) H transferred to W, Delilah. Was this a resulting trust for the community or a gift to W? If a resulting trust, then H retains a one half interest. The trial court gave a charge to the jury of a resulting trust presumption, a 440 charge. Challenge is that the jury should have heard 442 whether it was a gift, because W was the natural object of H’s bounty. Held, the 442 presumption of gift instruction should have been given to jury. . today, the plaintiff would argue for a 440, and D for a 442. This fits under 442, because the W falls under the natural bounty which is sufficient to overcome.Ps requested (but refused) jury charge tracked the language of § 442, that there’s no resulting trust if the transferee is the natural object of your bounty. But the court should have also stated that the presumption is overcome when the person to whom title is given is the natural object of the payor’s bounty. But the jury only heard §440 so the jury never had the chance to determine whether it was a gift. If it’s her separate property, [then it gets distributed among her heirs in a larger share]
e) Clear and convincing standard. Bogart v. Somer, p. 188
i) RULE: the presumption of gift under 442 must be rebutted with clear and convincing evidence. Standard of proof required to rebut the presumption of gift, is not preponderance. Both the community property presumption and the presumption of gift under 442 must be rebutted by clear and convincing evidence.
f) Johnson v. Johnson, p. 188
i) F: H comes from Florida to Texas. on July H signed a contract to purchase a home in which he alone was named as purchaser; married August 14; deed executed naming both on Aug 24. H paid entire purchase price out of separate funds. Was there a resulting trust? Yes. Held, the evidence was sufficient to overcome the presumption of gift. p. 189, court identifies all these points as c &c evidence. Additionally, she accepted reimbursement for community funds which had been expended, then tried to claim one half as community property. Accepting the reimbursement signified an agreement that the house was separate property.
g) Parol evidence rebutting the 442 presumption. Peterson v. Peterson, p. 190
i) F: whether there was evidence to support the trial court’s finding that the community property presumption was overcome by tracing the entire purchase price to the H separate funds, and that the H did not intend to give W a one half interest in the home despite the name of the deed, that 442 doesn’t kick in.
ii) The closing of title occurred after marriage, giving rise to the community property presumption.
iii) H argued that the only reason he put her name on the deed was to keep peace in the family. W testified that she wouldn’t move into the house unless her name was on the deed. W is claiming half, trying to characterize it as community property. Her name is on the deed, -- according to her, because it was community, according to him, to keep the peace. But she didn’t offer testimony. Her testimony with respect to the financial interest was landscaping and furnishing, but nothing with regard to purchase price, gift or ownership. Trial court found it was his separate property
iv) From a c & c evidentiary stand point, there enough evidence; because there was no evidence to the contrary; no evidence of his donative intent.
v) But doesn’t her name on the deed under 442 give rise to a presumption? yes but it also allows parol evidence to rebut it.... here there was no evidence on the other side.
vi) Could a fact finder, faced with H’s testimony as to specific points, still find for W?
i) The reason parole evidence can be used is because the deed contained no significant recital.
(1) 2. if you represented the Wives in Johnson and Peterson what would you have done differently? To clearly claim a gift, and then make your best case for a gift, which wasn’t done. There wasn’t detailed evidence presented on the part of the wives.
(2) 3. To refute the presumption of a gift, you must present clear and convincing evidence to the contrary, and in Peterson there is no testimony of H intending to make a gift to her. When faced with testimony on one side and lack thereof on the other, the fact finders decide on the basis of what they hear as opposed to what they don’t hear. Appellate courts are not going to relitigate fact questions.
i) Whorrall v. Whorrall, p. 193
i) After marriage, H and W buy a house for 55k. H contributes $500 of separate funds as earnest money, or .9%; and W contributes 21k, or 37%; the rest was owned by the community.
ii) THREE PRESUMPTIONS.
(1) community property. the land was purchased during marriage. Held, yes, but the presumption could be overcome with evidence, and here there was lots of tracing to show she used separate funds.
(2) Both names on title. when both names appear on the title there is a presumption of gift. Held, this can be rebutted by evidence. and there was lots of evidence of their conversations as to their understanding. She would front the money and he would pay off the rest. But as of the date of divorce it wasn’t paid off, so he didn’t fulfill his part.
(3) Finally, the agreement that it would be owned by the community. But Ilene’s testimony refutes it.
(4) trial court vested the complete house with W, thereby awarded all of the community interest in the house plus H’s .9% separate interest. Held, a trial court has no authority to divest a fee interest of separate realty in order to award such to the other spouse. Eggmeyer This is not harmless error. Thus, the court erroneously divested H of his .9% separate interest in the house, therefore the judgment is modified to provide H with his .9% interest as co-tenant.
(a) CN: no matter how small it is, you cannot divest someone of their property. This is an absolute prohibition. Even if it’s only $500. Usually, the parties will arrive at the settlement, and the spouse will sign his share over to the W. But when you have a cantankerous spouse who won’t cooperate ... Then you have to have a forced sale.
j) Conveyance containing a significant recital, p. 197
(1) A significant recital can state
(a) (1) that consideration is paid from a spouses separate property;
(b) (2) that the property is conveyed to a spouses as their separate property, or
(c) (3) that a conveyance is made to a spouse out of love and affection [natural bounty of affection], or as a gift.
(2) Use of Parole evidence. Messer v. Johnson, p. 197
(a) RULE: parole evidence may NOT be used to show a resulting trust in favor of a community estate, absent fraud, duress, or mistake.
(b) DEED: recited consideration of $12k paid in cash and expressly conveys the property to Pearl Johnson as her ‘sole and separate estate, and to her sole and separate use.’ Whatever, “sole and separate use” means, it’s nevertheless clear from the deed that it was meant to be her separate property.
(c) H is trying to introduce parole evidence to overcome the significant recital. The purpose of parole evidence is to clear up ambiguity. Generally, where there is a significant recital, it ought to stand. Same as in contract law, when there is ambiguity, you can introduce parole evidence.
(d) F; H had the life estate, and was also given permission to sell the land if he needed to for his own support, but instead he conveyed it to his second wife. What he should have done was to sell it. Why didn’t he sell it? He wanted it.
7) E. Credit transactions, p. 201
a) Whether a spouse has obtained separate property by use of credit.
b) McClintic v. Midland Grocery, (1913), p.
i) W acquires property during coverture. H executed notes on it [ie, H became indebted on behalf of the property]. ... can there be an execution against this property to satisfy the H’s debts? No. It doesn’t change the characterization.
(1) no indication here that the creditors were to look to this property as the sources as repayment.
ii) Source of testimony.
(1) H, W, and brother in law all testified as to the intent that this was always supposed to be separate property.
(2) Today, you’d want to get the lender to testify. Did he have the understanding that the debt was to be satisfied out of debtor’s property only, and not from the community?
c) Purchase made partly with separate and partly with community funds will be community property to the extent and in the proportion that the consideration is furnished by the community, the spouses supplying the separate funds having a separate interest therein to the amount of his or her investment, thus creating a tenancy in common between the separate and community estate. Gleich v. Bongio, p. 204
i) EX: During marriage: $10k for lots 1, 2, 12, 13, 14. H paid $3k from separate funds, deferred payment of $7k. Of these remaining, it’s paid for by the credit of the community. It’s community to the extent paid on the community credit. So W has an interest to the extent of the community interest. 7/40th. $7k in community credit. dissolution. W gets $3.5k/$10k x .5. so it’s 3.5/20k=7/40ths. But how is she going to be paid? She may be able to bargain and give something else. This is 7/40ths of the remaining 2 lots. which means that if they don’t settle, then they’d have to do a forced sale of them both.
d) Absent a recital, land is presumed community property. Broussard v. Tian, p. 207
i) Held, there is not evidence the lender intended to look only to H’s separate property for payment. Because the deed contains no recitation at all, the presumption is that it’s community property.
ii) H argued it was separate property. H purchased Land from federal land bank and executed a note. There’s a vendor’s lien on it.
(1) What was the intention of the lender? there’s no evidence that the lender would look only at the separate estate of H for payment. So absent a recital in the documents, the community property presumption prevails.
iii) How is it that the wife’s have a right to file an action alleging a property interest in the houses? What did they allege with regard to how the property was split up?
(1) What happens when a divorce action was filed? You need to file an inventory. Ws argue that H omitted it from the list of community property. What needs to happen after a divorce is filed? -- each party files a separate list. If they don’t match up, then you have a fight like this. These were objections to the characterizations of the house. [note: be sure the settlement agreement disposes of all the items of community property; if not, it might be subject to . . .
(2) p. 642. 9.201 et seq. Fam, Code post decree division of property.
(3) Fraud in filing the inventory. What if H omitted an insurance policy, which he took out during marriage, but never told W about? A small policy but nevertheless worth something. He fraudulently omits from the inventory. She’s entitled to one half, but is she entitles to more because of the fraud? yes, because of the fraud, the court may award he more than 50%. If the court finds fraud, this is one of the bases for making one party’s share larger than 50%.
iv) Ray v. US (5th Cir.), p. 210
(1) Held, lender specifically said in the recital that it would look to repayment from H’s separate estate. The recitations are absolutely clear that it would never look to the community estate for repayment. Where there is the clear recitation and intent of the parties that the repayment for credit extended can be limited to just the separate estate instead of the community. IRS appeals saying it should be community [because purchased during the marriage].
e) F. Intellectual Property, p.
i) In re Marriage of Worth, 241 Cal. Rptr. 135, Court of Appeal, California (1987).
ii) CN: Worth held that a copyrighted work that was created during the marriage is community property. H had written several books. H brought suit against the makers of trivial pursuit. This was an infringement action that occurred after divorce. If he receives any damages, should he receive these separately or should they be divided equally? Income received from the copyrighted books would be divided equally. What about damages? The copyright is community property. The damages come to the copyright, and the copyright is owned by the community, therefore the amount should be separate. CN: this case has been criticized because no one ever raised the federal preemption law.
f) Rodrigue v. Rodrigue--
i) This case deals with the copyright issue of the blue dog paintings created during the marriage.
(1) Trial court held, State community law issues are preempted by federal copyright law. Where congress, pursuant to its copyright authority, and the constitution says that it has the exclusive authority to regulate patents and copyrights, where state law attempts to step in and do violence to it. The Copyright Act creates ownership at the moment of creation-- when George steps back as says “this is done,” then he and he alone has ownership. It’s ridiculous to think that in the first second it’s George’s and in the second second it’s community property. Veronica appealed to the 5th Circuit.
ii) Held, state law is preempted but not as much as the trial court thought. They look to the three bundles of rights:
(1) 1) usus—right to use/possess;
(2) 2) abusus—right to alienate;
(3) 3) frustus—right to enjoy.
iii) We can just combine usus and abusus in the author spouse, without keeping the frustus right from W. So state law and federal law can peacefully coexist.
iv) BUT, why is this case wrongly decided?: the fructus usually comes from royalties, but is royalty income separate or community? In Texas income from separate property is community. But Texas is the only state in which this is true; so in Louisiana, this is the only....so the 5th Circuit got it wrong.
v) if this occurred in Texas? Veronica would be entitled to nothing, if we look to the trial court’s opinion,...
vi) EX: I become the next John Grisham. I get royalties, $2M a year. W files for divorce. How do we value the books? The works themselves are mine, but the royalties are community property. If the divorce is effective today, I list the books in my column of separate property. What about the royalty check that I’m supposed to receive next month? Unless I agree differently, the checks would go into my bank acct. What happens after divorce if I want to . . . what if I know a divorce is coming, so I purposefully delay submitted a manuscript? So what would happen in Texas?
vii) Adel and Alsenz. These start from the basic premise that a patent would be community property if conceived of during marriage. But they were created before marriage. Alsenz says without question patents taken out during marriage are community. But this seems to be wrong.
viii) Adel case erroneously says that “at least one court held that it’s community.” This was wrong. Cochran thinks that the only solution is an amendment to the Copyright Act, that includes community property states, so states are free to legislate.
CLAIMS FOR ECONOMIC CONTRIBUTION & REIMBURSEMENT
8) Reimbursement à all 3 of the marital estates can have claims for reimbursement to and from one another. the 3 marital estates --- 1) W’s separate estate ; 2) H’s separate estate, 3) and the community estate. Fam. Code §3.401(4).
9) A. Introduction: economic contribution and reimbursement are two different things. Reimbursement is not a right but a claim.
a) Economic contribution. p. 219. bottom, gives the 6 claims set in Fam. Code 3.402, see also p. 609. This shifts it from an equitable claim to an economic right. Calculation formula, p. 609, 3.403 is a detailed and difficult to following section. Worksheet, p. 271. Historically, there is some indication of how a court will decide the reimbursement claim, having due regard to the children of the marriage, and offspring of this marriage. The court will look first to the best interests of the child when weighing the equities.
b) Reimbursement. 3.408 Fam. Code, p. 610. Claims for reimbursement. “a claim for economic contribution does not abrogate another claim for reimbursement.”
i) EX: §3.402(a)(1) give you a right to economic contribution for the “reduction of the principle amount of a debt on a mortgage.” H uses community funds to reduce the debt on a mortgage for 10 years. So W would have a claim. But would it be for econ contribution or reimbursement?
ii) By implication, the items listed in §3.402 are not eligible for claims of reimbursement, because they are for economic contribution. These provisions are still new in the law. You can’t say W has a claim for reimbursement, she’ has a claim for economic contribution.
c) Non-reimbursable claims. §3.409. Some are included by statute, some excluded by statute, everything else is up to equity. So the court has a huge amount of discretion.
d) B. Reimbursement for Time, Toil and Effort, p. 222
i) Historically this came about when H worked all the time in his separately owned business, but at divorce, nothing of the business was community property. This gave rise to the idea that H’s separate estate benefited unjustly, at the expense of the community estate.
ii) Vallone v Vallone, p. 222
(1) Tony and Leslie were married. Tony worked first as an employee, all income was community property. Then Father transfers the business to him as a gift, which represented 47% of the initial capitalization. The total initial capitalization = $19,663 in assets. Shortly after he received it he incorporated.
(2) Trial court awarded him 47% of the shares; of the remaining state, awarded Leslie 70% of the community, because he spent all his time building up the restaurant, the increase in value, as a result of his toil, is part of the community. Is this true? no.
(3) At the time of the divorce, the restaurant was worth $1 M.
(4) Held, even though Tony expended 100% of his time, toil and labor in the restaurant, he is entitled to 47% of the increase in value as his separate property.
(5) R: The law contemplates that a spouse may expend a reasonable amount of talent or labor in the management and preservation of his separate estate without impressing a community character upon the estate. Norris v. Vaughn.
(6) CN: The property characterization is still separate. But here we have the equities weighing in. Here, H devoted all his effort to his separate estate. So the increase in the stock ought to be reason to compensate the community.
(7) p. 224: The rule of reimbursement is purely an equitable one. It obtains when the community estate in some way improves the separate estate of one of the spouses. The right of reimbursement is not an interest in property or an enforceable debt, per se, but an equitable right which arises upon dissolution of the marriage through death, divorce or annulment. The right of reimbursement arises when community time talent, and labor are utilized to benefit and enhance a spouses separate estate beyond whatever care, attention, and expenditures are necessary for the proper maintenance and preservation of the separate estate, without the community receiving adequate compensation.
(8) Here, she failed to plead the right of reimbursement, so she waived it.
(9) SANDOCK DISSENT: Majority says we have these two principles in conflict, p. 227, 1) that all earning of the spouse belong to the community and 2) one estate does not have the right to benefit at the expense of the other estate without providing reasonable compensation for the benefit derived. Here the stock has increased in value because of the labor and toil of the H. This is not totally separate. When corporate stock increases because of the time and toil of one spouse, that increase is community property.
(10) EX: Father grants son a ranch. Son takes a wife. after 20 years they get a divorce, the amount of increases in value are still separate. So why here is it community property?
(11) Majority says that the basis for W claim is H’s toil and effort. This is different from Norris because of the extent of the increase due to H’s time and toil at the expense of the community. It is the H’s duty to provide for the community. But where someone has been allowed to toil and build up value in a separate estate, there is an equitable claim for reimbursement.
(a) Business Entities review: Why would you want to incorporate a family business? to insulate yourself from personal liability. So if a tort is committed at the business you don’t have to pay for it out of pocket. Is the business operated like a business or like an alter ego? If alter ego, then you can pierce the corporate veil and go after the person’s property.
iii) NOTES, p. 236
(1) I: whether characterization or reimbursement principles should be applied to the enhanced or increased value of a separate property closely held corporate asset?
(2) CN: In Jensen I the court stated that the increased value belonged to the community estate. This suggests that it’s a matter of characterization which shifts the burden of proof.
(3) If the increased value is tantamount to a right of reimbursement, then the burden of proof is upon the spouse claiming the right of reimbursement to establish that the community has not been adequately compensated. However, if the increased value presents a question of characterization, the burden is on the spouse owning the separate property corporation to proved by clear and convincing evidence it is separate property by showing that something other than the mere efforts of the spouse caused the increase and other similar facts.
(4) Jensen II—this brought in the idea of the doctrine of inception of title. If the increased value is community property that suggests that inception of title doesn’t apply. Jensen II corrected this and stated that inception of title still applies: “the enhanced value of the separate stock is one of the factors to be considered by the fact finder in determining the value of the community time and effort expended.” Mr. Jensen had already been adequately compensated. The community should be reimbursed, but it already received adequate compensation.
iv) Jensen v. Jensen, p. 238
(1) The stock is the separate property of H, but what to do with the increase in value?
(2) I: How to treat, upon divorce, corporate stock owned by spouse before marriage but which has increased in value during marriage due, at least in part, to the time and effort of either or both spouses.
(3) Trial court found that Mr. Jensen was adequately and reasonably compensated for his time and effort expended in enhancing the value of the shares. This finding, if sustained, precludes Mrs. Jensens’s right to reimbursement because that compensation was community property.
(4) CN: this is a situation where the corporation was the alter ego of H, he was the key man, so it was more like a sole proprietorship. If the corporation is so heavily dominated by a single person, it is easier to cook the books. W argues that instead of paying H what he was worth, he was under-compensated, so the community was not adequately compensated for his labor and toil.
(5) Two approaches of how to treat increased value of stock .
(a) 1. Community ownership (Not Tex.). There are problems with this, because of valuation and inception of title.
(b) 2. reimbursement approach (Tex). Whatever value of the labor has not been adequately compensated, then the community assets were short and it is entitled to reimbursement.
(6) What was the problem with the proof? there wasn’t much proof. It was a finding of fact that the community was compensated adequately. Only Wesley Hickman testified, that Jensen was adequately compensated, based on stock ownership, and but for it, Jensen would not have stayed with the corporation. Thus, it’s possible for communities to be compensated, but in arriving at the value to determine whether there’s a need for reimbursement, the trial court needs to take into acct certain factors? see bottom of p. 240: Formula for reimbursement to the community for time, toil and effort toward the enhancement of stock: “From the value of the time, toil and talent expended is to be subtracted the compensation paid to H for such time, toil and talent in the form of salary, bonuses, dividends and other fringe benefits. Any remainder is the reimbursement due the community.”
(7) RULE: The community will be reimbursed for the value of time and effort expended by either or both spouses to enhance the separate estate of either, other than reasonably necessary to manage and preserve the separate estate, less the remuneration received for that time and effort in the form of salary, bonus, dividends and other fringe benefits, those items being community property when received.
(8) The shares of stock thus remain the separate property of H, subject only to the right of reimbursement, if any, proven by W.
(a) EX: value of toil is $100,000, from this subtract the [salary, bonuses, dividends, and fringe benefits.]
(i) salary = 50k,
(ii) bonuses, dividends, and fringe benefits, = 1k per year for a 5 year marriage,
(iii) Grand total of 55k.
(b) The problem with this when it’s a sole proprietorship is that H determines the value of the toil. What kind of fringe benefits are we talking about? Fringe benefits tend to be more than 1/4th your salary. But what about dividends? are these part of compensation? there are different kinds of dividends. So both fringe benefits and dividends can be problematic.
v) Trawick v. Trawick, p. 241
(1) H devoted his full business life to his separately owned, closely held corporation, of which he was founder and president. Jury found that 55% of the corporation’s increase in value was due to H’s efforts; and that he had been under-compensated.
(2) R: The burden of establishing the various mathematical factor for reimbursement rests with the surviving spouse.
(3) The appropriate computation is to determine the discrepancy between the reasonable value of the effort expended and the actual compensation received and then look to the enhanced value of the separate estate to satisfy that discrepancy.
(a) EX: enhanced value= 505k; H owned 75% of the stock; 55% of enhanced value was due to H’s work. Ergo, 208k was available to satisfy any claim by the community for under-compensation.
(4) CN: What was the characterization with regard to cash in a box? There was a cash box in which H held $76, 465 nine months before the marriage; after he died it held $21k. H’s CPA testified that the remaining money were the same denominations as before the marriage. Even if the only testimony is from an interested party, the testimony still have probative value. Held, it’s separate property. If you can only trace by interested party this still can be sufficient.
(5) FORMULA: Salary, insurance premiums, club dues, car-- all reimbursable. But W asked for reimbursement for the expense acct. Court said no, because he used it for legitimate expenses of the business, therefore it wasn’t a negative of the community. Absent a fraud or ultra vires, there was no expense reimbursable to the community.
e) C. Beginning Balance Reimbursements, p. 246
i) Horlock v. Horlock,
(1) What kinds of formulas can you use to determine the value of the reimbursement?
(2) EX: Roy and W are married. 3 daughters were born. W dies, leaving entire estate to Roy. Roy Marries Dorothy. Roy made gifts to his children. First the court recognizes that Roy’s daughters are the natural object of his bounty, so it’s expected that H would give gifts to his children.
(i) size of gift in relation to the community estate, here the estate is worth at least 1 M, but maybe as much of 4 million;
(ii) the percentage of the community the gifts represent. If 1 M, then the gifts represent 14%. So a lot will be left if the gifts stand. Held, this amount does not give rise to reimbursement. Where the percentage of the estate in relation to the gift is significantly higher, or spouse is not left with enough to live comfortably.
(3) value of the washateria business. At first, W claimed it’s value was $100k. H said $5k. On appeal, they switch their positions. But she gets an evaluation of $100k.
(4) H claims he is entitled to reimbursement for the use of his separate funds to enhance, improve, and increase the valueof the community estate. His beginning net worth was 1M. H commingled the proceeds of the sale of separate property with community property and made no attempt to trace. normally, presumed it to be community. Held, the separate estate started at $1M; it doesn’t seem right for H to lose this just because of commingling. H’s separate estate served as a strong foundation upon which the community wealth was built to between 3M and 4M. Equity is well served by reimbursing him for that initial investment.
ii) NOTES, p. 254
(1) 1. Once the separate property is dissipated, can that exact property come back into the marital estate? no. But that spouse could acquire additional separate property and repurchase. Buying new stock is community unless readily identifiable as separate.
(2) 2. Was the fraud allegation a serious one or not? The strange thing is the signature on the gift tax return was not really hers. This suggests forgery, but the court doesn’t really pay much attention to this. So even though there appeared to be actual forgery
f) D. Purchase Money reimbursement—Equitable Offsets, p.
i) Depreciation. Penick v. Penick, p. 255
(1) F: The community paid $104,500 to reduce the principal indebtedness on H’s separate real property. But the tax benefits to the community estate from the depreciation of his separate property exceeded $104,500. Held, the trial court can apply equitable principles to value a claim for reimbursement, and considering the depreciation tax advantage to offset the community reimbursement.
(2) CN: the benefit was the depreciation of property. The end result to the community was a plus. So the amount of reimbursement would not cover the overall benefit to the community. you can’t have it both ways, if the benefit outweighs the dollar value to the community. Usually, we’re dealing with tax consequences; where the overall benefit to the community is greater than the right of reimbursement.
g) E. Availability of Reimbursement for Retained Earnings Reimbursement for Use of Community Credit, p. 259
i) Thomas v. Thomas, p. 259--
(1) RULE: the retained earnings of an S-Corporation are corporate assets, not community property.
(2) Whether the retained earnings of an S-corporation are marital property subject to division in divorce? no.
(3) F: between 1976 and 1984, the community received dividends of 500k. The corporation did not distribute all of its earnings to its shareholders; 146k were retained by the corporation during the marriage which as attributable to H’s stock.
(4) F: In addition to his regular job, H was chairman of the board for a local Coca Cola bottling co. He received the stock by inheritance (separate property). He spends a few days a month dealing with the bottling company, but most of his time is spent with regular job.
(5) CN: the company is an S-corporation, which is taxed to the individual share-holders as personal income. Typically, a corporation is taxed double. But as an S-corp, the income is separate property because the shares are separate property. Doesn’t this give a right of reimbursement? Retained earnings are corporate assets, not separate, not community. Retained earnings are profits held by the corporation. Held, retained earnings are corporate assets not community. Here, were have undistributed earnings, held by the corporation, are not income. What makes this unfair? the tax burden to the community. What would have been the best solution?
(6) CN: The $150k that W claims was community risk. But it never materialized. Although H used the community credit for the business, taking a loan, and both H and W signed as surety -- it didn’t cost the community anything. But there was never any need for the guarantee. So, when the risk isn’t materialized, there’s no draw on the community, nothing is ever lost. So, there was no real obligation there. though the coca cola co benefited, it was not at the expense of the community. As long as she’s not called upon to pay, there’s nothing to pay back.
h) F. Cases under the Economic Contribution Statutes, p. 267
i) Langston v. Langston, p.
(1) W participated in the refinancing of the house which was H’s separate property and the value of the loan exceeds the value of the property.
(2) Trial court found that a just and fair distribution would be to divest H of the interest and award it to the W.
(3) Held, courts cannot divest spouses of their separate property. trial court exceeded his authority in divestments. A claim for economic contribution does not create an ownership interest in the property, it merely creates a claim against the property of the benefited estate which matured upon termination of marriage. Thus, the court could impose a lien. While this might force H to sell the house to satisfy it, this is different from divesting it. In making the just and right division upon termination of the marriage, the court shall impose an equitable lien on property of a marital estate to secured a claim for economic contribution in that property by another marital estation. §3.406.
10) MANAGEMENT AND LIABILITY OF PROPERTY DURING THE MARRIAGE, P. 273
a) The ability to manage is huge because the spouse can alienate without consulting the other spouse. There are not just 3 different types of property (W’s separate, H’s separate, and community), but there are five:
i) Separate property of the W;
ii) sole management community property of W;
iii) joint management community property;
iv) sole management community property of H;
v) separate property of H.
b) SEE liability chart on p, p. 274. Liability issues generally arise outside the divorce situation. Analysis:
i) first, determine the nature of the debt owed.
ii) Second, determine the category of property, and if the box is shaded, then it’s available to execute against.
c) Cockerham v. Cockerham, p. 275
i) W files bankruptcy in the middle of divorce. W’s trustee bankruptcy trustee is seeking to pay off some of W’s creditors with H’s separate property. H owns a one half interest in a 320 acre tract along with the community. if sold, H would be entitled to ¾.
ii) W had a dress shop, which faltered, and she incurred a number of debts. How much of the [separate property] 320 acre tract is available to satisfy the W’s dress shops debts?
iii) First what was the nature of the debt? If it was H’s sole management community property, then it wouldn’t be available to satisfy the debt. It’s important to determine whether it was tortious or nontortious liability.
iv) Held, the dress shop debts were joint liabilities. Even though the W managed the dress shop, the record is replete with evidence of what this was joint management. p. 282. Even though he didn’t make the day to day management decisions. She signed the checks in his name, on his acct. Now his separate property can be used to satisfy her debt. If it is joint liability, then everything -- separate and community property of both spouses – can be used to satisfy it.
(a) Cockerham test: examine the totality of the circumstances in which the debt arose. “Of particular importance is the implied assent to the debt by the noncontracting party.” Other factors include 1) who advanced the capital necessary to pay for the initial and additional inventory, 2) statement by the parties as to their willingness to pay the debt and 3) who signed the check to pay for operation al expense and 4) the treatment of depreciation deductions and shop losses on the parties joint income tax return.
d) Nelson v. Citizens, p.
i) H as corporate president executed a warehouse note, then personally sign as guarantor. On the same day, H and w execute a deed on trust on their ranch. They both executed a note in 1977, the 1977 note.
ii) All three notes were foreclosed on. There was a surplus with respect to both the ranch and the 1977 note which the bank applied to the deficiency in the warehouse note. Normally, the debtor would get the surplus. But the bank didn’t give it back to the H and W.
iii) W now claims she was entitled to the community property portion of the surplusage, because she didn’t sign the personal guarantee. Held, W’s separate property is not liable any of the deficiencies. § 3.201 Spousal liability.
iv) A spouse cannot be held personally liable for a corporate debt guaranteed only by the other spouse, based solely on the marriage relationship and community property laws. However, a non-signing spouse’s interest in joint management and control community property is subject to execution to satisfy the debt.
v) p. 607, 606: 3.101 (“Each spouse has sole management, control and disposition of that spouses separate property”)
vi) 3.102—sole management community property
vii) Here, W was not personally liable through separate property for the debt. W’s separate property would not be subject to the debt, but everything else would be. She signed all the notes, except the warehouse note, so she’s liable on them but not the warehouse note.
i) Jamail v. Thomas, p. 291
(1) while W was in hospital Mr. Cochran entered a contract with atty, giving him power of attorney to pursue the auto collision case in which W was injured. Then H and W enter a settlement agreement with the insurance company. Atty is now suing the insurance company for tortious interference with contract. But the contract that H signed with attorney does not bind W.
(2) R: The mere relationship of H and W does not give H authority to contract with regard to the wife’s separate property or community property committed by law to her sole management, control and right of disposition. H could not assign W’s interest in her cause of action. During marriage, each spouse has sole management, control and disposition of that community property which he would have owned if single, including recoveries for personal injuries. 3.102—“during marriage, the spouse has the sole management including recover with regard to recovery for personal injury.” So the H ‘s signature doesn’t bind W. Held, W has sole right to manage, control and dispose of her cause of action for recover damages for personal injuries. Therefore, Atty does not have a claim.
ii) McDonald, p.
(1) H didn’t sign the lease, so the judgment as to him, is ineffective, he has no personal liability here, his name isn’t on the lease.
iii) Medenco c. Myklebust, p. 297
(1) This is a procedural case. The judgment wasn’t final. What’s the lesson? W alleges that former H and his employer committed fraudulent concealment of employment benefits. Er refused to provide the information.
(2) Held, she didn’t exhaust her discovery options. 1) the er is under no duty to provide this info voluntarily, 2) there are all kinds of discovery means to compel this information, and W’s atty did nothing. Why didn’t he do anything? He did serve interrogatories, but he didn’t follow up. W failed to use every available discover technique and process, so W is out of luck.
iv) Cooper v. Texas Gulf Industries, p.
(1) D moves for summary judgment on res judicata, because H had previous filed suit for rescission; alleges fraud, and trial court there dismissed with prejudice. H and W appeal. They allege it was not res judicata, because W was not a party to that suit, even though W’s name appears on one the deeds as grantee.
(2) is W a necessary party, but why does she still need to be there? What has happened to the rule of necessary parties?
(3) Held, this is not about whether this case can proceed, but whether it ought to proceed. Held, even though W is not a necessary party, she didn’t take part in the first action, her name is on the deed, and as a matter of equity, she should participate an any action dealing with the land. Where there is a strong equitable interest in having both participate.
(4) Character of this property? community? So W has an enforceable, legal interest in the property. So TGI should have joined her in the original suit.
(5) Doctrine of virtual representation, p. 300. Creditors are trying to subject both parties in the marriage to the liability for the debt. This was a joinder case, W was not made a party to the lawsuit, and creditors tried to argue that service on H was service on W. This was true under coverture, because H always had control and management. Here, 5.22[number] Fam Code, now both parties have control and management, so both parties must be sued. So the doctrine of virtual representation is no longer good law.
v) Dr. Klein & Assoc. v. Klein, p. 304
(1) Clinic is suing W for services performed for W. H died. at the time the services were rendered W was married to H;
(2) R: any debt arising from the rendition of such services is a community obligation....Omission of one of the spouses as a party in an action concerning their joint community property no longer renders a judgment void....Since either spouse may be sued without the joinder of the other, is should not be a jurisdictional defect to sue W without the joinder of the Estate of Joseph Klein (H). Without the joinder of the Estate, and action could not be one “incident to an estate.” This suit is not a matter “incident to an estate” such that it belongs in probate court.
(3) CN: Held, at the time the services were rendered, W was married, making the services a community obligation; but this was not a jx defect to sue W without joinder of H.
f) Conveyance of Land, p. 306
i) Pascoe v. Keuhnast, p.
(1) H and W bought a tract of land while H was in Texas, using community funds, his AF salary. H anticipated being stationed oversees. TO allow W to execute contracts regarding the land, H executes a POA. Later, he revoked it and recorded the revocation in the county the land was located and gave W notice of revocation. At some point, they moved to Iowa. About 1.5 years after the revocation W transfers it. 6 months after this, divorce. W and friend were present at the hearing of the divorce and neither W or friend says anything about the land. H was later given the land in court. H brought suit a trespass to try title.
(2) H gave his W POA in contemplation of being shipped abroad. When he returned from overseas, he revoked the POA. Nevertheless, W conveyed deed to a friend, Katherine. The property was community property.
(3) Friend is asserting two theories of recover; 1) H recover only his one half community interest; 2) she should get it under the after acquired title...This suit is about 10 years after the divorce. Under the original dates of the actions, coverture was still in effect. In coverture, without the POA, W would not have power to convey and because H revoked before conveyance, as a result the conveyance was void. as a result, Friend takes nothing, as such, she is a trespasser. Though W may have a one half interest, H is not the sole owner of the property, you only need some interest as against a trespasser, H is entitled to acquire the entire property. H had some interest, which is all he needed against a trespasser.
(4) Issue 1: Was Katherine a trespasser? yes. Because at the time of the conveyance H had the exclusive right to convey community property, Maxine-W’s attempted conveyance without valid joinder of H was void. Katherine was thus a mere trespasser.
(5) Issue 2: Doctrine of after-acquired title.
(6) R: When a deed, purporting to convey a definite estate in land, contains a general warranty, the grantor will be estopped from answering against the grantee an after acquired title to the same interest he conveyed to the grantee.
(7) CN: Doctrine of after acquired property. Because the transaction occurred during coverture and W never had authority to convey, so ab initio there were no warranties in the deed.
g) 4. Fraudulent Conveyances
i) Gifts to unrelated persons—constructive fraud. Givens v. Girard Life ins. Co, p. 310
(1) Designation of an unrelated person as beneficiary of life insurance purchased with community funds is constructive fraud on W.
(2) F: H changed the beneficiary of his insurance policy from W to a “Friend.” H died intestate.
(3) R: The rights of the insurance H under this contract were subject to his statutory power of management and disposition. Since the premium paid by his employer were part of the compensation for his services, this insurance is deemed purchased out of his earnings and therefore community property. However, designation of a life insurance beneficiary is equivalent to a gift in the absence of a consideration.
(4) While H doesn’t need W’s signature or consent to alienate property over which he had management, excessive or capricious donations and sales, would be void. No intent to defraud is necessary. This is constructive fraud. Constructive fraud has been found where the beneficiary has been changed from W to a relative of the insured, If the community estate is left insolvent or with meager assets. But if adequate provisions is made for the surviving spouse a gift to a relative, through life insurance or otherwise, is not considered fraudulent.
(5) Held, the purchase of life insurance with community funds for the benefit of an unrelated person in constructively fraudulent in the absence of special justifying circumstances.
(6) W establishes a prima facie case for constructive fraud by proof that the life insurance was purchased with community funds for the benefit of an unrelated person, and the beneficiary then has the burden to justify such use of community funds.
(7) CN: H and W married in 1928. H and W life apart for more than 10 years. Employer gave his policies, H had the right to change the beneficiary. Trial court held the proceeds were community property because the policy was a benefit of employment and thus part of compensation. Texas law protects widows from gifts to stranger’s to the marriage. The policies normally benefit a family member. Changing the beneficiary operates like an outright gift. W should not be required to prove constructive fraud. Normally, when there is hank panky the one asserting it has to prove it. Held, when there is a change in beneficiaries, the beneficiary has to prove that the gift fit into permissible limits. What is permissible limits? a long time caretaker, an employee, when there is a long standing mutual beneficiary relationship to the to H, and the only way to repay the moral obligation is the insurance policy.
ii) Murphy c. Metropolitan Life ins, p. 315
(1) Life insurance. H has a life insurance policy paid for by his employer in which he changed the beneficiary from his W to his mother. Both W and mother claim it is theirs. Trial court split it evenly.
(2) CN: Trial court found H acted arbitrarily and capriciously to make this change during a period of separation. App court recognized that this policy was H’s sole management community property. Why? because it was part of his compensation. Fam Code, say you have sole management of the property that would be your separate property if you weren’t married, and salary falls into this category. H has the authority to designate the beneficiary.
(3) R: H as the named insured has the right to designate the beneficiary. Since the policy was incident to his employment, it was part o f the community which was subject to his sole management, control, and disposition. EXCEPTION: if and to the extent the disposing of or designating a beneficiary was in fraud of his W or resulted in a constructive fraud against her interest in the community. A gift will be set aside if it’s unfair.
(4) Here, the gift was to H’s mother, the natural object of his bounty, who was indigent, and W still got more than half the community. Therefore the gift was valid and fair.
(5) In relation to the size of the estate, the gift was a large one, almost one 6th. The larger the portion the more likely it will be fraudulent. Though W got more than her fair share, she had no separate property and she had 3 sons to raise and educate. These facts support the trial court’s ruling. The trial court did not abuse its discretion. W had three children to raise and a small earning capacity. Therefore setting aside the gift as to her half of the community was appropriate. Affirmed.
(6) Is this a constructive or actual fraud case? both. the testimony that he “fixed his estate so that his sons get everything” make it actual, but the other factors make it constructive fraud.
(7) How does the policy in this case differ from the policy in the last case? community vs sole management. Part of this had to do with the passage of time....
iii) Spruill v Spruill, p. 318
(1) W files for divorce in February 1977. H owned 47% before marriage, and bought remaining 53% shares after marriage. H owned 50% stock in four other corporations. H paid for family home, cars, food, etc. out of corporate assets. According to H, he received a “loan” from a business partner in New Orleans and pledged all of his stock in the corporations as security. The partner “foreclosed” on the notes and this completely wipes out the community estate, including the house, cars, etc. The partner then hired H to continue acting as president of the corporation. During this time H executed a second note on the family home, and moved in with girlfriend.
(2) Trial court found that the corporation was the alter ego of H. Then it awarded all the H’s interest in the stock, the house, the furniture, cars, etc., to W. Trial court found H executed the notes to create a false community debt. Then awarded everything to W. H appealed the award of 30k, based on insufficient evidence. But the jury found this based on the evidence that H had spent large amounts of funds on another woman.
(3) Gifts to girl friend. Before the divorce H was spending large sums of money on his girl friend. The jury answered yes to the question “whether W knew of or consented to the expenditure of community funds on the girlfriend.” Held, this is not a defense because the jury could have been answering ‘yes” to the part that W knew of the expenditures, not that she consented to them.
(4) CN: Why did H get so little of the community property? H used an underhanded way to deprive W of her interest in the community. So it’s not surprising that she got it all. H made the statement that H “didn’t own anything but the clothes on his back,” if that’s the case, then he’s not harmed. [this is like the washeteria case, where W first undervalued it, then got stuck with that price when it was awarded to H]
iv) Morrison v Morrison, p. 321
(1) H spend substantial amounts of community funds on other women while married to W. COA held that it was not manifestly unjust for the trial court, in finding H at fault for the divorce, to award W 83% of the community estate.
(2) Here, W was entitled to reimbursement to her half of the community property because of H’s misuse of community funds. this is an equitable right in which the trial court has broad discretion. Though H contended that the expenses paid on other women were “Advances”, he also admitted to paying legal fees and apartment rents for other women. Thus the trial court is free to disregard that these were advances.
(3) The court could also arrive at its own estimation of the total amount wrongfully spent. H said he did not keep bank records.
(4) CN: He contends that trial court erred in awarding W 83% and that this was manifestly unjust. But H took other women to Hawaii, advancing cash to women, buying gifts and paying rent for another woman’s apartment. Held, W was entitled to reimbursement for the misused community funds.
(5) Standard of review: just and right division of property.
(6) W didn’t have to established the exact about because was the wrongdoer and he didn’t keep records, so she shouldn’t have to prove it. When there is a documented transaction, then she will.
v) No independent claim of fraud between spouses. Schlueter v. Schlueter, p. 324
(1) H transferred community assets to his father before filing for divorce. H’s brother did the same things year previous. W filed independent torts against H and his father, alleging fraud, breach of fiduciary duty, and conspiracy.
(2) Held, because a wronged spouse has an adequate remedy for fraud on the community through the “just and right” property division upon divorce, there is no independant cause of action between spouses for damages to the community estate. What remedies are available to a spouse alleging fraud on the community?
(3) Held, with regard to H’s fraud ( not fathers) there can be no independent action for fraud, because this goes back to the just and right division of property. Trial court can take fraudulence into account which is reason for awarding a higher percentage of the marital estate. Thus, W also loses the punitives. Without a separate tort you get no punitives.
(4) CN: though interspousal immunity doctrine as been rejected with respect to PI torts, it may still stand for economic injuries. W was suing H for depleting community assets, not for PI. Her remedy is the same as the just and right division and can be addressed within the limits of the divorce settlement.
(5) With regard to division of marital property there can be no independent action for fraud.
h) Liability of Marital Property, p. 330
i) Use chart on p. 274 to help analysis.
ii) Other Rules of Law
(1) Federal Tax Lien. IRS. Broday v. US, p. 331
(a) CN: H married W who has tax liability from first marriage. IRS placed a levy on joint checking acct, which held fund received by H as separate property, shares on dividends owned prior to marriage. H paid the wife’s debt then sought refund. H argues that acct was his sole management property and ordinarily, this would not be liable for the debts of another spouse. Not under federal law. Held, IRS has right to place levy on acct.
(b) I Whether under Texas Property law, the community property bank acct of which H had sole right to management and control is subject to levy for a federal tax debt of W incurred prior to marriage.
iii) Sole Separate property, p. 333
(1) Mortenson v. Trammell, p.
(a) CN: W borrowed money from a bank, assigning a CD as collateral, which was her separate property. Children of H tried to argue that this was community property. Held, since the CD was separate and this is what started the entire transaction, W received the money based on the loan collateral by her separate property. So the debt owned by daughter and son in law is not community, but separate . So Children of H from prior marriage have no claim to it.
(b) R: There is a presumption that any loan made by a spouse during marriage is an obligation of the community. This can be overcome with clear and convincing evidence. Here, such evidence has been presented because the bank required W’s CD as collateral for the loan. W took out the loan in her name alone and used separate property as collateral.
(2) NOTES, p. 335
(a) 1. Does it make sense to look to collateral to determine the characterization of property?
iv) Sole community liability, p. 335
(1) Pope Photo Records v. Malone, p. 335
(a) A creditor sought to recover the balance of a debt incurred by H (dead) from the lump sum proceeds of his life insurance received by his surviving widow. Because the insurance proceeds became the widow’s separate property not shown to be subject to the debt. Therefore, recovery is denied.
(b) F: H had 8 policies; one purchased before marriage for which no community funds were used to pay the premiums; after marriage, one was paid for by H’s employer,
(c) Pope loaned H money. W didn’t know about it. The estate was insolvent when H died, but there is no evidence the community was insolvent on the date W was designated as beneficiary.
(d) R: When an H insures his life with community funds, the right to receive the future insurance proceeds is community property in the nature of a chose in action maturing at the death of H. Thus, the matured proceeds are community in character, “except where the named beneficiary is in fact surviving, in which case a gift of the policy rights to such beneficiary is presumed to have been intended and completed by the death of the insured.” Also, by naming the W the beneficiary, H manifests the intent to make a gift to her. Also, the insurance proceeds W receives at H’s death are her separate property not subject to the H’s debts unless the proceeds have been assigned as collateral security therefor.
(e) CN: He executes a promissory not for 9k payable to plaintiff’s successor, and plaintiff. Claim made on his estate. Estate runs out of money. One debt is not community, but the rest seem to be community. P claimed that it was a gratuitous transfer while D was insolvent. This would allow the creditor to recover these sums. D says the ‘transfer” did not occur until the death of H and the estate was insolvent at that time. Held, 24.03 doesn’t apply unless there was fraud at the time of entering into the transfer. but this is just a straight insurance contract, just because the proceeds aren’t paid until H died, 24.03 is designed to prevent giving away assets to the creditors can’t get to them.
(a) 1. Tex Business and commerce Code 24.03 voids a gratuitous transfer of property as to an existing creditor unless at the time of the transfer the debtor has enough property in this state subject to execution to pay all of his existing debts. The controlling date of the transfer meant in 24.03 was the date the beneficiary was designated
(b) 2. Cockerham offense. That the debt was jointly incurred. Creditor also tried to rely on Cockerham. Why? Cockerham involved joint liability, in which case D can go after everything, separate property as well as community. this is the fall back, ..
(3) Stewart title co v. Huddlsteone, p. 338
(a) CN: Debts where community. Land was community property. According to the divorce decree H and W received an undivided one half interest. ... Creditor’s didn’t sue former W. W is trying to clear title.
(b) I: Is W responsible for the community debt, having not been a party to the law suit. Court recognizes that the doctrine of virtual representation is rejected.
(c) H and W divorce. Creditors sue H without joining W.
(d) R: A divorce does not diminish or limit the right of creditors to proceed against either or both spouses for payment of debts owned to the creditors prior to the divorce. And nonexempt property remains subject to the claims of community creditors, even after divorce. A spouse who receives property which would, absent divorce, be subject to the claims of creditors remains personally liable and the property so received remains subject to being taken to satisfy the claims of the community creditors.
(e) It doesn’t mean W is off the hook. It just means that Creditors need to sue W directly. Her one half would still be subject to recovery.
(4) Leblanc v. Waller, p. 341
(a) Creditors intervene in divorce action. At time of separation H and W agree orally to a partition of their estate. Immediately following the separation, H became a plumbing contractor and incurred debts. But they had not yet been divorced, so the debts are presumed community property. This is sole management community property, See Table 274.
(b) W claims that under Fam Code 5.61, because the property was under her sole management and control, it cannot be liable for nontortious liability of the other spouse.
(c) R: 5.22 sets out the test for whether something is under W sole management and control. It states that “community property is subject to joint management, control and disposition of H and W, UNLESS the spouses provide otherwise by power of atty in writing or other agreement.” The oral agreement for division of their property fall within the “other agreement” provision. Held, this includes the oral understanding that H would run his business however he wanted, and W was able to do what she wanted. What else could “or other agreement” mean? So 5.22c qualified for the section even though no evidence shows that creditor agreed to look only to H’s sole management and joint management property for satisfaction of his debt. Accordingly, Creditor could look only to H’s property.
(d) Held, neither the community property under W’s sole management control and disposition nor her separate property is subject to this liability according to the terms of 5.61(a) and b2.
(5) NOTES, p. 344
(a) This didn’t have to be in writing because it was not a partition of community to separate. [See Const.] It was just an agreement for each to do their own thing, affected only management and control.
(6) Latimer v. City National Bank, p. 344
(a) H signed 4 promissory notes, but W did not sign them. Creditor claims H and W are joint and severally liability, which either one can be stuck with the entire tab. But no person is liable on an instrument unless his signature appears there. UCC 3.401. W‘s signature does not appear on the notes.
(b) “community debt.” If the lender or seller does not specifically look to the borrower’s or buyer’s separate property for payment, then a community debt has been incurred. But Community debt means no more than that community property is liable for its satisfaction. A community debt may be at the same time a separate debt, unless the creditor agrees to seek satisfaction from the community property only.”
(c) CN: W’s separate property is not subject to recovery. Yes, it’s a community obligation so her share of community funds may be at risk.
v) D. Protection of Third Parties, p. 345
(1) Sanburn v. Schuler, p. 345
(a) H bought land using separate property, but his deed never stated that. When H died, W conveyed the property to D. H’s sister brings this action to recover the land as the only heir to his separate property.
(b) R: If from the deed, the land appears to be community property. A bfp is entitled to rely on the deed which appeared to be common property. The property appearing to be common property, and inquiry as to what person would inherit the separate estate of the deceased H was irrelevant. CN: He had no notice, so it appears to the world that W has the rights to the property. Though purchaser knew something about the situation, just as that H and W had no children, so it looked like the had no lawful heirs.
(c) If it appears to be separate property, then purchaser must inquire as to who takes by inheritance.
(d) What kind of inquiry do they need to make? Extensive but if it doesn’t appear anywhere that ....you’re as good as a bfp.
(2) Equitable adoption. Moran v. Adler, p. 347
(a) H borrows against property, Bank forecloses when H defaults. D bought the property at foreclosure sale. Children from H’s first Wife claim to have been equitably adopted by H’s Second W. Had they been legally adopted, there would be records as to who might have an ownership interest in the land. But equitable adoption is entirely in equity; there is no record. D claims to be a bfp because no notice,... but jury found for equitable adoption. Held, there is no evidence for equitable adoption ...render judgment. And the law favors innocent purchasers. As applies to equitable adoption, the bank first, purchased from the apparent heir with no notice to the contrary, so D can buy it from the bank. Plaintiff’s try to argue that “everyone knew we claimed the property.” This, for one thing, is hearsay.
(b) Actual adoptions are public records, equitable adoptions have no public records so there can be a secret title claim.
(3) Williams v. Portland, p. 351
(a) W brings suit to remove cloud on title. During marriage H and W bought two tracts of land:
(i) 77 acres--both names:
(ii) 100 acres--only H.
(b) H wanted to borrow money from the bank. Bank prepared notes for H and W to sign on both tracts. W refused to sign. Bank reissued for H to sign only. Just before divorce... H defaults just after divorce. W tries to claim an interest in both as community property. As to the 100 acre tract, held, deed says only name of H so he had apparent authority to convey, and to execute the encumbrance. Not true with regard to the 77 acre tract because both names were on the deed. Bank can’t claim they didn’t have notice, because they presented the document s to W and she wouldn’t sign it. But did bank have actual knowledge that her signature would have been required? doesn’t matter. Only notice that a reasonable person would suspect, an the bank never investigated further when W decided to sign. Here a reasonable person would have been on inquiry and they didn’t make any inquiry.
i) What happens at divorce with regard to particular items?
11) DISSOLUTION OF MARRIAGE BY DIVORCE, P. 355
a) Intro: Fam. Code 7.001—“In a decree of divorce the court shall order a division of the estate of the parties in a manner that the courts deems just and right, having due regard for the rights of each party and any children of the marriage.”
b) Real property cannot be divested. Eggmeyer v. Eggemeyer (1977), p. 357
i) The trial court in a divorce decree cannot divest one spouse of his separate realty and transfer title to the other spouse.
ii) CN: H held an undivided one third interest in the farm as separate the community owned the other 2/3rds.
iii) CN: some of the justice believe that separate property could be divested on divorce, some say no because th constitution specifically defines the marital and separate estate, and legislation doesn’t have the right to change the character of property. Leg can set the rights and responsibilities, but cannot alter the character. It is either separate or community. Held, title to separate property cannot be divested.
iv) CN: the family code was intended as a codification of prior law, which specifically prohibited divestiture. Also, § 14.05 talks about setting aside separate property of one of the parties, to provide support for children, not for the other spouse. The trial court cannot to divest title, but it has the ability to set aside and administer property for the benefit of the child. But the fee must remain with the spouse.
v) The court also identifies two constitutional problems with divestiture. The Tex Constitution defines property and forbid legislation from changing it. It can’t transform from one to another. By transferring it from H’s separate estate, to W’s separate estate is transforming the character. SO even under the rubric of “just and right” division, does not extend to separate property.
vi) The language of the trial court that H owed a continuing obligation to W was overbroad instead of to children. 361. Parent owes a duty to his children, but the fee cannot be divested. This was a hotly contested case, 5-4.
c) Personal property cannot be divested. Cameron v. Cameron, p. 369
i) Trial court divided H’s military retirement pay and US savings bonds. Held, W is entitled to the 35% of military retirement pay because of the Uniform Services Former Spouses Protection Act.
ii) CN: this dealt specifically with two issues. H’s retirement pay and US savings bonds. They divorced in Texas after having lived in common law state. Trial court awarded W 37% of retirement pay and 50% of savings bonds. COA held that because these were acquired in a common law state they were H’s separate property.
iii) Held, the savings bonds are community property subject to division. The military pay is another subject. While on appeal, US SCT decided McCarty, which held that under the supremacy clause of the US constitution, the states lacked authority to divided nondisability retirement pay on divorce. But the congress enacted the Uniform Services Former Spouses Protection Act set the date for effectiveness on 1981 June 25th. So the 35% is appropriate after that date. This issue was easily addressed.
iv) US savings bond issue: W tried to argue that Texas is different because there’s no alimony, and because texas doesn’t have this, we need divestiture of separate property. Held, there is nothing in the law that allows for alimony in texas, but we’re not going to create it judicially; but it does have spousal support, but the maximum time limit is three years.
v) NOTES, p.
(1) 5. Alimony pending divorce , here they’re still married, so the income is still community, so there’s no divestment of separate property.
(2) 6. Legislature authorized spousal support. 8.001, p. 630.
(a) 8.051--The duration of the marriage has to be 10 years. Some attys will delay divorce. 2A unable to support himself, 2B the custodian ... OR.. 2C clearly lacks earning ability in the labor market adequate to provide support for the spouse’s minimum reasonable needs...this was to provide for the “displaced homemaker” – someone who interrupted education or professional training for the benefit of the marriage, who now divorced would lack the skill to make a living wages.
(b) 8.052—Factors in Determining Maintenance
(i) If spouse did have a college degree this would argue against her, age of marriage,
d) Cameron v. Cameron p. 369
i) Regarding alimony, Texas is one of few states in the country with no alimony except in certain situations. This is extraordinary kind of property settlement because if a party required to pay alimony doesn’t pay, the person seeking alimony has to go to court. This is a contract, so have to prove up like regular contract (civil case, unlike an order that is valid on it’s face – child support enforcement order).
ii) TX does have spousal maintenance, but this is for a short period of time
iii) Texas Constitution Article 16, § 28: Wages cannot be garnished in Texas, unless it is for (1) child support payments, (2) spousal maintenance
iv) Probate proceedings. Hanaus v. Hanau, p. 387
(1) Whether Cameran extends to probate proceedings? no.
(2) Facts: Couple lived in Illinois before moving to TX. Each had significant amounts of separate property. While in Illinois, H purchased stock through use of separate property. Then the couple moves to TX; H dies. H’s son from previous marriage claims that W is administering estate improperly. W claims that shares of stock should be characterized as community property instead of separate property.
(3) W is attempting to extend holding of Cameron case to probate cases
(a) Court didn’t do this for 3 reasons:
(i) Only states that extend Cameron holding to probate are through statutory authority – this doesn’t exist in TX; refused to extend “just and right” division to probate
(ii) Cameron court relied on TX Family Code § 7.002 that is limited specifically by language to divorce and annulment situations.
(iii) Probate code is statutory code where this situation is governed. If the legislature wanted to extend it to divorce setting, then they should do this. At death, because probate code is specific, it governs.
1. If man writes out the wife, she’s left with her interest in community property and her separate property.
2. Concurring judge said that this holding “leaves surviving spouses without the protection afforded by either common law or community property statutory schemes in certain situations”
a. Taking against the will - Provide means to challenge the will - if testator doesn’t provide gift to spouse at a certain level of the estate, that spouse may elect to “take against the will” and that spouse takes whatever the statute says (either 1/2 or 1/3) – TX doesn’t have this
v) McLemore v. McLemore, p. 391
(1) F: W’s parent conveys land to H and W jointly. Trial court found that this was a gift to the community and in making it’s just and right division, awarded the full interest in the land to W. both H & W’s names appeared on the deed. H contends that this evidenced an undivided ½ interest as a gift to each H & W as separate property. If this were the case, then it was error for trial court to award house to W because it was divesting separate property to someone else.
(2) Held, it is impossible to make a gift to the community. Because a gift is separate property, each spouse owned a one half undivided interest in the land. Therefore, award W the full interest was a divestment of H’s interest prohibited by Eggemeyer.
(3) Notes p. 393
(a) #1 – How should gifts be structured to keep gifts within the family line if H & W later divorce?
(i) If a gift to community, could mean that one party might have no interest in property. Want to make sure there is something in writing that specifies this is to one person (ex: grandma’s china set). Could also be given to daughter before marriage.
(b) #5 – A case holding that an error in characterizing community property as separate property is not in itself reversible error, unless it results in an inequality in the division of property that constitutes an abuse of the trial court’s discretion
(4) If a gift to H &W, then it is an undivided ½ interest and you’ll have to figure out how to divide it.
(a) Wedding gifts: have to decide what H takes, what W takes.
(b) Could be a court order that you have to liquidate some property in order to have a “just and right” division.
e) Just and Right Division, p. 394
i) Murff v, Murff, p. 394—Factors in determining Just and right division.
(1) Facts: Mrs. Murff sued on alternative grounds (no fault, insupportability; fault, adultery and cruel treatment). court held that she had proved all three. Trial court awarded W property valued at $75,000 + $8,000 attorney fees. H was awarded $73k and $30k separate property. H appeals. Court of appeals reversed and said that trial court abused its discretion in considering fault upon division of property. Held, trial court can consider grounds of fault in dividing the property. To be considered in determining the “just and right” (ie, unequal) property division:
(a) fault in causing divorce
(b) Disparity in income between H &W
(c) Attorney’s fees
(d) Amount of separate property
(e) Education, physical condition, age Additional—spouses capacities and abilities
(f) Business opportunities
(h) Retirement pension plans
(i) business opportunities, education, relative physical conditions, relative financial condition and obligations, disparity of ages, size of separate estate, and nature of property.
ii) McKnight v. McKnight p. 397
(1) Facts: H charged with providing monetary support for children, but trial court stripped H of all cash, livestock, and was ordered to pay debts. H had no ability (income stream) to support 5 children. Held, improper for COA which did not hear the real facts to reversed and rendered for abuse of discretion.
(2) Issues: H’s involvement with McKnight Ranch. When one spouse is involved in a partnership, as here, look to TUPA (TX Uniform Partnership Act)
iii) McElwee v. McElwee, p. 403
(1) F: 61% to W and 39% to H. H appeals and argues that trial court mischaracterized property as separate when it was community. W said that remand was not necessary unless H could show that it would affect the end result. Factoring in the mischaracterized property would result in W now getting 64%...
(a) Where there is substantial property (3% of total estate), it is best to remand so trial court can determine whether 64% would be “just and right”
(2) Finding of fact can be of significant help – on appeal, if you don’t know what trial court characterized property as (either separate or community), then have nothing to argue on appeal.
(3) Don’t have to object when the property is mischaracterized and awarded. This helps on appeal though because then identified the mischaracterization and preserved for appeal.
f) Valuation, p. 407
i) Valuation is very important, and usually turns into a battle of the experts. But the more realistic the valuation, the better for everyone. But what about goodwill?
ii) Finn v Finn, p. 408
(1) F: H is a senior partner in a law firm, named after two founding partners no longer working there. W claims she’s entitled to one half the goodwill.
(2) Nail held that the good will of a solo practitioner was not property apart from the solo practitioner’s skill. Nail was a solo practitioner and if he died then the practice and good will would die too.
(3) Geesbrecht held that there was good will apart from the professionals abilities. Geesbrecht forms a corporation, they were the shareholders, but they used a dba, not their own name, and they employed a number of doctors who they employed on a full time basis. If Geesbrecht died, then the corporate good will could continue and existed separate from the doctor’s professional abilities.
(4) read together there’s a two prong test the good will attached to a professional practice is subject to division upon divorced.
(a) 1) the good will must be determined to exist independently of the personal ability of the professional spouse. CN: a sole practitioner or a corporation? If solo practitioner, then there’s no independent goodwill. If the latter, then moved to next question.
(b) 2) if such goodwill is found to exist, the it must be determined whether that goodwill has a commercial value in which the community estate is entitled to share. CN:
(5) Here, if a partner died or withdrew from the firm, the goodwill stayed with the firm, because the partnership agreement didn’t provide for compensation upon death or withdrawal. So as a matter of possibility, yes, this was more like Geesbrecht, but there was no way to pull the value of the good will out of it. If the partnership agreement or the articles of corporation, provided for it, then yes, the community would have been entitled to share. But it wasn’t.
(6) Valuation issue.
(a) What was H’s interest in the law practice worth? W calls two experts, one setting the value at 161k, the other at 122k. H’s expert, the managing partner, valued it at 122k. But the problem is that this was based on financial documents that W subpoenaed but that H did not deliver. Did this deny her the right to effective cross examination? W did what she was supposed to do, subpoenaed the documents. W objected in a timely manner to Managing partner’s testimony, because she could not prepare for cross examination. This was reversible error.
(7) GOLD coins
(a) W removed gold coins from safe deposit box, but put them into paper folders. Claims H stole them while out of town. H said he searched the house put couldn’t find them. Court put them on her side of the ledger, but court says on remand the court should ask the court to determine whether either party has possession or has benefit of them. If neither spouse has them, then they cannot be creditor to either. But first it must be determined who has them.
(8) Life insurance policies
(a) W claims there was an agreement that these were her separate property. Held, this is post division separate property, nothing in the policies speak of a characterization upon divorce. But since we’re remanding anyway, W should have the opportunity to prove...
(9) Guardians at litem
(a) W complains she shouldn’t have to pay anything for the guardians because they didn’t do anything at trial. But child custody was a very contentious issue, so it was appropriate for the trial court to order the appointment of a guardian, and costs are split fifty fifty.
(10) Wife’s atty’s fees.
(a) Court did not award her atty’s fees. But it is discretionary for to include attty’s fees as part of the settlement.
(11) 3. Why was this too little too late? in the midst of trial you can’t take time out to crunch numbers. Though H offers it in the midst of trial,
(12) 7. procedural grounds, writ was filed late.
g) Omitted property, Parties Agreement, Fiduciary duty, p. 426.
i) Frequently there is omitted property, unintentionally forgotten. When it does happen, you have to bring motions, etc.
ii) Miller v Miller—H was an engineer and formed Initcom corporation, making a new telephone switching device, and in making a pitch for startup capital, Exxon, made an agreement for the four engineers. Exxon would pay 1,500k in exchange for 1,500 in stock at $1 per share. H never explained the intricacies of the plan. Exxon in order to make the financing happen, required not only the engineers to make the agreement, required the spouses to sign it. The day after he filed divorce he had her sign the agreement, not explaining anything to him, but she didn’t ask any questions either. At divorce the stock were worth more than at that time.
iii) W claims actual fraud and constructive fraud and breach of fiduciary duty.
iv) Jury found no fraud, but breach of fiduciary duty and it was unfair. Because the shares had not been divided in the divorce decree, they held them as tenants in common. Court finds a fiduciary duty because he was her husband and because he was a founding officer. General rule, officers don’t owe a duty to shareholders regarding the stock, except where there are special facts, when it is reasonably foreseeable that the event will effect the value of the stock. Because the shares were community property, she was a shareholder, therefore she owed her a duty to disclose the special facts.
h) Retirement Benefits, p. 436
i) Taggert v. Taggert, p.
(1) W and H split. H was not yet entitled to receive retirement benefits because at the end of his 20 years he enlisted in the fleet reserve for an additional 10 years, but they divorce before this, so at the time of divorce he’s not entitled to receive any retirement benefits.
(2) Trial court used 246 months (20yeas) as the denominator. But he wasn’t eligible at this time.
(3) Correct computation. one half times a fraction. 246/360. 246 is the number of months they were married and he was in the service. 360 is the number of months in services and entitled to retirement . so 2x246/360x$. this would be her entitlement.
ii) Berry v Berry, p. 439
(1) SWB retirement plain. What is the value at the time of divorce? Whatever it is, is the factor that should be entered into the formula, not the overall monthly total. At the time of divorce, H’s retirement plan as not vested. If he died before divorce, there would be nothing in the requirement plan for his heirs to take. But if he were vested as of today, his monthly payment would be $221.21. Based on this, the trial court held that it would look like this: .5x26/26x$221.21=$110.60.
(2) COA: Held, W should be awarded instead: .5x26/38x$. 38 represents the amount he needs to serve before he retired. Multiply this by the benefit he will receive.
(3) Sct reverses and affirms the trial court’s formulation. As of the date of divorce, the 221.21 would be H’s retirement pay. This is what QUADROS do, orders to the pension company for the numbers to plug into the formula.
i) G. Stock Options, p. 462 [lecture]. Stock options are hard to value, because the closely held corporations aren’t easy to assess. Despite the difficulty, there hasn’t been a case to clarify this.
j) H. Motions in Aid and Clarification of judgment, p. 465 [lecture]. EX: judge decided that house goes to W, house isn’t paid off, but W lacks money to pay for H’s interest, and H may be required to executed a deed, and W may be required to execute a promissory note. But sometimes the court doesn’t say specifically when these transactions need to be executed. Then one party may drag it’s feet, then the other has go to court and get it to give a specific dates. Also, sometimes it’s not easy to liquidate very quickly. E.g., insurance companies will set up policies, where you have a quasi savings acct that earns interest. dividing up this money may be difficult, because it continues to be used to pay for the policies that H continues to own.
i) Fam. Code 9.012, p. 641—contempt citations so orders of the court can be enforced.
ii) Fam. code 9.007, -- a court may not make any change the division or property after a divorce is final.
(1) Why would there be a provision like this? so people can get on with their live and bring finality.
(2) When the provision is unclear, however there may be an exception. “W gets one half of any benefits received.” does this mean the gross or net? Courts have held that in situations like this, DeChan, 909 SW2d 950, while property settlement agreements are essentially contracts. so where there is an ambiguous as to the terms of the settlement agreement, courts should use standard contract ambiguity analysis, and determine if the intent of the parties was gross or net. This is considered a clarification, not a change.
k) I. Alimony or Maintenance, p. 470
i) the long standing rule in texas is that there is no alimony. This lack of alimony is one of the ways that women are worse off than man in Texas.
ii) In re Marriage of Hale, p. 471
(1) H was ordered to pay his ex wife spousal pay of 300 per month, for three years.
(2) F: W married when 15 years old, not allowed to work or complete highschool; W lacked sufficient property to provide for her minimum reasonable needs and she lacked earning ability in the labor market to provide for her minimum needs. W is now trying to get her GED and working. H was violent
(3) R: Fam Code 8.002, p. 471
(4) Standard of review. Abuse of discretion.
(5) CN: This was one of the first cases to decide regarding maintenance agreements.
(6) Standard of review. The court draws an analogy with the child support. SO abuse of discretion. This makes the trial court’s findings view crucial. As long as there’s some credible testimony in the record, it will be upheld.
(7) During the marriage which lasted more than 10 years, she was unable to keep a job because H forced her to quit, the wages she received after divorce were not adequate for her needs, and there is evidence that a substantial amount of the marital estate went into building a house on H’s land.
(8) H claims that W was employed and this statute was only for those who are not employed. Then he says she has a minimum wage job. Court rejects this. It finds plenty in the record to uphold the award.
iii) Contractual alimony. Francis v. Francis, p. 475
(1) In a property settlement agreement H agreed to pay W 7.5k over a period of time regardless of her marital status; and an additional 7.5k so long as she remained unmarried in exchange for a release of her claim of property. He paid off the unconditional 7.5k. He claimed that the conditional portion was essentially alimony and therefore void. The court of appeals agreed.
(2) I: whether the contractual obligation is an obligation to pay alimony and equally void?
(3) What is alimony? To be alimony the allowance must have been made by judgment or decree of a court. The alimony which contravene the public policy of this state is only those payments imposed by a court order or decree on the husband as a personal obligation for support and sustenance of the wife after a final decree of divorce....Obligations assumed by the H in a separation agreements or contracts to make payments for the support of the W after a divorce decree becomes fine, are not obligations to pay alimony and do not violate the public policy of this state. Therefore, H’s obligation to pay the remaining 7.5k is not void. ...The agreement will have whatever legal force the law of contracts will give to it.
(4) CH: Court finds that alimony is maintenance and support compelled by court order. Here it’s a contract, which is allowable. so it is possible to have contractual alimony.
iv) NOTES, p. 478
(1) 1. What is the remedy? breach of contract suit. which will take years to enforce. you don’t have the contempt of court enforcement. You can’t get garnishee for alimony, only for child support. So contractual alimony is not a smart route.
(2) 2. What about under the new maintenance statute? 8.059. p. 632. So now the court does have contempt powers for maintenance. This hasn’t been tested because no one does contractual alimony.
(3) Cartwell, 978 SW2d 722. H agreed to alimony, 300 monthly payments of $1000, and when he reached 300k or W died, it would terminate his obligation. But he died first. His Second W said there’s no continuing obligation. The court disagreed. Held, this was not a services contract. So second W was obligated to pay out of the estate. He had made 148 of the agreed payments.
PROPERTY RIGHTS THAT ARISE WHEN THERE IS NO FORMAL MARRIAGE, P. 497
1) Intro: There are three non-marriage situations which give right to property rights in Texas. 1) meretricious relationships; 2) putative spouses, 3) common law marriages.
a) Three types:
i) Meretricious relationship is cohabitation by persons who both know they are not married to one another. Until Marvin v. Marvin, which established palimony, meretricious relationships were not recognized. “Under no circumstances can there be a maintenance order for cohabitant.” See Fam. Code, 8.061 p. 632.
ii) A putative spouse is one who in good faith believes that he/she is married, but in reality cannot be married because of the existence of an unknown impediment, such as an undissolved prior marriage. The property rights of a putative spouse, as to property acquired during the putative relationship, are the same as a lawful spouse but end when the innocent spouse learns of the putative status. CN: one or both parties have entered into a marriage in good faith but turns out to be void, for some reason. Say, parties believe that friend has the right to marry when in fact they don’t.
iii) Common law marriage is now governed by statute. Tex Fam Code 2.401. There are certain requirements to prove.
b) B. Meretricous Relationships
i) Hayworth v. Williams, p. 499
(1) Margreth Williams began living with Thomas Jefferson, knowing that he was a married. Together they moved to New Orleans, then to Texas where he bought land, with title in his name. He lived on the land a few months with W and their illegitimate children, then moved back to New Orleans, leaving Margreth and children on the land. He was gone for years at a time, and would return for short intervals. Later he sued her for divorce, claiming she was his wife, then dropped that suit and sued to recover the land.
(2) R: if Margreth can show that a portion of the money used to purchase the land came from her labor, she is entitled to that portion of the land.
(3) CN: This is not a putative situation because Margreth knew Tom was married. This is a meretricious relationship. To have any claim to the land, if she had provided some of the purchase money, then she would be a tenant in common. If Margreth can show ....she needn’t show that he money directly went into the purchase price...as long as she can show that her effort when into the joint enterprise of the family, it’s just as if she was a partner with Tom as they bought the property together. These were the days of coverture and Margreth married. P. 500. “If she and Tom were working together to a common purpose, and the proceeds of labor performed by them became the joint property of the two, then she would occupy the position that a man would have occupied in relation to Thom under the same circumstances; each would own the property acquired in proportion to the value of his labor contributed to the acquisition of it.
ii) Harrington v. Harrington, p. 501
(2) H contends that the trial court erred in concluding that the parties owned the Talbot Street home as tenants in common based on oral partnership/joint venture.
(3) R: In determining whether a partnership exists between spouses or cohabitants in the purchase or ownership of property, the parties’ intent is an important factor. W pled, and the trial court found, that an oral partnership existed in the parties’ purchase and ownership of the property, entitling her to an undivided one half interest in the property.
(4) CN: H and W divorce. Court found that the home that was purchased prior to marriage, that H and W owned as tenants in common. The house was in H’s name, it was his credit used to buy the house. So what not separate? The two lived together for 6 years before marriage. Testimony as to way they purchased the house, they went house shopping together. W said the deed was in his name for credit purposes only and convenience. They always referred to the house as “our house.” Held, it seems clear there was an oral partnership with respect to the house. We’re talking only about the ownership of the house. This case was decided under a no evidence standard. H said there’s no evidence to support the court’s finding, so the COA only has to find some evidence [of a partnership]. This is why it’s so important to win at trial.
iii) NOTES, p. 504
(1) 1. CN: this is a frequent type of situation where couples live together then get married.
(2) 2. How can you avoid this? Just put it in the deed. or have a stated agreement, between the two parties signed by both.
c) C. Putative Spouse, p.
i) Davis v. Davis, p. 504
(1) F: H married Mary in 67, went to Australia, then went to Singapore and had a Buddhist marriage with Nancy. At some point, a divorce petition arrived in Singapore. H drowns, dies. Both Marry and Nancy delivered children about one month after his death. Held, Nancy was not legally married to Charles because Charles was still legally married to mary. There were not divorce records for any where. Second holding is recognizing Nancy as a putative spouse because there was a lot of testimony and evidence that while Nancy knew about the divorce petition arriving in Singapore, she didn’t know what it was, she wasn’t conversant in English. As a result, she had a good faith belief that she was his spouse. That is what a putative spouse is: someone who in good faith believes she is married but because of some legal impediment cannot be a legal spouse. As a putative spouse, she is entitled to the same share as the legal spouse. So the court split wages evenly between the spouses.
(2) ISSUE 2; Legitimacy of Mary’s daughter. Court overrules Lord Mansfield’s rule. Mary testified that Charles didn’t have “access” to Mary during this period. Normally there is a presumption of paternity with regard to any child born during marriage. But by mary’s own testimony established that he couldn’t be the father. The Lord Mansfield’s rule was that you can’t disavow a child. Thus, Charles was not the father. If Charles died intestate, then a legitimate child would have rights.
ii) NOTES, p. 508
(1) 2. Has Lord’s Mansfield rule recently been abrogated? yes, Fam Code provides for wherever there is a testing of paternity, use DNA.
d) D. Common Law Marriage, p. 509
(1) As it stands now, CL marriage can be established two ways: through a declaration; and second, agreement to be married, live together, and hold them self out as H and W. Al these elements must in the State of Texas. CN: CL marriage has been recognized for a long time, since the beginning of the republic. Legislation has attempted to abolish it, but never has.
ii) Claveria v. Claveria, p. 510
(1) F: Ortha and Patricio were married ceremonially in 1974, and thereafter lived together as H and W. In 1978 Ortha died testate. H claims to be an interested party by virtue of his marriage. Ortha left all property to Patrico.
(2) I: whether there is more than a scintilla of evidence of a prior undissolved common law marriage between Patricio and Carolina. Both deny ever being married.
(3) Elements of common law marriage:
(i) agreement presently to be husband and wife;
(ii) living together as husband and wife;
(iii) holding each other out to the public as such.
(4) Patricio and Carolina lived together for 2.5 months. In an earlier court proceeding, Patricio had testified that he was married, and his wife’s name was Carolina, that he had been married for about 16 years. To buy a house through the Veterans administration, they held themselves out as H and W; their names appeared on the deed as H and W; Patricio gave a deposition in which he referred to Carolina as his wife. They bought a house together and the deed was in both of their names, and executed a deed of trust as husband and wife. There is no record from the counties they lived in of any divorce. There is some evidence that they lived together and held themselves out to the public as husband and wife. Their agreement can be inferred from this. There is no common law divorce. Once the marriage exist, subsequent denials do not undo the marriage; only decree or death can.
(5) CN: you can become married informally, but to divorce, you have to go through the process and because Patricio hadn’t done this, he was still married to his common law wife, so his ceremonial marriage was void.
(6) What’s the difference here between a void and a voidable marriage? Void is that it never existed. For a voidable marriage, the issues have to be made. Here, the marriage was void ab initio.
(7) 2. Common law divorce is unknown because it doesn’t exist. You can become formally, but not divorced formally.
iii) Circumstantial evidence of “agreement.” Russel v. Russel, p.
(1) Held, common law agreement to be married maybe proved by circumstantial evidence.
(2) CN: This was a consolidation of two cases, and involved the proof necessary to prove. James and Margret Russel had lived together for ....M alleged the CL marriage began.
(3) Vivien weaver and Ronald Lorenson . . . Ronald had to travel frequently....Vivien filed for divorce; COA reversed that there was no evidence because there was no direct proof.
(4) Held, any fundamental fact...any ultimate fact can be proved by circumstantial evidence, so why should marriage be any different. But the evidence, both circumstantial and inferential evidence must pass both factual and legally sufficient to prove the evidence. SO this is a reviewable situation.
iv) NOTES, p. 521
(1) 1. Russell is still good law, so it is possible to have an informal marriage recognized by circumstantial evidence. One weekend together shouldn’t do it; there has to be some discrete evidence of the agreement. Other states have a time requirement, and some states don’t recognize CL marriage at all.
(2) 3. Federal court found the 1 year limitation unconstitutional under the equal protection clause has not being rationally related to a legitimate govt interest.
a) Homestead is where you reside, you have only one homestead. It can be her separate, his separate, or community property. But there can’t be one as separate and one as community. There are two kinds: urban and rural. Homestead rights are not based on common law, but in the Texas Constitution. The homestead is free from attachment from creditors and judgments.
i) There cannot be more than one homestead in any family.
ii) Different kinds of homestead
(1) Acreage defines whether it is urban or rural
(i) Can claim up to 10 acres and if you claim more than one lot as homestead, then lots must be contiguous
(i) Can claim up to 200 acres and tracts of land do not necessarily have to be contiguous; have to be within same general area
(ii) Buildings are also included that go with the home itself that make it usable (barns, shelters, etc.)
(iii) Can have rural homestead within bounds of a municipality if the following conditions are met
1. must be served by police protection
2. must be served by paid/volunteer fire protection
3. has to have at least 3 of the following services provided by either municipality or with k with municipality: electric, natural gas, sewer, storm sewer (drainage), and water
(2) Cannot have both, even if you have one home in the rural area and an urban area
(3) Constitution and Legislature have provided for definitions for homestead
iii) Rights are not based in common law, but rather in the Texas Constitution
iv) Increase in the number of people that can claim homestead
(1) Historically the homestead belonged to families, not single people. In 1973, TX Constitution was amended and now unmarried single people can claim homestead. It is now where you live, no matter if you are married or not. You and your spouse can claim only one.
(2) Recently, TX Legislature amended probate code to claim homestead for unmarried adult children who are living at home. Those individuals are oftentimes caretakers for elderly parents and public policy supports children taking care of their parents.
(3) Minor children: may also claim homestead rights and live until majority age (ex: parents killed in a car wreck and children “orphaned”)
v) Meretricious Relationship
(1) Residence is one party’s homestead, but not both. Since there is no family, it would depend on ownership. In a true live-in situation where one party has the house and other party moves in, the live-in does not claim the homestead.
vi) Forced Sale
(1) Forced money mortgage foreclosure
(a) 1995: voters enlarged the kinds of instruments you could secure using your house (previously 2nd mortgages were illegal);
(b) Any place (2nd mortgagee and equity lines of credit) that house is pledged for money can force a sale
i) Sheltered from creditors
ii) In intestate situation, homestead rights are passed to surviving spouse and/or children
iii) Homestead interest is a life estate and surviving spouse may live there as long as he/she wants; not required to live there
iv) During marriage, conveyance of homestead by only one party is voidable conveyance. Other spouse can void the conveyance. Where H conveys the homestead to 3rd party, dies the next day, the surviving W can void the transaction altogether because she was not party to the transaction. Even if W doesn’t void the conveyance, she has a life estate and cannot be kicked out.
3) Interspousal Tort Immunity
i) Couldn’t sue your spouse and idea was that marriages shouldn’t be overregulated by state; to allow one spouse to sue another would mean state would have to become involved
ii) 1920s-40s: states moved away from this concept b/c of automobile and for first time, spouses were being injured where other spouse was driving. Didn’t seem right to not allow and not cover the injury
iii) 1988: most jx including TX abolished interspousal tort immunity doctrine
i) Price v. Price
(1) with regard to marital property and where there is fraud on the community, the court can take these acts into consideration on the community and address this by means of a just and right property division, there is no independent cause of action
(1) During division of assets, a surviving action post divorce (with regard to personal injuries where H has physically abused W) won’t be allowed. This should be brought during divorce action.
(2) Putative marriages: in criminal prosecutions, a putative spouse may be forced to testify against the other spouse b/c there is no real marriage; privilege does apply to informal/common law marriages
iv) Recent Case
(1) There may be conduct allowed within a marriage that would otherwise outside of a marriage be tortious. W suspected H of adultery; W planning a trip to visit family members in VA, so arranged for camera to be put in bedroom. W calls from VA and asks security officer to change videotape. H sues for invasion of privacy and security officer claims that he’s acting at request/agency of W. Held, there is enough of factual ambiguity on the agency relationship. when married, people give up rights to privacy that single people have. While there are recognized privacy rights whether you are married or not, wife had right to open the door and see what was going on in bedroom so if she had that right then this is not invasion of privacy.
12) Exam review:
a) History – important to understand evolution, but not specifics. Know that coverture was a condition, not removed, and what the implications of removing.
i) dollar value approach. at beginning there is X at dissolution, it’s X and Y, and you don’t have any receipts for the ins and outs, then you
ii) Community exhaustion. Comes up when you’re trying to pay off a debt. there’s .
(1) H inherits 100k, puts into bank acct. Then W deposits her paycheck 50k. Then there is a debt which the community owes for 60k. This is a debt for which the community as well as H’s separate assets are liable. Community exhaustion approach to tracing, is that the remaining 90k is H’s. A court is going to say that the community should be paid first.
(2) Dollar for dollar approach, it does have to be exact, with lots of ins and outs in an active bank acct. This is strict tracing.
c) Exam will be a combination.
i) Part I: Essay questions, at least one, no more than three.
ii) Part II: Specific short answer, not more than 4. “Identify and descirpe the right of reimbursement” A: the right of reimbursement is a n equitable right covered by section ____ of the fam code and designed to reimburse X for the time toil a sweat, ...above and beyond.
d) Blue book, blue or black ink only, no pencil.
e) Computer—closed but secure exam,
f) Case book ok, hand written comments only.
g) Cite cases and Code;
h) Use IRAC or CIRAC