divorce community property

DIVORCE ISSUES: SEPARATE PROPERTY, COMMUNITY PROPERTY AND MARITAL AGREEMENTS JOHN NICHOLS LAW OFFICES OF JOHN NICHOLS 1301 McKinney, Suite 3636 Houston, Texas 77010 Phone: 713-654-0708 Fax: 713-654-0706 Website: nicholslaw.com E-mail: john@nicholslaw.com PRESENTED TO Houston TSCPA Foundation Free Friday - Quarterly Seminar 1700 West Loop South, 7th Floor Houston, Texas 77027-3084 713-622-7733 August 2, 2002 TABLE OF CONTENTS 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 • • • • 2. Identify Characterize Value Divide Characterization / Tracing / Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 B. Characterization / Tracing / Reimbursement . . . . . . . . . . . . . . . . . . . . . . 1. Separate Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Community Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Inception of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Mutation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Community Out-First Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Clearinghouse and Identical Sum Inference Methods . . . . . . . . . . . . 7. Minimum Sum Balance Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Pro Rata Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Commingling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Property of Mixed Character . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 1 1 2 2 2 2 3 3 3 3 A. Characterization - Presumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1. Community Property Presumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2. Specific Presumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 a. Transfer to a Child b. Mutation c. Credit d. Community Credit e. Purchase Money f. Withdrawal of Commingled Funds g. Deed Recitals h. Interspousal Conveyance i. Including Other Spouses’s Name in Title j. Income from Interspousal Gift Characterization - Specific Types of Property . . . . . . . . . . . . . . . . . . . . . 5 1. Property Acquired by Recovery of Personal Injuries . . . . . . . . . . . . . 5 a. Intangible Damages that are Separate Property -i- B. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Tangible or Economic Damages that are Community Property Real Estate Related Property Interests . . . . . . . . . . . . . . . . . . . . . . . . 6 a. Earnest money contracts b. Lease option with deed placed in escrow c. Contract for deed d. Adverse possession e. Fixtures f. Improvements on separate property g. Cemetery plots h. Crops i. Timber Oil, Bas, and Mineral Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 a. Leasehold interests b. Working interests c. Royalty interest d. Bonus payments e. Delay rentals f. Interests located in foreign state Rents and Other Income From Separate Property . . . . . . . . . . . . . . . 8 Livestock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 a. Life insurance b. Employee life insurance c. Worker’s compensation insurance d. Disability insurance e. National service life insurance f. Servicemen’s group life insurance g. Property insurance h. Insurance renewal commissions i. Insurance agent termination payments/deferred compensation j. Contingent fee contracts Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 a. Accrued vacation and sick leave benefits b. Disability benefits c. Employment bonuses d. Early retirement or separation bonuses Employment Contracts - Athletes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Earnings of Spouse and Child . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Lottery Prizes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Professional Degree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 -ii- b. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. Retirement and Pension Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. Defined benefit plans b. Defined contribution plans c. Disability retirement benefits d. Social security disability benefits e. Texas statutory retirement plans f. Railroad retirement benefits g. Military disability and retirement benefits h. Federal (Non-military) Retirement and other benefits Intellectual Property - Copyrights, Patents, and Trademarks . . . . . Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. Undistributed trust income b. Distributed trust income Stock Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock Splits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Dividend From Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. Partnership interests b. Partnership property c. Distributions of profits and surplus d. Right to participate in management e. Joint venture f. Limited partnership Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. Inception of title rule applies b. Increase in value of stock c. Alter ego d. Subchapter S corporation 12 14 15 16 16 16 16 16 16 17 17 C. Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1. A Claim for Reimbursement is an Equitable Right . . . . . . . . . . . . . . 18 2. The Types of Reimbursement and Measures of Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 a. Debts, insurance, interest, and taxes (not limited to purchase money indebtedness) b. Improvements to real property c. Enhancement in value due to community time, toil, talent or effort d. Life insurance policy premiums -iii- 3. 4. e. For separate property lost to commingling Where Marital property Reimbursement Might Not Be Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 a. For paying for family living expenses b. For cost of college degree c. For payment of alimony or chid support d. For reimbursement claims against third parties Where Marital Property Reimbursement May Be Available . . . . . . 21 a. Where community credit is used to guarantee corporate debt b. Where separate funds are deposited into community bank accounts c. Subchapter S. corporations d. Where distributions from closely-held corporation exceed profits e. Burden of proof D. Checklist: Direct Examination of CPA for Tracing / Characterization / Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Checklist: Cross Examination of CPA for Tracing / Characterization / Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Characterization of Personal Injury and Workers Compensation Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Basic Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. Date of marriage b. Date of injury c. Date of settlement/judgment 2. Applicable Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. Burden of Proof b. Standard of Proof 3. Determination of Percent or Value of Total Recovery Allocated to Various Elements of Damages . . . . . . . . . . . . . . . . . . . a. Medical expense b. Loss of earning capacity 4. Sources of Documentary Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . a. Correspondence between parties b. Pleadings c. Written discovery d. Depositions e. Medical and psychological records f. Expert Material -iv- E. F. 25 25 25 25 26 5. g. Briefs h. Answers to jury questions i. Judgment j. Settlement and agreements k. Release Testimonial Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 a. Testimony of claimant b. Testimony of attorney for claimant c. Testimony of representatives of defendant 3. Inception of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 A. B. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Inception of Title - Back to Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1. How is characterization determined . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2. When does inception of title occur . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 What is the Date of Acquisition? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 When is Property Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Legal Title and Equitable Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Legal and Equitable Title are of Equal Dignity . . . . . . . . . . . . . . . . . . . . 29 Community Property Rights in Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Leasehold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Life estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Fee simple . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 29 29 29 C. D. E. F. G. H. I. J. K. Rights are Same in Perfected or Inchoate Title . . . . . . . . . . . . . . . . . . . 29 Corporate Stock Appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Inception of Title Does Not Apply to Retirement or Pension Benefits30 Problems With Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Defined Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Defined Contribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Miscellaneous Pension Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 30 36 38 -v- 4. Checklist, Predicates and Presentation of Proof in Property Cases . . . . . . 42 A. B. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 1. Marshaling Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 a. Potential parties b. Potential witnesses c. Potential documents 2. Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Predicates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 1. General Predicates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 a. Blackboards / Sketchpads b. Business records c. Motion pictures d. Photographs e. Physical evidence: articles and objects f. Summaries g. Tape recordings h. Television tapes i. Videotapes j. Views 2. Valuing Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 1. Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 2. Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Factors Considered in Dividing Property . . . . . . . . . . . . . . . . . . . . . . . . 69 1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 2. Particular Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 a. Future need for support b. Fault in the breakup of the marriage c. Disparity of incomes or of earning capacities d. Spouses capacities and abilities e. Benefits the innocent spouse would have derived from the continuation of the marriage f. Business opportunities g. Education and training h. Relative physical conditions i. Relative financial condition and obligations j. Disparity of ages -vi- C. D. E. k. l. m. n. o. p. q. r. s. t. u. v. w. x. y. z. Size of marital estate Size of non-marital estate Expected inheritance of spouses Nature of property Attorney’s fees Custody of children Reimbursement between estates Gifts to spouse during marriage Excessive marital property gifts to others Wasting marital assets Out of state property Tax consequences Credit for temporary alimony paid Insurance proceeds Fraud Torts F. Techniques for Division of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Partition or Sale of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Sale of Homestead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Setting Aside Homestead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. General b. Limitations upon use of homestead c. Obligation to make payments, etc. d. Disposition of proceeds 4. Sole Proprietorship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. General Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. General b. Division of partnership interests c. Cannot award specific partnership assets d. Effect of award to non-partner spouse 6. Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. General b. Division of Divorce 7. Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Closely Held Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. General b. Alter ego 9. 10. 76 76 77 77 78 79 81 82 82 Professional Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 a. General -vii- 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 5. b. Goodwill of professional practice Foreign Personalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Money Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. General b. Terms of payment c. Security for payment d. Execution of promissory note e. Settlement of breach of contract action Appointment of Receiver, Trustee, or Commissioner . . . . . . . . . . . a. General b. No bond required Equitable Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. General b. Judgment lien distinguished c. Lien on homestead d. Lien on separate property Property Purchased in name of Third Parties . . . . . . . . . . . . . . . . . . Fraudulent Transfers of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. General b. Gifts to third parties c. Transfers to paramours d. Fraudulent concealment and dissipation e. Remedies Constructive Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debts and Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. Debts to third persons b. Disposition of exempt property c. Disposition of non-exempt property d. Right of indemnity e. Right to Reimbursement Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. Tax is Not a Debt b. Liability for Tax Assessments c. Payment for Reimbursement Beneficial Interests in Insurance Policies . . . . . . . . . . . . . . . . . . . . . Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bankruptcy and Divorce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 86 87 88 90 90 94 94 95 97 97 97 Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 A. Sources of Valuing Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 1. Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 2. Automobiles, Planes, Boats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 -viii- 3. 4. 5. 6. 7. 8. 9. 10. 11. 6. Manufactured Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Intellectual Property and Trade-Marks, Names or Secrets . . . . . . 100 Animals and Livestock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Crops and Timber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Household Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Art, Jewelry and Collectibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Club Memberships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Property Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 A. B. Reference Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Uniform Premarital Agreement Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Formalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Effect of Marriage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Amendment or Revocation of Agreement . . . . . . . . . . . . . . . . . . . . 6. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Enforcement in the Event of a Void Marriage . . . . . . . . . . . . . . . . . 8. Limitations of Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Application and Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Short Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Property Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Property Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Partition or Exchange of Community Property . . . . . . . . . . . . . . . . 3. Agreement Between Spouses Concerning Income or Property Derived From Separate Property . . . . . . . . . . . . . . . . 4. Formalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Partition or Exchange Agreements: Rights of Creditors, Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 101 102 103 105 105 105 108 109 109 110 110 110 110 111 112 112 114 114 C. D. Marital Agreement - Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 1. Is The Agreement The Product of an Arms-Length Transaction or an Equal Bargaining Position? . . . . . . . . . . . . . . . . 116 2. What Was The Status of the Parties Before the Agreement was Signed and at the Time of Enforcement? . . . . . . 116 3. Was There Adequate Legal Representation for Both -ix- 4. 5. 6. 7. 8. 9. 7. Parties? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Was There Full and Complete Disclosure Before the Agreement was Signed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Was Either Party Pressured to Sign the Agreement Through Undue Influence, Duress, or Coercion? . . . . . . . . . . . . . . Was There Legal Consideration or Adequate Consideration For the Waiver of Statutory or Common Law Rights In the Agreement Itself? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proving Spouse Understood Agreement at Time of Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proving Spouse Had Adequate Time to Consider Terms of Antenuptial Agreement Prior to Execution . . . . . . . . . . . . . . . . . . . Conscionability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 119 121 122 122 124 125 Fringe Benefits of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 A. B. C. D. Long-Term Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Restricted Stock and Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Vacation Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 8. Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 A. Fact Sheet for Legal Assistants and Clients . . . . . . . . . . . . . . . . . . . . 1. Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Alternate Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. The Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. To Do . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fact Sheet for the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Employee Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. The Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Please Send the Following . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Please Provide Any Other Information . . . . . . . . . . . . . . . . . . . . . . . 134 134 135 135 136 138 139 139 139 144 144 B. C. Fact Sheet for the Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 1. The Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 2. Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 -x- D. 9. Closing the Property Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 Military and Civil Service Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 160 A. Military Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Active Duty Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Retired Active Duty Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Reserve Component / National Guard Member . . . . . . . . . . . . . . . 4. Retired Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Military Retirement Apportionment Request . . . . . . . . . . . . . . . . . . Civil Service Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Two Federal Retirement Systems . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Benefits Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Division of Retirement Benefits and Direct Payments . . . . . . . . . . 4. Survivor Benefits for Former Spouse . . . . . . . . . . . . . . . . . . . . . . . . 5. Drafting Enforceable Decrees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Drafting Decrees Dealing With Awards of Thrift Savings Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Transfer From CSRS to FERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Health Insurance Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Civil Service Disability Benefits to the Extent They Are Earned During the Marriage Are Divisible . . . . . . . . . . . . . . . . . . . 10. Federal Worker’s Compensation Benefits . . . . . . . . . . . . . . . . . . . 11. Assignment of Federal Employees Group Life Insurance Benefits Now Allow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 160 161 162 163 164 165 165 165 166 166 168 183 185 186 186 186 186 B. 10. Miscellaneous Torts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 A. B. C. D. E. F. G. Life Insurance Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 The Refinanced Home Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Paying Obligations From a Prior Marriage During . . . . . . . . . . . . . . . 189 Alimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Quasi-Community Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 Foreign Marriage Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Torts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 -xi- 1. 2. H. I. J. 11. 12. Spousal Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Third Party Tort Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 Reimbursement - The Guaranteed Loan . . . . . . . . . . . . . . . . . . . . . . . . 199 Commingling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 Alimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 Legal Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 A. Legal Issues: Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Alimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Alter Ego . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Bonus Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Burden of Proof - Character . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Burden of Proof - Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Cemetery Plot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Commingling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Community Credit - Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Community Credit - Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Community Out First - Tracing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Constructive Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15. Delay Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16. Disability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17. Dividends - Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18. Dividends - Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19. Earned Acreage and Farmouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. Earnings of Minors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21. Earnings of Spouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22. Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23. Enhancement Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24. Fortuitousness and Resulting Appreciation of Separate Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25. Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26. General Economic Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27. Goodwill (Professional Practice) . . . . . . . . . . . . . . . . . . . . . . . . . . . 28. Goodwill (Professional) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -xii202 202 202 203 203 203 203 203 203 204 204 204 204 205 205 205 205 205 205 206 206 206 207 207 207 207 207 207 208 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. Inception of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold Interests (Minerals) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Life Insurance (Cash Surrender Value) . . . . . . . . . . . . . . . . . . . . . . Life Insurance (Premiums) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidating Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Livestock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss of Consortium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lottery Prizes and Gambling Winnings . . . . . . . . . . . . . . . . . . . . . . Mercantile Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merger Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mutation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil and Gas Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Partnership (Profits Distributed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Partnership (Profits Undistributed) . . . . . . . . . . . . . . . . . . . . . . . . . . Presumption (Joint Title) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presumption (Community Property) . . . . . . . . . . . . . . . . . . . . . . . . . Presumption (Burden of Proof) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presumption (Rebuttable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presumption (Irrebuttable / Real Est.) . . . . . . . . . . . . . . . . . . . . . . . Presumption (Gift / Participation) . . . . . . . . . . . . . . . . . . . . . . . . . . . Presumption (Gift to Spouse) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Presumption (Gift / Spouse / Income) . . . . . . . . . . . . . . . . . . . . . . . Presumption (Constructive Fraud) . . . . . . . . . . . . . . . . . . . . . . . . . . Rebutting the Community Presumption . . . . . . . . . . . . . . . . . . . . . . Reimbursement (General) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reimbursement (Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reimbursement (Living Expenses) . . . . . . . . . . . . . . . . . . . . . . . . . Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reimbursement (Time, Toil, Talent) . . . . . . . . . . . . . . . . . . . . . . . . . Reimbursement (Cannot Trace) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rents from Separate Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Royalty Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Separate Property (Defined) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Separate Property (Personalty) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Separate Property (Realty) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Social Security Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock Increase in Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -xiii- 208 208 209 209 209 209 209 210 210 210 210 210 210 210 211 211 211 211 212 212 212 212 212 213 213 213 213 214 214 214 214 215 215 215 215 215 216 216 216 216 216 216 217 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. B. Tax Consequences (Future) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Timber and Mineral Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tracing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tracing (Loan Proceeds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tracing (Expert Testimony) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trust Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Waiving “the Rule” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Workers’ Compensation Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . Working Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wrongful Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 217 217 218 218 219 219 219 220 220 220 220 221 222 222 222 222 223 223 224 224 224 224 225 225 226 226 226 227 227 227 228 228 228 228 229 229 230 Legal Issues: Division Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Fault of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Needs of Children of the Marriage (including adults) . . . . . . . . . . . 3. Spouse to Whom Custody is Granted . . . . . . . . . . . . . . . . . . . . . . . 4. Amount of Child Support Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Need for Future Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Needs of Spouses in Future and Disparity of Earnings Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Business Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Spouses Capacities and Abilities . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Relative Financial Condition and Obligations . . . . . . . . . . . . . . . . . 10. Education and Future Employability . . . . . . . . . . . . . . . . . . . . . . . . . 11. Ages of Spouses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Health of Spouses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Benefits Innocent Spouses Would Receive from Continuation of Marriage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14. Wasting of Community Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15. Credit for Temporary Alimony Paid . . . . . . . . . . . . . . . . . . . . . . . . . 16. Size of the Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17. Size of Spouses Separate Estates . . . . . . . . . . . . . . . . . . . . . . . . . 18. Community Indebtedness and Liabilities . . . . . . . . . . . . . . . . . . . . . 19. Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. Community Funds Used to Purchase Out-of-State Property . . . . . 21. Gifts to Spouse During Marriage . . . . . . . . . . . . . . . . . . . . . . . . . . . 22. Excessive Gifts to Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23. Expected Inheritance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24. Attorney’s Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25. Reimbursement Between Marital Estate and Increase in Value of Separate Property by Community Effort . . . . . . . . . . . . . . 26. Nature of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27. Alcoholism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -xiv- C. Enforcing Property Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 1. Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 -xv- ACKNOWLEDGMENT The Firm wishes to thank Debbie Harrington (of the firm) for typing this material and to Brandon Davis for the original research and collection of materials used in this outline. APPRECIATION Appreciation is extended to Brian Webb, attorney, from Dallas, Texas for his contributions to this article which appear on pages 69 - 97 and were published in 1994 by Knowles Publishing, Inc. as a part of its Trial Lawyer’s Series on Family Law, Chapter 4. DIVORCE ISSUES: SEPARATE PROPERTY, COMMUNITY PROPERTY AND MARITAL AGREEMENTS I. Introduction This article is presented on Divorce Issues: Separate Property, Community Property and Martial Agreements. In all matrimonial cases there are four (4) basic categories to consider when looking at the assets and liabilities of a couple. They are: 4. 5. 6. 7. Identify the assets and liabilities; Characterize the assets and liabilities; Value the assets and liabilities; and Divide the assets and liabilities. II. Characterization / Tracing / Reimbursement A. CHARACTERIZATION - Definitions, Tracing Methods and Approaches 1. Separate Property: Property owned or claimed by the spouse before marriage; property acquired by the spouse during marriage by gift, devise, or descent; the recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage; current or future community property that the spouses have agreed in writing, in a premarital or marital partition and exchange agreement will be separate property; and, all income or property arising from a gift of property from one spouse to the other spouse. Tex. Fam. Code Chapter 3, Subchapter A. Community Property: The property, other than separate property, acquired by either spouse during marriage. Tex. Fam. Code Ann. §3.002. Inception of Title: The character of property, as community property or separate property, is determined at the earliest moment to which the claimant can claim title. Welder v. Lambert, 445 S.W. 281 (Tex. 1898). With regard to real estate, this is generally the signing of the purchase contract, not necessarily the date of the deed. Wierzchula v. 1 2. 3. Wierzchula, 623 S.W. 2d 730, 732 (Tex. Civ. App. - Houston [1 st Dist.] 1981, no writ). 4. Mutation: An asset of a specific character, whether separate or community, retains that character after undergoing a change in form if it now exists in the form of another asset. The party asserting separate property has the burden of overcoming the presumption that property acquired during marriage is community property by tracing the assets back to the property that, because of its time and manner of acquisition, was separate in character. Gleich v. Bongio, 99 S.W.2d 881 (Tex. 1937). Community First-Out Rule: If funds from different estates are deposited into a bank account, the first funds withdrawn are presumed to be community property. This is a rebuttable presumption. Sibley v. Sibley, 286 S.W.2d 658 (Tex. 1955). Clearinghouse and Identical Sum Inference Methods: The clearinghouse method assumes that after one or more identifiable sums of separate funds went into the account, identifiable withdrawals were made that are clearly the withdrawals of the separate funds and are therefore separate property themselves.Estate of Hanau v. Hanau, 730 S.W.2d 663 (Tex. 1987). The identical sum inference method is similar to the clearinghouse method except that it involves only one deposit, rather than a series of deposits, followed by an identical withdrawal, usually a short time later. McKinley v. McKinley, 496 S.W.2d 540 (Tex. 1973). Minimum Sum Balance Method: Useful for funds on account wherein a portion can be conclusively proven to be separate property and there have been few identifiable transactions. The party seeking to prove the amount of separate funds traces the account through each transaction to show that the balance of the account never went below the amount proven to be separate property. This theory presumes that only separate property remains after all other withdrawals are made. Padon v. Padon, 670 S.W.2d 354 (Tex. App. - San Antonio 1984, no writ). 5. 6. 7. 8. Pro Rata Approach: If mixed funds are withdrawn from an account, the withdrawal should be pro rata in proportion to the respective balances of separate and community funds in the account. It would not be necessary to analyze the character of each withdrawal. Mariana v. Gen. 2 Am. Life Ins., 898 S.W.2d 397 (Tex. App. - Fort Worth 1995, writ denied). 9. Increases: The natural increase or decrease in the value of a separate asset does not affect character. Dillingham v. Dillingham, 434 S.W.2d 459 (Tex. Civ. App. - Fort Worth 1968, writ dism’d). Commingling: The separate assets of a spouse have been so hopelessly mixed or combined with community assets that they can no longer be traced. Cockerham v. Cockerham, 527 S.W.2d 162 (Tex. 1975). Property of Mixed Character: An asset is not necessarily entirely community property or separate property. If the source of funds used to purchase an asset comes from different estates, the resulting asset will be owned in differing percentage interests by the various marital estates. Gleich v. Bongio, 99 S.W.2d (Tex. 1937). 10. 11. B. CHARACTERIZATION - Presumptions 1. Community Property Presumption: Property possessed by either spouse during or on dissolution of the marriage is presumed to be community property. Tex. Fam. Code Ann. §3.003(a). The degree of proof necessary to establish that property is separate property in order to rebut the community property presumption is clear and convincing evidence. Tex. Fam. Code Ann. §3.003(b). The testimony of a spouse, even if not corroborated, may suffice to prove by clear and convincing evidence that property is the testifying spouse’s separate property. Vannerson v. Vannerson, 857 S.W.2d 659 (Tex. App. - Houston [1 st. Dist.] 1993, writ denied). The party asserting separate property ownership must clearly trace the original separate property into the particular assets on hand during the marriage. Norris v. Vaughan, 260 S.W.2d 676 (Tex. 1953). 2. Specific Presumptions a. Transfer to a Child: Presumed to be a gift. Kyles v. Kyles, 832 S.W.2d 194 (Tex. Civ. App. - Beaumont 1992, no writ). Mutation: Property acquired in exchange for separate property 3 b. becomes the separate property of the spouse who exchanged the property. Gleich v. Bongio, 99 S.W.2d 881 (Tex. 1937). c. Credit: Property acquired on credit takes the character of the credit. Cockerham v. Cockerham, 527 S.W.2d 162 (Tex. 1975); Sparks v. Taylor, 90 S.W. 485 (Tex. 1906). Community Credit: Debts incurred during the marriage are presumed to be on community credit unless it is shown that the creditor agreed to look solely to the separate estate of the contracting spouse for repayment. Cockerham v. Cockerham, 527 S.W.2d 162 (Tex. 1975). Purchase Money: Money used for the purchase of property is presumed to have been community funds unless there is clear and convincing evidence to the contrary. Cooke v. Corday, 333 S.W.2d 461 (Tex. Civ. App. - Beaumont 1960, no writ). Withdrawal of Commingled Funds: Where a joint account contains both community and separate funds, it is presumed that community funds are withdrawn first—the community out first rule. Sibley v. Sibley, 286 S.W.2d 658 (Tex. 1955). Deed Recitals: When a deed recites separate property was used to pay for the property, or that the property is taken as a receiving spouse’s separate estate, a rebuttable presumption of separate property arises. Henry S. Miller Co. v. Evans, 452 S.W.2d 426 (Tex. 1970). When the other spouse is grantor or otherwise chargeable with causing or acquiescing in the recital, the presumption of separate property becomes irrebuttable, absent fraud. Grost v. Grost, 561 S.W.2d 223 (Tex. Civ. App. Tyler 1977, writ dism’d); Pemelton v. Pemelton, 809 S.W.2d 642, 646 (Tex. Civ. App. - Corpus Christi 1991, rev’d on other grounds, sub nom.) Interspousal Conveyance: Where one spouse conveys property to the other spouse, there is a rebuttable presumption of gift, even absent a recital in the instrument of conveyance. Grost v. Grost, 561 S.W.2d 223 (Tex. Civ. App. - Tyler 1977, writ dism’d); Pemelton v. Pemelton, 809 S.W.2d 642, 646 (Tex. Civ. App. - Corpus Christi 1991, rev’d on other grounds, sub nom.) d. e. f. g. h. 4 i. Including Other Spouse’s Name in Title: Where one spouse furnishes separate property consideration and title is taken in the name of the other spouse, a rebuttable presumption of gift arises. Where one spouse uses separate property to acquire property during marriage and takes title to that property in the names of both spouses, a rebuttable presumption arises that the purchasing spouse intended to make a gift of one-half separate property interest to the other spouse. Pemelton v. Pemelton, 809 S.W.2d 642, 646 (Tex. Civ. App. - Corpus Christi 1991, rev’d on other grounds, sub nom.) j. Income from Interspousal Gift: When one spouse makes a gift of property to the other spouse, that gift is presumed to include all the income or property which might arise from the property given. Tex. Fam. Code Ann. §3.005. C. CHARACTERIZATION - Specific Types of Property 1. Property Acquired by Recovery for Personal Injuries - See also, Section B, [Characterization of Personal Injury and Workers Compensation Awards] below. a. Intangible Damages that are Separate Property i. ii. iii. iv. v. vi. vii. viii. ix. Wrongful death damages Physical pain Mental Anguish Emotional distress Loss of consortium Loss of companionship of a child Disfigurement Loss of part of body Loss of mental and intellectual function Graham v. Franco, 488 S.W.2d 390 (Tex. 1972). b. Tangible or Economic Damages that are Community Property i. Medical expenses during marriage 5 ii. iii. iv. Loss of services of other spouse during marriage Loss of earning capacity during marriage Punitive damages Graham v. Franco, 488 S.W.2d 390 (Tex. 1972). 2. Real Estate Related Property Interests i. Earnest money contracts: Inception of title occurs at the signing of the earnest money contract. Wierzchula v. Wierzchula, 623 S.W.2d 730, 732 (Tex.Civ.App.—Houston [1st Dist.] 1981, no writ). Lease option with deed placed in escrow: The inception of title relates back to the time of the original agreement, not the time when the deed was removed from escrow and delivered to the spouse. Roach v. Roach, 672 S.W.2d 524, 531 (Tex.App.—Amarillo 1984, no writ). Contract for deed: If realty is acquired under a contract for deed or an installment land contract, the inception of title relates back to the time the contract was entered into, not when the title was ultimately conveyed. Riley v. Brown , 452 S.W.2d 548, 551 (Tex.Civ.App.—Tyler 1970, no writ). Adverse possession: If, before marriage, one of the spouses trespassed on occupied land, but the title to the land did not ripen by adverse possession until the couple married, the land is community property. Scott v. Washburn, 324 S.W.2d 957, 95960 (Tex.Civ.App.—Waco 1959, writ ref’d n.r.e.). Fixtures: Improvements to realty take the character of the land regardless of the character of the funds or credit used to make the improvements. Rice v. Rice, 21 Tex. 58 (1858). Improvements on separate property: The use of community funds to improve separate property does not change the character of the property or give the community estate an ownership interest in the property. Carter v. Carter, 736 S.W.2d 775, 780 (Tex.App.—Houston [14th Dist.] 1987, no writ). The community estate is entitled only to a claim for reimbursement from the separate estate for the community funds used for the 6 j. c. d. e. f. improvement. Gleich v. Bongio, 99 S.W.2d 881 (Tex. 1937). g. Cemetery plots: They are presumed to be the separate property of the person named as grantee in the certificate of ownership or other instrument of conveyance. Tex. Health & Safety Code Ann. Section 711.039(a)(Vernon Supp. 1997). Crops: Crops are community property whether the crop is growing or matured or already harvested at the time of divorce. McGarraugh v. McGarraugh, 177 S.W.2d 296 (Tex.Civ.App.—Amarillo 1943, writ dism’d). Timber: Timber grown on separate property is community property. McElwee v. McElwee, 911 S.W.2d 182 (Tex.App.—Houston [1st Dist.] 1995, writ denied). h. i. 3. Oil, Gas, and Mineral Interests a. Leasehold interests: Determined by the rules of inception of title as applied to other types of interests of real property. Minerals in place are a part of the realty and thus impressed with the same character as the realty. Norris v. Vaughn, 260 S.W.2d 676 (Tex. 1953). b. Working interest: Determined by the inception of title doctrine. A community working interest is not altered by the use of separate funds to develop the lease. Norris v. Vaughn, 260 S.W.2d 676, 682 (Tex. 1953). Royalty interest: Royalties paid for oil and gas produced from the separate property of a spouse are payment for the extraction or waste of the separate estate. Royalties, therefore, remain that spouse’s separate property. Norris v. Vaughn, 260 S.W.2d 676, 679 (Tex. 1953). Bonus payments: They retain the same character as the character of the underlying mineral estate. Lessing v. Russek, 234 S.W.2d 891 (Tex.Civ.App.—Austin 1950, writ ref’d n.r.e.). Delay rentals: Those earned during the marriage are community property regardless of the character of the underlying 7 c. d. e. mineral estate. McGarraugh v. McGarraugh, 177 S.W.2d 296 (Tex.Civ.App.—Amarillo 1943, writ dism’d). f. Interests located in foreign state: The character of income, profits, fruits, and benefits arising from oil and gas property is determined by the laws of Texas, regardless of the state in which the oil and gas property is located. Tirado v. Tirado, 357 S.W.2d 468, 471 (Tex.Civ.App.—Texarkana 1962, writ dism’d). 4. Rents and Other Income from Separate Property: Rent, revenue, interest on and other income from separate property that accrues during the marriage is community property. Arnold v. Leonard, 273 S.W.2d 799, 803 (Tex. 1925); McElwee v. McElwee, 911 S.W.2d 182, 188-189 (Tex.App.—Houston [1st Dist.] 1995, writ denied). Livestock: The offspring of livestock bred and raised during the marriage is community property, whether or not the original herd is separate property. Guiterrez v. Guiterrez, 791 S.W.2d 659 (Tex.App.—San Antonio 1990, no writ). 5. 6. Insurance: i. Life insurance: The inception of title rule applies to life insurance. McCurdy v. McCurdy, 372 S.W.2d 381, 382 (Tex.Civ.App.—Waco 1963, writ ref’d). A separate life insurance policy is subject to a claim of reimbursement to the community for the premiums paid by the community during the marriage. Dent v. Dent, 689 S.W.2d 521, 522 (Tex.App.—Fort Worth 1985, no writ). Employee life insurance: If incident to employment during marriage it is community property. Arnold v. Leonard, 273 S.W. 799 (Tex. 1925). Worker’s compensation insurance: To the extent the award represents a loss of earnings during the marriage, or replaces disability retirement benefits, it is community property. Additionally, if the compensation replaces disability retirement benefits, the compensation is community property. Anthony v. Anthony, 624 S.W.2d 388, (Tex.App.—Austin 1981, writ dism’d). 8 b. c. d. Disability insurance: The right to receive disability payments from a policy purchased with community funds is a vested property right and is community property even if the benefits are paid after divorce. Matthews v. Matthews , 414 S.W.2d 703, 707 (Tex.Civ.App.—Austin 1967, no writ). National service life insurance: The cash value of an insurance policy issued by the Veterans Administration under the National Service Life Insurance Act is not divisible property upon divorce. Kamel v. Kamel, 721 S.W.2d 450, 453 (Tex.App.—Tyler 1986, no writ). Servicemen’s group life insurance: The insured service member has the right to freely designate and alter the beneficiaries named under the life insurance contract. Ridgway v. Ridgway, 454 U.S. 46, 102 S.Ct. 49, 70 L.Ed.2d (1981). e. f. g. Property insurance: Casualty insurance proceeds have the character of the insured asset. Rolator v. Rolator, 198 S.W.2d 391, 393 (Tex.Civ.App.—Dallas 1917, no writ). Insurance renewal commissions: Future renewal commissions on policies written during the marriage but not accruing until after divorce are not divisible upon divorce. Cunningham v. Cunningham, 183 S.W.2d 985, 986 (Tex.Civ.App.—Dallas 1944, no writ). Insurance agent termination payments/deferred compensation: The formula to calculate the community’s interest in these benefits is as follows: Number of years of commissioned service during marriage divided by the number of years of commissioned service as of date of divorce multiplied by the value of payments as of the date of divorce which equal the extent of the community’s interest in termination payments. Matter of the Marriage of Wade, 923 S.W.2d 735, 737 (Tex.App.—Texarkana 1996, writ denied). Contingent fee contracts: Those acquired during the marriage are community property subject to division. Buck v. Rogers, 709 S.W.2d 283 (Tex.App.—Corpus Christi 1986, no writ). 9 h. i. j. 7. Employee Benefits: j. Accrued vacation and sick leave benefits: Accrued but not matured during the marriage—community property. Smith v. Smith, 733 S.W.2d 915, 916 (Tex.App.—Houston [1st Dist.] 1987, writ ref’d n.r.e.). Disability benefits: Unless federally preempted, disability benefits resulting from an overall employee benefit plan of a spouse are considered community property. Ex parte Burson, 615 S.W.2d 192, 194 n.2 (Tex. 1981). Employment bonuses: It depends on what period of service is being rewarded with the bonus. One approach would be to characterize the bonus based upon the marital status of the recipient at the time the bonus was paid. Nelson v. Nelson, 222 Cal.Rptr. 790 (Ca.App. 1986); Echols v. Austin Inc., 529 S.W.2d 840 (Tex.Civ.App.—Austin 1975, writ ref’d n.r.e.). If the bonus is to reward services performed during the marriage, then it is community property. Moor v. Moor, 192 S.W.2d 929 (Tex. Civ. App.—Fort Worth 1946, no writ). Early retirement or separation bonuses: The determination is whether the lump-sum represents a payment in exchange for future services or whether it represents the employee’s exercise of a right which has been acquired as a result of past employment services and based upon the duration of those services. Whorrall v. Whorrall, 691 S.W.2d 32 (Tex.App.—Austin 1985, writ dism’d). b. c. d. 8. Employment Contracts—Athletes: Based on the law in other states, the courts are more likely to construe cash on hand as divisible marital property and if an athlete must perform services post-divorce, courts are inclined to view the contract as not divisible at divorce. For a more indepth analysis of sports contracts, signing bonuses, play off bonuses, entertainers, residuals, reprints of books, reruns of television shows, book advances, and other related issues, seePeculiar Characterization Issues Involving Athletes and Entertainers, State Bar of Texas Annual Advanced Family Law Course - 1997, by Katherine A. Kinser. Earnings of Spouse and Child: Community property and property purchased with those earnings is community property. Vallone v. 10 9. Vallone, 644 S.W.2d 455, 458 (Tex. 1983); Insurance Co. of Texas v. Stratton, 287 S.W.2d 320, 323 (Tex.Civ.App.—Waco 1956, writ ref’d n.r.e.). 10. Lottery Prizes: A prize won during the marriage from a lottery ticket purchased with separate funds is community property. Dixon v. Sanderson, 10 S.W.2d 535, 536 (Tex. 1988). Professional Degree: A professional degree earned during marriage is not property subject to division upon divorce. Frausto v. Frausto, 611 S.W.2d 656, 659 (Tex.Civ.App.—San Antonio 1980, writ dism’d). Retirement and Pension Benefits: a. Defined benefit plans: i. Valuation and apportionment when the employee spouse is retired at the time of divorce: Number of months married under plan divided by number of months employed under the plan (before and during marriage) multiplied by the value of the retirement benefits (e.g. the monthly annuity) as of the date of retirement equals the extent of the community interest. Valuation and apportionment when the employee spouse is not retired at the time of divorce: Number of months married under plan divided by the number of months employed under the plan as of the date of divorce multiplied by the value of the retirement benefits (e.g. the monthly annuity) as of the date of divorce equals the extent of the community’s interest. 11. 12. ii. Berry v. Berry, 647 S.W.2d 945 (Tex. 1983). b. Defined contribution plans: The court simply subtracts the pre-marriage sum from the sum at divorce to determine the portion of that was added during marriage and therefore is community property. However, if stock is involved, see the stock items hereinbelow, which one could creatively apply. Smith v. Smith, 22 S.W.3d 140 (Tex. App. - Houston [14th Dist.] 2000, no pet.). 11 c. Disability retirement benefits: Disability retirement benefits are not recoveries for personal injuries, but are earned property rights, being part of the bundle of benefits provided to the employee by his or her employer. They are therefore community property. Marshall v. Marshall, 511 S.W.2d 72, 74 (Tex.Civ.App.—Houston [1st Dist.] 1974, no writ). d. Social security disability benefits: Not community property and not divisible upon divorce. Richard v. Richard, 659 S.W.2d 746, 749 (Tex.Civ.App.—Tyler 1983, no writ). Texas statutory retirement plans: Benefits accruing under state retirement acts are divisible upon divorce. Collida v. Collida, 546 S.W.2d 708, 710 (Tex.Civ.App.—Beaumont 1977, writ dism’d). Railroad retirement benefits: Only Tier I is not community property divisible upon divorce. Kamel v. Kamel, 721 S.W.2d 450, 452-53 (Tex.App.—Tyler 1986, no writ). Military disability and retirement benefits: i. Veterans administration disability retirement benefits: Not property and therefore not community property. Ex parte Burson, 615 S.W.2d 192, 194 (Tex. 1981). Military retirement pay: The portion earned during marriage is community property. Haynes v. McIntosh, 776 S.W.2d 784, 786 (Tex.App.—Corpus Christi 1989, writ denied). See defined benefit plans above for calculations to be used. Reserve military retirement: Number of military retirement points accrued while married divided by number of military retirement points accrued as of date of divorce multiplied by the value of military retirement as of the date of divorce equals the extent of the community interest. Bloomer v. Bloomer, 927 S.W.2d 118, 121 (Tex.App.—Houston [1 st Dist.] 1996, writ denied). e. f. g. ii. iii. 12 iv. Fleet retainer pay: Not community property subject to division upon divorce. Sprott v. Sprott, 576 S.W.2d 653, 655 (Tex.Civ.App.—Beaumont 1978, writ dism’d). v. Survivor benefit plan: If a divorce occurs after retirement and the member of the plan had initially elected to participate in the plan when retiring, a court may order continued participation by the member in favor of the former spouse by ordering the plan participant to redesignate the spouse as a former spouse beneficiary. If not retired upon divorce, the court may also order the plan participant to elect the former spouse as beneficiary. Morris v. Morris, 894 S.W.2d 859 (Tex. App.—Fort Worth 1995, no writ). Military readjustment benefits: Not community property subject to division upon divorce. Perez v. Perez, 587 S.W.2d 671, 672 (Tex. 1979). Special separation benefit: It is retirement pay subject to division. Marsh v. Wallace, 924 S.W.2d 423, 424-425 (Tex.App.—Austin 1996, no writ). vi. vii. h. Federal (Non-military) Retirement and Other Benefits: vi. Civil service retirement benefits: To the extent earned during marriage, the benefits are community property. Naydan v. Naydan, 800 S.W.2d 637, 641 (Tex.App.—Dallas 1990, no writ). Civil service disability retirement pay: To the extent earned during marriage, the benefits are community property. Anthony v. Anthony, 624 S.W.2d 388, 390 (Tex.App.—Austin 1981, writ dism’d). Federal employees retirement system: To the extent earned during marriage, the benefits are community property. ii. iii. 13. Intellectual Property—Copyrights, Patents, and Trademarks: Copyright protection begins at the time of “creation” of the work. 17 13 USC Section 101. It is difficult to determine how a Texas court might apply the inception of title doctrine to copyright questions. Patents are dated from the issuance date of the patent, and the patent runs from that date. For inception of title purposes, the court would have to determine when the spouse first had a claim of right to the invention. When the inception of title occurs for trademarks is not precisely clear. Not all trademarks are created equally, and ownership rights arise at differing times with respect to marks of differing categories. The mere inception of a trademark, without use, affords no ownership rights in the mark, regardless of its classification. For an in-depth discussion of intellectual property, including copyrights, patents, and trademarks, please see Richard S. Orsinger’s article entitled Intellectual Property, University of Texas School of Law—1997 Texas Marital Property Institute and the article by J. Steven King entitled Challenging Characterization Issues, State Bar of Texas Advanced Family Law Course -1997. 14. Trusts: n. Undistributed trust income: Undistributed trust income earned by a trust during the marriage, where the corpus of the trust is separate property, remains as part of the respective trust and is not subject to division upon divorce. In Re: Marriage of Burns, 573 S.W.2d 555, 557-58 (Tex.Civ.App.—Texarkana 1978, writ dism’d). However, if the beneficiary has the right to receive a distribution of income but does not take possession of the distribution, such retained income may create marital property rights for the beneficiary’s spouse. Cleaver v. Cleaver, 936 S.W.2d 491 (Tex.App.—Tyler 1996, no writ). Undistributed income of a trust created by a spouse for that spouse’s own benefit, prior to the marriage, is community property. Mercantile National Bank of Dallas v. Wilson, 279 S.W.2d 650 (Tex.Civ.App.—Dallas 1995, writ ref’d n.r.e.). Distributed trust income: Income from the separate property corpus of a trust created by a spouse for his own benefit is community property to the extent the income is received by the spouse. In Re Marriage of Burns, 573 S.W.2d 555, 557-58 (Tex.Civ.App.—Texarkana 1978, writ dism’d). b. 14 15. Stock Dividends: Stock dividends received during the marriage on separate property stock are separate property. Tirado v. Tirado, 357 S.W.2d 468, 473 (Tex.Civ.App.—Texarkana 1962, writ dism’d). Stock Splits: New stock created as a result of a stock split during a marriage from separate property stock is separate property. Tirado v. Tirado, 357 S.W.2d 468, 473 (Tex.Civ.App.—Texarkana 1962, writ dism’d). Cash Dividend From Stock: A cash dividend received during the marriage from separate property stock is community property. Amarillo Nat’l Bank v. Liston, 464 S.W.2d 395, 406 (Tex.Civ.App.—Amarillo 1970, writ ref’d, n.r.e.). Stock Options: Those earned during the marriage are community property subject to division upon divorce. Demler v. Demler, 836 S.W.2d 696, 699 (Tex.App.—Dallas 1992, no writ). Unvested stock options constitute a contingent interest in property and are a community asset. Bodin v. Bodin, 955 S.W.2d 380 (Tex.App.—San Antonio 1997, no writ). Goodwill: Personal goodwill of a professional is not community property that can be divided upon divorce. Nail v. Nail, 486 S.W.2d 761, 764 (Tex. 1972). Goodwill in a professional corporation that exists independently of a professional’s personal skills may be subject to division. Finn v. Finn, 658 S.W.2d 735, 742 n.3. (Tex.App.—Dallas 1983, writ ref’d n.r.e.). Professional Corporation: In a small professional corporation the value of the business depends directly on the skills of the individual and not on the growth of capital. The better practice seems to be to limit the protected portion of the growth to that attributable to inflation or an economy-wide (or, even industry-wide) growth rate. Such a rule is more consistent with community property doctrine, at least as to gains from inflation. Moreover, gain attributable to normal growth should be treated similarly since inflation occurs only when real growth lags behind the growth of the money supply. Some portion of the increased value of a business should be regarded as protected. See Jensen v. Jensen, 665 S.W.2d 107 (Tex. 1984). Partnerships 16. 17. 18. 19. 20. 21. 15 p. Partnership interests: Whether a partner’s interest in a partnership is separate or community is determined by the inception of title rule. Harris v. Harris, 765 S.W.2d 798, 802 (Tex.App.—Houston [14th Dist] 1989, writ denied). Partnership property: It is neither separate nor community because neither a partner nor the partner’s spouse has an interest in partnership property. Harris v. Harris, 765 S.W.2d 798, 802 (Tex.App.—Houston [14th Dist] 1989, writ denied). Distributions of profits and surplus: If received during the marriage, they are community property regardless of whether the partner’s interest in the partnership is separate or community. Harris v. Harris, 765 S.W.2d 798, 802 (Tex.App.—Houston [14th Dist] 1989, writ denied). Right to participate in management: A partner’s interest in a partnership does not include the partner’s right to participate in management. Joint venture: Should be treated like partnerships for purposes of characterization and division upon divorce. Limited partnership: A limited partner’s interest in the limited partnership is personal property (as opposed to real property). A partner has no interest in specific limited partnership property. Upon divorce, a community partnership interest could be assigned in whole or in part to the non-partner spouse, which would allow the non-partner spouse to receive income from the interest without having liability as a partner. b. c. d. e. f. 22. Corporations a. Inception of title rule applies: This rule is to be applied to a corporation as of the date the stock is acquired and only applies to a corporation as of the date of incorporation. Vallone v. Vallone, 644 S.W.2d 455, 457 (Tex. 1982). A business that is incorporated and initially capitalized during marriage is community property, notwithstanding the ownership and operation of the business as a sole proprietorship before marriage. Allen v. Allen, 704 S.W.2d 600, 604 (Tex.App.—Fort Worth 1986, no writ). A corporation organized during marriage 16 and capitalized with separate property is characterized as the separate property of that spouse. Allen v. Allen, 704 S.W.2d 600, 604 (Tex.App.—Fort Worth 1986, no writ); Holloway v. Holloway, 671 S.W.2d 51, 56-57 (Tex.App.—Dallas 1983, writ dism’d). b. Increase in value of stock: An increase in the value of corporate stock belonging to a separate estate that is due to natural growth or the fluctuations of the market remains separate property. Dillingham v. Dillingham, 434 S.W.2d 459, 461-62 (Tex.Civ.App.—Fort Worth 1986, writ dism’d). Alter ego: If the separate property corporation is found to be the alter ego of the spouse, the increase in value of the spouse’s stock becomes a part of the community estate. If community property was commingled with the purported corporation, tracing principles apply. If the commingling of separate and community property prevents identification of the separate property by clear and convincing evidence, the statutory presumption applies and the entire corporation is deemed community property. Dillingham v. Dillingham, 434 S.W.2d 459, 461-62 (Tex.Civ.App.—Fort Worth 1986, writ dism’d). Subchapter S corporation: A corporation that elected subchapter S status is treated as a subchapter C corporation for purposes of determining community or separate property character. Thomas v. Thomas, 738 S.W.2d 342, 344-45 (Tex.App.—Houston [1st Dist.] 1987, writ denied). c. d. D. REIMBURSEMENT 17. A claim for reimbursement is an equitable right, not a legal right; therefore equitable principles govern. The Types of Reimbursement and Measures of Reimbursement r. Debts, insurance, interest, and taxes (not limited to purchase money indebtedness): A claim for reimbursement for funds expended by an estate to pay debts, taxes, interest, or insurance for the property of another estate is measured by the amount paid. An offset against a claim for reimbursement for funds expended by an estate to pay debts, taxes, interest, or 17 2. insurance for the property of another estate is measured by the value of any related benefit received by the paying estate, such as the fair value of the use of the property by the paying estate, income received by the paying estate from the property, and any reduction in the amount of any income tax obligation of the paying estate by virtue of the paying estate’s claiming taxdeductible items relating to the property, such as depreciation, interest, taxes, maintenance, and other deductible payments. Texas Pattern Jury Charge 204.1 (1998). b. Improvements to real property: A claim for reimbursement for funds expended by an estate for improvements to real property of another estate is measured by the enhancement in value to the receiving estate resulting from such expenditures. An offset against a claim for reimbursement for improvements to real property of another estate is measured by the value of any related benefit received by the paying estate, such as the fair value of the use of the property by the paying estate, income received by the paying estate from the property, and any reduction in the amount of any income tax obligation of the paying estate by virtue of the paying estate’s claiming taxdeductible items relating to the property, such as depreciation, interest, taxes, maintenance, and other deductible payments. Texas Pattern Jury Charge 204.1 (1998). Enhancement in value due to community time, toil, talent or effort: i. Based upon the holding in Vallone v. Vallone, 644 S.W.2d 455 (Tex. 1983), the community estate has a claim for reimbursement for uncompensated or under compensated time, toil and talent expended by a spouse for the benefit and/or enhancement of his/her separate property interests beyond that necessary to maintain that separate property asset or interest. However, an increase in the value of a separate property business “resulting from fortuitous circumstances and unrelated to an expenditure of community effort will not entitle the community estate to reimbursement.” Harris v. Harris, 765 S.W.2d 798, 805 (Tex. App—Houston [14th Dist.] 1989, writ denied). Based upon the holding in Jensen v. Jensen, 65 S.W.2d 18 c. ii. 107 (Tex. 1984), 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 that reasonably necessary to manage and preserve the separate estate, less the remuneration received for the time and effort in the form of salary, bonus, dividends, and other fringe benefits, those items being community property when received. The right to reimbursement is only for the value of time, toil, and effort expended to enhance the separate estate “other than that reasonably necessary to manage and preserve the separate estate, for which the community did not receive adequate compensation.” iii. A claim for reimbursement to the community estate for the spouse’s time, toil, talent, or effort expended to enhance a spouse’s separate estate is measured by the value of such community time, toil, talent, and effort other than that reasonably necessary to manage and preserve the separate estate, and for which the community did not receive adequate compensation. An offset against a claim for reimbursement for the spouse’s time, toil, talent, or effort expended to enhance a spouse’s separate estate is measured by the compensation paid to the community in the form of salary, bonuses, dividends, and other fringe benefits. Texas Pattern Jury Charge 204.1 (1998). d. Life insurance policy premiums: A claim for reimbursement arises when community funds are used to pay premiums on a separate property life insurance policy. A claim for reimbursement of funds expended by an estate to pay life insurance premiums on a policy owned by another estate is measured by the amount of premiums paid, less the value of any related benefit received by the spouse seeking reimbursement. Texas Pattern Jury Charge 204.01 (1998). For separate property lost to commingling: Where separate property has been commingled and cannot be traced, courts have offered relief to the spouse who lost such assets by granting reimbursement for the separate property lost to commingling. e. 3. Where Marital Property Reimbursement Might Not Be Available 19 a. b. c. d. 4. For paying for family living expenses For cost of college degree For payment of alimony or child support For reimbursement claims against third parties Where Marital Property Reimbursement Might Be Available a. b. c. d. e. Where community credit is used to guarantee corporate debt Where separate funds are deposited into community bank accounts Subchapter S corporations Where distributions from closely-held corporation exceed profits Burden of proof: A spouse seeking equitable reimbursement has the burden of proving each element of the claim by a preponderance of the evidence. A spouse seeking reimbursement to a separate estate must prove by clear and convincing evidence that the funds expended were separate property. It is unclear who has the burden of proving offsets to claims for reimbursement. E. Checklist: Direct Examination of CPA for Tracing / Characterization / Reimbursement 1. 2. 3. 4. 5. 6. 7. 8. 9. Name Profession or occupation Educational background Professional training Professional associations or affiliations Academic positions Research projects Published papers, articles or writings Relationship of the expert to the litigation 20 10. 11. 12. 13. Knowledge of facts of the case Source of knowledge of facts of the case Treatise and articles read in preparation of testimony Prove the CPA up as an expert (be prepared for a Daubert challenge and prepare the expert for a Daubert challenge) Ascertain what records the CPA reviewed to form his/her opinion(s) Mark the records as an exhibit and offer them into evidence If the CPA has prepared a report, then offer the report into evidence Let the CPA go through the report Ask the CPA his/her conclusions in a broad, open-ended question so he/she can explain their analysis, opinion(s), and conclusion(s), and the basis for same 14. 15. 16. 17. 18. F. Checklist: Cross Examination of CPA for Tracing/Characterization/ Reimbursement 1. 2. 3. 4. 5. 6. 7. 8. 9. Lack of education Lack of knowledge in field License suspended or revoked Lack of certification Lack of professional memberships Lack of experience in area Lack of writing or research in area Specialty not basis of this lawsuit Lack of experience in this particular area 10. 11. 12. 13. Failed to keep abreast of recent developments in specialty area Bias Testified for many times for this particular attorney Social, family, business, or professional connections with opposing party Unreasonable fees Research and testing confined to one theory in the case Lack of firsthand knowledge No independent verification data Failure to consult with authorities to confirm conclusions Test interpretations open to questions Theory invalid in the case Incorrect opinion Subjective judgment played major role in conclusions Opinion primarily based on data given to him by opposing attorney but never verified Failure to consider recent developments in area Make a Daubert challenge Bring up something else they could have reviewed or an authority they could have used Get your own expert to review their CPA’s report to point out weaknesses, places of attack, and errors, and let your CPA suggest questions for cross-examination Ascertain how many times they have testified to show they don’t have enough experience or that they have so much experience testifying they 22 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. are always a hired gun 29. Ask how many times they have done tracing schedules / characterized property / valued a reimbursement claim What presumptions/theories the CPA used in the tracing/ characterization/ valuing a reimbursement claim Ascertain, if possible, the offsetting benefits of the reimbursement claim (or use your own CPA for that) Try to show their CPA did not allow for economic growth or mistakenly included it Delve into how much time, toil, and effort was used, and try to show it was necessary time, toil, and effort, that is not reimburseable, or that he/she did not take this type of necessary time, toil, and effort into consideration 30. 31. 32. 33. 34. On tracing, try to find a mistake and then show that the rest of the tracing is flawed Ascertain how much the CPA has been paid, and by whom (lawyer or client), the CPA’s hourly rates, whether the CPA charges different hourly rates for different functions 35. G. Characterization of Personal Injury and Workers Compensation Awards 1. Basic Information a. b. c. 2. Date of marriage Date of injury Date of settlement/judgment Applicable Standards a. b. Burden of Proof: On party claiming separate property character. Tarver v. Tarver, 394 S.W.2d 780 (Tex. 1965) Standard of Proof: Clear and convincing evidence. Texas Family Code Sec. 3.003(b) 23 3. Determination of Percent or Value of Total Recovery Allocated to Various Elements of Damages a. Medical expense i. Incurred during marriage (community - Osborn v. Osborn, 961 S.W.2d 408 (Tex. App. - Houston [1st Dist.] 1997, writ denied)) ii. b. Incurred outside of marriage (separate) Loss of earning capacity i. Occurring during marriage (community - Lewis v. Lewis, 944 S.W.2d 630 (Tex. 1997); Charter Oaks Fire Insurance Company v. Few, 456 S.W.2d 156 (Tex. Civ. App. - Tyler, 1970, reversed on other grounds 463 S.W.2d 424 (Tex. 1971)). ii. Occurring before or after marriage (separate - Lewis v. Lewis, 944 S.W.2d 630 (Tex. 1997); General Insurance Company of America v. Casper, 426 S.W.2d 606 (Tex. Civ. App. - Tyler 1968, writ ref’d. n.r.e. ); Hicks v. Hicks, 546 S.W.2d 71 (Tex. Civ. App. - Dallas 1977, no writ)). Loss of future earning capacity (separate - Osborn v. Osborn, 961 S.W.2d 408 (Tex. App. - Houston [1st Dist.] 1997, writ denied)). Pain and suffering (separate - Osborn v. Osborn, 961 S.W.2d408(Tex.App.-Houston [1st Dist.]1997,writ denied)) Disfigurement (separate - Osborn v. Osborn, 961 S.W.2d 408 (Tex. App.- Houston [1 1st Dist.] 1997, writ denied)). Loss of consortium (separate - Osborn v. Osborn, 961 S.W.2d 408 (Tex. App.- Houston [1st Dist.] 1997, writ denied); Whittlesey v. Miller, 572 S.W.2d 665 (Tex. 1978)). Wrongful death - (separate - Johnson v. Holly Farms 24 iii. iv. v. vi. vii. of Texas, Inc., 731 S.W.2d 641 (Tex. App.- Amarillo 1987, no writ)). viii. Unable to determine (community - Kyles v. Kyles, 832 S.W.2d 194 (Tex. App.- Beaumont 1992, no writ)). 4. Sources of Documentary Evidence a. b. c. d. e. f. g. h. i. j. k. Correspondence between parties Pleadings Written discovery Depositions Medical and psychological records Expert materials Briefs Answers to jury questions Judgment Settlement agreements Release 5. Testimonial Proof a. Testimony of claimant - Osborn v. Osborn, 961 S.W.2d 408 (Tex. App. - Houston [1st Dist.] 1997, writ denied) disapproved as speculative in dicta. b. Testimony of attorney for claimant? c. Testimony of representatives of defendant? d. See Slaton v. Slaton, 987 S.W.2d 180 (Tex. App. - Houston [14th Dist.] 1999, no writ) court found wife proved separate property portion of personal injury settlement by clear and convincing evidence III INCEPTION OF TITLE TO PROPERTY A. INTRODUCTION One might think that after over 150 years of case law and many legislative sessions, there couldn't possibly be any unresolved issues in Texas marital property rights. Surprisingly, this isn't true. To be fair, some problems involve contemporary types of property not frequently encountered until recently, such as stock options. Other types of unresolved problems, such as commingled accounts, have been around for quite some time. B. INCEPTION OF TITLE - BACK TO BASICS 25 1. How Is Characterization Determined? The character of property as separate or community must be established by facts that existed at the inception of title. Lee v. Lee, 112 Tex. 392, 247 S.W. 828 (1923); Bell v. Bell, 593 S.W. 2d 424 (Tex. Civ. App.- Houston [14th Dist.] 1980). When Does Inception of Title Occur? “Inception of title” occurs when a party first has a right of claim to property by virtue of which title is finally vested. Welder v. Lambert, 91 Tex. 510, 22 S.W. 281, 284-86 (1896). Henry S. Miller Co. v. Evans, 452 S.W. 2d 426, 430 (Tex.1970). Roach v. Roach, 672 S.W.2d 524 (Tex. App.-Amarillo 1984); Saldana v. Saldana, 791 S.W.2d 316 (Tex. App. - Corpus Christi 1990) citing Strong v. Garrett, 148 Tex. 265, 224 S.W.2d 471 (1949). 2. C. WHAT IS THE DATE OF ACQUISITION? In determining whether the property is separate or community, the important thing to ascertain is the date of acquisition of the right, rather than the date of acquiring the possession. Fuhrman v. Fuhrman, 302 S.W.2d 205 (Tex. Civ. App. - El Paso 1957, writ dism’d w.o.j.). For example, where husband’s right to purchase school lands, which he had contracted to buy before marriage, was forfeited during marriage for failure to make required payments, the exercise by husband of the right to repurchase at reappraised value, accorded by statute, was not inception of title. Inception of title was when the contract was initially signed prior to marriage, and land remained separate property. McRae v. McRae, 144 S.W.2d 320 (Tex. Civ. App. 1940, writ ref’d). D. WHEN IS PROPERTY ACQUIRED? Property is deemed to be “acquired” as of the time the ownership thereof or the claim thereto had its inception. Boyd v. Orr, 170 S.W.2d 829 (Tex. Civ. App. 1943, writ ref’d w.o.m.). Whether the claim of right or title to property is to be regarded as origin or inception and therefore, acquisition of property for purpose of determining its character as separate or community, is not to be determined by whether the claim was, when it was first asserted, legally enforceable. What is important is this: was the claim to right or title asserted in good faith; was it pursued and persisted in until right or title ripened; that is, was ripening of title, in law and in fact, referable to claim. Wrightsman v. Commissioner, 111 F.2d 227 (5th Cir. 1949). The term “acquired” refers to the 26 origin or inception of the right or title to property, rather than to the completion or ripening of the right or title thereto. Wrightsman, supra. E. LEGAL TITLE AND EQUITABLE TITLE If a spouse holds legal title to community property, the title in the other spouse is equitable. Mitchell v. Schofield, 106 Tex. 512, 171 S.W. 1121 (1915). F. LEGAL AND EQUITABLE TITLE ARE OF EQUAL DIGNITY The interest of a spouse in the community estate is a vested property right. Under the community property system, the spouse is an equal owner, along with other spouse, in all the community property. In other words, their rights, title and interests are of equal dignity. Leyva v. Rodriguez, 195 S.W.2d 704 (Tex. Civ. App. 1946, writ ref’d n.r.e.). G. COMMUNITY PROPERTY RIGHTS IN TITLE As a broad general rule, community rights may attach to any title that is cognizable by law, regardless of whether the title is legal or equitable. For example, such rights may arise in a: 1. 2. leasehold. Lawson v. Barre, 6 Tex. 217 (1851); life estate, remainder, or reversion. Crenshaw v. Harris, 16 Tex. Civ. App. 263, 41 S.W. 391 (1897); fee simple. Lawson v. Barre, supra. 3. H. RIGHTS ARE SAME IN PERFECTED OR INCHOATE TITLE Community rights may exist in any thing or right that may be regarded as property, regardless of whether the right has become perfected or is still merely inchoate. Cannon v. Murphy, 31 Tex. 405 (1868); Lovell v. Lovell, 202 S.W.2d 291 (Tex. Civ. App.--1947, no writ). I. CORPORATE STOCK APPRECIATION As it appreciates, corporate stock remains the separate property of the owner 27 spouse, although the community is entitled to reimbursement for the reasonable value of the time and effort of both or either spouse which contributes to the value of the stock. Jensen v. Jensen, 665 S.W.2d 107 (Tex.1984). An increase in the value of stock from corporate earnings is not regarded as community property, but is deemed to be the separate property of the spouse owning the stock. Johnson v. First Nat. Bank, 306 S.W.2d 927 (Tex.Civ.App.Fort Worth 1957). J. INCEPTION OF TITLE DOES NOT APPLY TO RETIREMENT OR PENSION BENEFITS A spouse has a community property interest in that portion of the retirement benefits of the other spouse which were earned during marriage. Allard v. Frech, 754 S.W.2d 111 (Tex. 1988) cert den. 488 U.S. 1006, 102 L.Ed. 2d 779, 109 S.Ct. 788. The inception of title doctrine does not apply in the case of retirement or pension benefits. Dewey v. Dewey, 745 S.W.2d 514 (Tex.App. - Corpus Christi 1988, writ den’d). K. PROBLEMS WITH PENSION PLANS 1. Defined Benefit Plans. a. Benefits Paid Pursuant to Formula. Defined benefit pension rights, still the most common type of pension right, are pension benefits paid pursuant to a formula adopted by the particular employer to compute pension rights. Specific formulas vary greatly, but they all consider the amount of the last salary of the employee, as well as the employee's aggregate period of service. An example of a defined benefit formula is: Pension Benefit=.02 x years of service x last monthly salary So, if the employee worked for 30 years before retiring, the employee would receive a monthly benefit amounting to 60% of the last salary amount. b. No Separate Account For Each Employer. Divorce lawyers need to note a few things about a defined benefit plan. First, 28 there is no separate account for each employee. The employer merely maintains one account for all employees, and the employer deposits whatever amounts are actuarially needed to fund the future benefit liabilities. So, one cannot call the benefits office and ask what is the current balance in the employee's account (as you could if the employee had a defined contribution benefit). The division of pension rights would present few problems at divorce if clients would agree to be married to one spouse throughout their career and then divorce after retirement. (It would be 100% community property.) Few clients are now so accommodating. The client is married for only a portion of her career. What should happen? Divorce courts need to find ways to divide the pension into the portion earned during marriage and that earned at other times. How might this be done? c. Difficulty in Computing Present Value. One could attempt to compute a present value of the pension rights as of the date of divorce, but this is very complicated. A number of decisions need to be made before this can be done. For example, if the employee is working at divorce, one needs to decide, for purposes of the computation, the employee's retirement age. (A mandatory retirement age is now illegal in almost all instances.) Many other choices need to be made, such as what salary figure to use in the present value calculation and what interest rate and discount rate. See J. T. Oldham, Divorce, Separation and the Distribution of Property, §7.10[6]. This is a very complicated calculation, and courts therefore seek other ways to value the employee's pension rights. The Taggart Pro Rata Deferred Payment Approach. The most common way to divide pension rights is the pro rata deferred payment approach. See Oldham, supra, §7.10[5]. Under this view, each month of service is assumed to be equal in value to any other month. The pension right is perceived to be being earned throughout the whole career. So, to determine the community claim (under the basic pre-Berry approach) one only needs to know what portion of the career the employee was married (the “coverture fraction”). This percentage is the community claim to the benefit received at retirement. So, under the basic approach announced by the court in Cearley v. Cearley, 544 S.W.2d 661 (Tex. 1976) and Taggart v. Taggart, 29 d. 552 S.W.2d 422 (Tex. 1977), the community claim could be expressed in this way: [number of months worked while married] ------------------------------------------------------------- x actual pension [number. of months worked during total career] The community share is not received until the employee retires, and the community share is calculated from the actual benefit received. (This basic pro rata calculation based on time is used, unless you can convince a court that pension rights were not earned based on time. For example, courts in a number of states have held that, for military benefits based on "points," the community claim should be calculated based on the percentage of points earned during marriage. See Marriage of Poppe, 97 Cal. App.3d 1 (1979); Bloomer v. Bloomer, 927 S.W.2d 118 (Tex. App. -- Houston [1st Dist.] 1996, no writ).) e. Taggart Approach Changed By Berry Hypothetical Retirement Approach. This basic Taggart rule regarding the pro rata deferred payment approach was changed by Berry v. Berry, 647 S.W.2d 945 (Tex. 1983). This case involved an employee who was working at divorce and had defined benefit pension rights. He was married during the first part of his career. The initial decree was silent regarding pension rights; the case arose as a post-divorce partition action filed when the employee retired. The court of appeals applied the basic pro rata deferred payment formula outlined above. The Supreme Court reversed: i. The Supreme Court concluded that the application of the pro rata deferred sharing approach was inappropriate in this case. The court was concerned that things happened after divorce that made the rights more valuable, and the non-employee should not be able to share in these increases in value. A few things happened after divorce 30 in Berry to increase the value of the benefits. First, the defined benefit formula was changed in a way that increased the benefit amount. Also, Mr. Berry received at least 12 pay raises. (It is unclear whether he was promoted.) The court concluded that these later years of employment were therefore more valuable than earlier years. ii. The Supreme Court affirmed the method used by the trial court to determine the community claim to the employee's pension rights in this situation. The trial court found that Mr. Berry would have received $221 if he had retired on the date of the divorce. So, since Mr. Berry had been married throughout his career until the date of divorce, the community claim was to $221 per month. Mrs. Berry received 50% of this amount (post-divorce partitions at that time required a 50-50 split of undivided community property). The court does not elaborate on how the $221 calculation was made. First, Mr. Berry did not have the right to retire on the date of divorce, as will be the case of many divorcing parties. How did the trial court make its calculation? The employee benefits manager of Mr. Berry's employer testified that, if Mr. Berry had been eligible to retire, he would have received $221. What does this mean? Apparently that the benefits manager employed the defined benefit formula in effect at the time of divorce and used Mr. Berry's salary and length of service at the time. If the employee could retire at the time of divorce but would receive an early retirement penalty for doing so, should that deduction be made? The Berry court concluded that the community claim to the pension as of the date of divorce (1966) was $221, and that Mrs. Berry's claim was to $110. The case was decided in 1983, when Mr. Berry has actually retired; what should Mrs. Berry now receive? Should the $110 awarded Mrs. Berry be adjusted for inflation in some manner? The court then proceeded to make a statement that should be included in any collection of the most unfortunate utterances by the Supreme Court of Texas. The court stated that "we reject the concept of inflation as 31 iii. iv. a factor for our consideration as it relates to the current value of retirement benefits." So, Mrs. Berry gets $110 per month. v. An excellent critique of Berry can be found in Comment, 37 Baylor L. Rev. 106 (1985). A number of courts have expressed concern that, for purposes of pension valuation, later years of employment can be more valuable than earlier years, so in a divorce involving a spouse who has not yet retired the court should value the marital claim to a pension by calculating a hypothetical retirement benefit earned as of the date of divorce. See Shill v. Shill, 765 P.2d 140 (Idaho 1988); Marriage of Oler, 451 N.W.2d 9 (Iowa App. 1989); Koelsch v. Koelsch, 713 P.2d 1234 (Ariz. 1986). vi. f. Berry Approach Modified By Grier Inflation Factor Approach. Happily, the Texas Supreme Court has quietly overruled the unfortunate statement about inflation not being factor for determining the current value of pension benefits. In Grier v. Grier, 731 S.W.2d 931 (Tex. 1987), the court stated that, when a working employee is divorcing, after calculating the value of the community claim as of the date of divorce (a la Berry) the nonemployee should share in "increases which may occur other than increases attributable to [promotion] or services rendered by the . . . spouse after the date of divorce." Surprisingly, there has been little appellate guidance about what this statement in Grier means. How can lawyers and judges distinguish between pension benefits earned after divorce due to post-divorce efforts and other pension benefits? One way to do this would be to apply some cost of living adjustment to the benefit amount from the date of divorce until the non-employee begins to receive it. g. Other States Review of Post Divorce Increases. A few other community property states that have been concerned about the issues raised in Berry deal with this problem in other ways. For example, in Louisiana, courts generally continue to use aTaggart 32 approach to determine the community claim to pension rights (that is, consider all years of employment and calculate the community claim from the actual pension benefit). However, the employee is given the right to show that some increase in pension benefits was due to post-divorce promotions; If the employee can make such a showing, the community should not share in these increases. See Hare v. Hodgins, 586 So.2d 118 (La. 1991); Croft v. Croft, 634 So.2d 76 (La. App. 1994). See also, Petschel v. Petschel, 406 N.W.2d 604 (Minn. App. 1987). Some courts have distinguished between "usual" promotions and other types of promotions, for determining what increases are excluded. See Croft, supra; Gemma v. Gemma, 778 P.2d 429 (Nev. 1989). h. Does Texas Follow The Louisiana Approach? It is unclear whether a Texas court can now, after Berry/Grier, follow the Louisiana approach. In Phillips v. Parish, 814 S.W.2d 501 (Tex. App. -- Houston [1st Dist.] 1991, writ den.) the court considered a post-divorce partition action much like Berry. The parties married before the employee began working, and divorced before retirement. In the partition action (filed after the employee had retired), the trial court found that the hypothetical retirement benefit earned as of the date of divorce was $449 per month. In the partition action, the employee argued that this was the maximum community claim. The appellate court rejected this argument, and affirmed the award to the non-employee of 30% of the actual monthly benefit of $1340. Phillips appears to construe Grier as now permitting the Louisiana approach when an employee divorces before retirement. (The appellate court noted that, in its view, "none of the post-divorce increases [in the pension benefit] were attributable to the husband's post-divorce continued employment." Id. at 505.) 2. Defined Contribution Plans. a. Separate Account for Each Employee. The other type of pension benefit is a defined contribution plan. Examples include profitsharing plans, for example. In these plans, there is a separate account for each employee. The retirement benefit received is the annuity that can be purchased with the aggregate balance at 33 the date of retirement. b. Defined Benefit Approach vs. Contribution Computation Approach. A present value computation is fairly simple for a defined contribution plan. If the plan is fully vested, the present value is the accrued account balance. The somewhat more complicated aspect of defined contribution accounts is the calculation of the community share if the parties married after the employee began accruing rights in the plan. One approach, of course, is a pro rata approach based on time. In other words, if the employee has been married for half the total time she has been accruing benefits under the plan, the present value would be 50% community property. A few courts have done this. See Alford v. Alford, 653 So.2d 133 (La. App. 1995). However, most courts, including recent Texas cases, have tried a different approach. In Marriage of Joiner, 755 S.W.2d 496 (Tex. App. -- Amarillo 1988, no writ), the court considered a profit sharing plan the employee had been accruing rights in before marriage. The court concluded that the employee had a separate property claim to 20% of the account balance at divorce, because the account was 20% vested at the time of marriage. It would seem that, after Cearley v. Cearley, 544 S.W.2d 661 (Tex. 1976) this approach would be suspect. Three other recent cases have involved defined contribution plans. See Iglinski v. Iglinsky, 735 S.W.2d 536 (Tex. App. -Tyler 1987, no writ); Pelzig v. Berkebile, 931 S.W.2d 398 (Tex. App. -- Corpus Christi 1996, no writ); Hatteberg v. Hatteberg, 933 S.W.2d 522 (Tex. App. -- Houston [1st Dist.] 1994, no writ). In all these cases, the trial courts applied the Taggart pro rata allocation approach based on time, and the courts of appeal reversed in each case. The courts of appeal emphasized that defined contribution accounts are different from defined benefit accounts and a different approach should be used to determine the community share. In each case, the appellate court merely subtracted the balance at the time of divorce form the account balance at the time of marriage; the difference was the community claim. 34 c. Allocation Based Upon Contributions? These cases may not resolve all issues arising under defined contribution accounts, however. The issue in these cases seemed to be seen as whether to apply Taggart to defined contribution plans, and these three courts answered no. Even if one accepts that a pro rata allocation based on time should not be applied, a number of questions remain that were not clearly answered in these cases. If an allocation should not be made based on time, what about an allocation based on the relative amount of contributions during and before marriage? Some courts have used this type of approach for defined contribution accounts. See Marriage of Daniele, 854 S.W.2d 489 (Mo. App. 1993). (One might make an analogy to the way that military retirement benefits based on total points have been divided. See Bloomer, supra.) “Natural Enhancement” of Stock Approach. Even if one accepts the general principle that the separate property claim should be derived from the balance at the time of marriage, other issues remain. First, if some or all of the account was invested in stock that appreciated during marriage, should this "natural enhancement" of the stock be credited to the separate estate? (Presumably this amount could be relatively simply calculated if the employee had invested the funds in a mutual fund that in its reports distinguishes between capital gains and income.) See White v. White, 521 N.W.2d 874 (Minn. App. 1994) (yes); Getter v. Getter, 627 N.E.2d 1043 (Ohio App. 1993) (yes). d. e. Increases Due to Income Accruing on Corpus. Of course, the account balance could also appreciate due to income accruing on the corpus. How should this income be characterized? Of course, income on separate property is community property in Texas. However, is this income accruing to the spouse? The income is accruing for the benefit of the spouse, but the fund may not be withdrawn until the employee retires or dies. See Iglinsky. Interest accruing on a trust of which a spouse is the beneficiary is not community property unless the spouse had the absolute right to withdraw the corpus and chose not to. See Long v. Long, 542 S.W.2d 712 (Tex. Civ. App. -- Texarkana 1976, no writ); Lemke v. Lemke, 929 S.W.2d 662 (Tex. App. -- Ft. Worth 1996, writ den.). Is a defined contribution account like a trust? 35 f. Other States Treatment of Increases Due to Income. In states where income from separate property is separate, of course, this issue does not arise. Courts in other states have disagreed about the answer to this question. See Oldham, supra, §7.10[5][b]. Idaho, a community property state where income from separate property is community, has concluded that income accruing during marriage on a defined contribution account is community. See Maslen v. Maslen, 822 P.2d 982 (Idaho 1991). In contrast, in Minnesota, another state where income from separate property is divisible at divorce, a court has reached the opposite conclusion regarding the character of income accruing during marriage on premarital contributions to a defined contribution account. See White, supra. The court suggested that the separate claim would be calculated by determining what the balance in the account would have been as of the date of divorce if no contributions into the account had been made during marriage. 3. Miscellaneous Pension Issues. a. Maximum Pension Right Approach. Many pension rights have peculiar characteristics that may affect how a pension right might be characterized. For example, under some plans an employee earns a maximum pension right after a certain number of years of service. In Marriage of Henkle, 234 Cal. Rptr. 351 (Cal. App. 1987) the employee was retired when the couple divorced. The couple was married for the last 6 of the 32 years the employee worked for the employer. The non-employee argued that the community claim to these defined benefit rights should be calculated pursuant to the Taggart fraction, or 6/32 of the benefits. The employee successfully argued that, because the maximum benefit was earned after 30 years of work, the last two years of work should be ignored for purposes of the Taggart fraction; the community claim was to 4/30 of the benefit. Under Cearley/Taggart, the court assumes that each month of employment is worth the same as any other month. Can this assumption ever be rebutted (other than by a Berry argument)? It was mentioned above that, if you can convince a court that time is not a fair way to allocate the community interest in the benefits, the court might use another way. See Bloomer, supra. Also, the court might use the pro rata approach, but may give certain 36 periods more weight. For example, this has been done with "back-loaded" plans. See Shill v. Shill, 765 P.2d 140 (Idaho 1988); Sims v. Sims, 358 So.2d 919 (La. 1978). b. Additional Pension Rights After Promotion. Executives sometimes qualify for additional pension rights after a promotion. If an employee marries late in her career and receives such a promotion during marriage, should the pension be 100% community, or considered earned throughout the career? In Hudson v. Hudson, 763 S.W.2d 603 (Tex. App. -- Houston [14th Dist.] 1989, no writ), the court determined that the pension would be 100% community, although the point does not appear to have been contested. Early Retirement Incentive Payments. An increasing number of employees are given early retirement incentive payments. If an employee marries late in her career and then divorces shortly after receiving such a payment, how should the payment be characterized? This arose in Whorrall v. Whorrall, 691 S.W.2d 32 (Tex. App.-- Austin, no writ). The court determined that the incentive payment should not be characterized like the other portion of the employee's regular defined benefit pension rights. The court characterized the right as 100% community property, but did not consider the question of whether a portion of the payment should be treated as lost post-divorce wages of the employee. See also, Marsh v. Wallace, 924 S.W.2d 423 (Tex. App. -- Austin 1996) (distinguishing between involuntary and voluntary military severance benefits). In other cases, some courts have treated early retirement incentives received after the cut-off date as the employee's separate property (see Mechana v. Lambert, 635 So.2d 747 (La. App. 1994); Boger v. Boger, 405 S.E.2d 591 (N.C.App. 1991); Marriage of Frahm, 53 Cal. Rptr.2d 31 (Cal. App. 1996)) and others have not (see Marriage of Gram, 30 Cal. Rptr.2d 792 (Cal. App. 1994); Olivo v. Olivo, 624 N.E.2d 151 (N.Y. 1993)). Regarding a post-divorce early retirement incentive involving defined benefit pension plan rights, a Texas court would have to decide whether Berry/Grier still require the community claim to be computed based on a fixed hypothetical early retirement benefit earned as of the date of divorce. If this is still the Texas rule, the non-employee spouse fairly clearly could not share in 37 c. post-divorce early retirement incentives. If the community could share in such increases, how would the calculation be made? See Gram, supra (calculating the coverture fraction as if the employee had not taken early retirement). d. Deferred Accrual of Benefits. At times an employee must work for an employer for a certain specified period before the employee begins to accrue benefits. See Joiner, supra. For purposes of the Taggart formula, should these years of work before benefits begin to accrue be counted? In Holbrook v. Holbrook, 309 N.W.2d 343, 348 n.18 (Wis. 1981) the court ignored these years for purposes of the coverture fraction. Non-Employee Option on Deferred Payment Approach. When should the non-employee begin to share when defined benefit rights are divided under the deferred payment approach? Texas courts have not considered this question. Under the traditional Cearley/Taggart deferred payment approach, the non-employee did not begin to share until the employee retired (the coverture fraction is computed as of that date, and the community claim is computed based on actual retirement benefit). Some courts have concluded that the non-employee should be given the option to begin to receive the benefits on the date the employee first has the right to retire. See Marriage of Gillmore, 629 P.2d 1 (Cal. 1981). Under this approach, if the non-employee chooses to receive the benefits early, the coverture fraction would be computed as of the date of first receipt (based on the hypothetical retirement benefit the employee would have received had retirement occurred on that date). The Retirement Equity Act permits (but does not require) such a right. Of course, the Texas approach may be different, if Texas would accept this view. It was discussed above that it is a bit unclear whether Berry/Grier now require, for calculating the value of the community portion of the pension benefit of a working employee, the use of the hypothetical pension benefit the employee had earned as of the date of divorce. If this is still required, after Grier, the benefit would be computed in that manner, not the manner the court did it in Gillmore. Some courts have endorsed this California approach (see Koelsch v. Koelsch, 713 P.2d 1234 (Ariz. 1986); Halverson v. 38 e. Halverson, 589 So.2d 1153 (La. App. 1991); Ruggles v. Ruggles, 860 P.2d 182 (N.M. 1993); Gemma v. Gemma, 778 P.2d 429 (Nev. 1989)). Others have disagreed. See Board of Trustees v. Gramman, 578 N.E.2d 371 (Ind. App. 1991); Marriage of Oler, 451 N.W.2d 9 (Iowa App. 1989); VA. CODE ANN. §20-107.3[6]. f. Waiver of Rights in Marital Agreements. Can rights to a qualified private pension plan be waived in a premarital agreement? Courts have reached conflicting conclusions. CompareMarriage of Rahn, 914 P.2d 463 (Colo. App. 1995) (yes) with Richards v Richards, 648 N.Y.S.2d 589 (N.Y. App. Div. 1996) (no). IV CHECKLISTS, PREDICATES AND PRESENTATION OF PROOF IN PROPERTY CASES A. INTRODUCTION. This section covers checklists, predicates and presentation of proof in property cases. Library references used in preparation of this article are “Valuing Valuation” presented by the Houston Family Law Inns of Court on November 20, 1997; and “Family Law,” authored by AAML Fellow, Brian Webb and published by Knowles Law Book Publishing, Inc., P. O. Box 91104, Fort Worth, Texas 76111, phone 800-299-0202; and “Predicates - Documentary and Demonstrative Evidence” by Howard Nations, State Bar of Texas - Ultimate Trial Notebook (1994). B. CHECKLISTS 1. MARSHALING DATA. Marshalling data on property should, if possible, take place in the initial client interview. Property cases are document intensive and early collection of documents is essential to a proper presentation of property issues to the finder of fact. a. Potential Parties. Parties to property cases are not limited to husband and wife because of the problem lack of jurisdiction over non-parties for the enforcement of orders and judgments. Consider the following potential parties based upon the issues created in the case, to 39 wit: (1) (2) (3) (4) (5) (6) (7) b. husband wife partner partnership corporation trustee conspirator Potential Witnesses. Potential witnesses in property issue cases run the gamit of trades, businesses, occupations and professions and generally fall into the following categories: (1) (2) (3) (4) (5) (6) (7) (8) (9) husband wife partner corporate officer trustee / receiver accountant / auditor attorney family member appraiser (A) (B) real property personal property 40 (C) c. business Potential Documents. Potential documents in property cases include not only documentary evidence but dimonstrative evidence; and not only documents evidencing title but also documents referring to property; to wit: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) 401K plans Agency agreements Airplane titles Annuities Appraisals Artwork provenances Audio recordings Balance sheets Banking records Bills of sale Boat titles Bonds Brokerage account records Certificate of title Charge account records Choses in action Corporate tax returns 41 (18) (19) (20) (21) (22) (23) (24) (25) (26) (27) (28) (29) (30) (31) (32) (33) (34) (35) (36) (37) (38) (39) Credit reports Deeds Deeds of trust Defined benefit plans Defined contribution plans Disability plans Employment agreements Fiduciary tax returns Financial statements Financing statements Gambling debts Incentive plans Income tax returns Independent contractor agreements Individual retirement accounts Insurance policies Insurance schedules of property Joint venture agreements Judgments KEOGH plans Lease agreements Livestock titles 42 (40) (41) (42) (43) (44) (A) (B) (C) (45) (46) (47) (48) (49) (50) (51) (52) (53) (54) (55) (56) (57) (58) Loan receivables Mortgages Motor vehicle titles Non-compete agreements Oil and gas agreements division orders royalty agreements working interest agreements Partition agreements Partnership agreements Partnership tax returns Passport records Photographs Post-marital agreements Pre-marital agreements Probate records Professional association agreements Profit and loss statements Profit sharing plans Promissory notes Recreational vehicle titles Safe deposit box records 43 (59) (60) (61) (62) (63) (64) (65) (66) (67) (68) (69) (A) (B) (C) (D) (70) (71) (72) (73) 2. DATA SOURCES . Savings plans Securities Security agreements Severance agreements Social security benefits Spousal maintenance agreements Stock options Stocks Supervorship agreement Tenancy agreement Tax reports Franchise Quarterly declaration Sales Unemployment compensation Trust agreements Trusts Wills Workers’ compensation benefits There are numerous sources of data, to wit: a. Banks 44 b. c. d. e. f. g. h. i. j. k. l. m. n. o. Brokerage firms Corporations Deed records IRS Insurance companies Internet Judgment records Livestock association NASDAC Plan administrations Property records SEC Social Security Administration Trust companies C. PREDICATES Various general predicates are required in the proof of property issues as distinguished from elements of proof on certain kinds of property such as businesses, real estate, jewelry and the like. 1. GENERAL PREDICATES . a. Blackboards / Sketchpads. i. Admission (a). the blackboard / sketchpad drawing depicts a 45 certain area, object or notation. (b). the witness is familiar with that area, object or notation and explains the basis for his or her familiarity. in the witness’ opinion the blackboard / sketchpad drawing is an accurate depiction of that area, object or notation. (c). ii. Exclusion (a). the probative value of the blackboard / sketchpad illustration is outweighed by its prejudicial effect; the probative value of the blackboard / sketchpad is outweighed by danger of confusion of the issues or misleading the trier of fact; or the probative value of the blackboard / sketchpad is outweighed by danger that the blackboard / sketchpad will cause undue delay, waste of time, or needless presentation of cumulative evidence. FED. R. CIV. P. 403. (b). (c). iii. Commentary Mid-Texas Development Co. v. McJunkin, 369 S.W.2d 788 (Tex. Civ. App. - Dallas 1963, no writ) [“use of blackboard, not only in jury argument, but to help illustrate and make more meaningful the testimony of a witness is clearly permissible in Texas”]. Ordinarily, the permission or refusal of the use of a blackboard / sketchpad during counsel’s argument is a matter within the sound discretion of the trial court. Haycock v. Christie, 249 F.2d 501, 101 App.D.C. 409 (1957). b. Business Records i. Admission (a). witness is the or other person with knowledge of 46 the business filing system. (b). the record was made in the ordinary course of business. the record was made at or near the time of the event in question. (i). in the regular course of business, a person with knowledge made the record or was furnished with information for the record. it was the regular practice of that business activity to make such a record. FE D. R. CIV. EVID. 803(6). (c). (ii). ii. Exclusion (a). Absence of proper sponsor. The Federal Rules of Evidence do not contain a provision for selfauthentication of business records. Some state rules will waive extrensic evidence as a condition precedent when business records are accompanied by an affidavit. Records contain hearsay testimony. Where proper predicate is not shown for admissibility of sources, which are offers to prove the acts, events, or conditions recorded in the original business records that the exhibits perrport to summarize, the records are objectionable as hearsay. Predicate not fully developed - all elements must be proven for predicate to be complete. The underlying preparation of the records lacks trustworthiness. Factors to consider include: (i). (ii). (iii). 47 habits of precision of recordkeeping whether others rely on the records whether a duty exists to record accurately (b). (c). (d). (iv). whether improper motivation for making the records existed. iii. Commentary (a). the source of information or the method or circumstances of preparation must not indicate a lack of trust worthiness. the burden is on the party against whom the evidence is offered to show lack of trustworthiness. the custodian’s personal knowledge of the particular items or events that are the contents of the particular record is not required. this rule does not require that the records be prepared by the business which has custody of them. Tex. R. Evid. 803 (6) (b). (c). (d). (e). c. Motion Pictures. i. Admission. (a). the operator was qualified to take a motion picture film. the operator used certain equipment in good working order to film the activity. the operator used proper procedures to film the activity. the operator accoutns for the custody of the film and the developed movie. the developed movie was a good reproduction of the activity. (b). (c). (d). (e). 48 ii. Exclusion (a). the probative value of the motion picture is outweighed by its prejudicial effect; or the probative value of the motion picture is outweighed by danger that the motion picture will cause confusion of the issues or will mislead the jury; or the probative value of the motion picture is outweighed by danger that the motion picture will cause undue delay, or needless presentation of cummulative evidence. F ED. R. CIV. EVID. 403. (b). (c). iii. Commentary (a). motion pictures, whether in color or black and white and whether with or without sound, are admissible and are said to be treated the same as pictures and x-rays. however, the predicate for motion pictures is more akin to x-rays than still photographs because the competency of the operator and machine must be established. some trial attorneys prefer to present very detailed testimony about the equipment, especially the lens used and such technical matters as the speed of the film and the lens aperture. A general description of the equipment is sufficient. Tex. R. Evid. 901. (b). (c). (d). d. Photographs i. Admission. The fundamental elements are as follows: (a). witness is familiar with the object, scene, etc. that is depicted in the photograph and explains the 49 basis for his familiarity. (b). witness recognizes the object, scene, etc. that is depicted and testifies that the photograph is a “fair,” “accurate,” true,” or “good” depiction of what it purports to be at the relevant time. the predicate is laid by “yes” answers to these questions where conditions have not been materially changed between the time of the events in question and the time of the photographs. if the photograph is taken long after the events in question, a further precedent may be necessary in showing either: (i). that there has been no substantial change over time, or explaining and identifying the changes. (c). (d). (ii). (e). the differences must be identified and the testimony must identify the parts of the photographs which are irrelevant to the case. Remoteness in time alone, without changed conditions, does not affect admissibility. ii. Exclusion (a). the probative value of the photograph is outweighed by its prejudicial effect: or the probative value of the photograph is outweighed by danger that the photograph will cause confusion of the issues or will mislead the jury; or the probative value of the photograph is outweighed by danger that the photograph will cause undue delay, or needless presentation of cumulative evidence. F ED. R. CIV. EVID. 403. if a photograph is merely calculated to arouse 50 (b). (c). (d). passion or create prejudice, it should be excluded. (In condemnation case, posed photograph showing carcasses of dead animals resulting from a pipeline rupture had little relevance or probative force and were properly inadmissible). iii. Commentary (a). the foundation witness, in addition to testimony regarding accuracy, must state what the photograph depicts. Conflicts as to the photograph’s accuracy in showing what is stated do not render the photograph inadmissible because correctness becomes a jury question. long delays simply go to the weight, not the admissibility of the photograph if the changes are fairly explained. photographs of a “substantially similar” object, scene or condition are admissible if the differences are explained. the witness need not have been present not made the photograph. additional problems arise with posed photographs, i.e., where places and objects have been placed in position. If a photograph merely portrays people’s positions as determined from testimony, they may be admissible. This, of course, places them in the category of illustrations and most courts follow a restritive view of photographs which merely conform to the proponent’s witness testimony. Tex. R. Evid. 901. (b). (c). (d). (e). (f). e. Physical Evidence: Articles and Objects. i. Admission (a). the object has a unique characteristic. 51 (b). the witness observed the characteristic on a previous occasion and identifies the exhibit as the object. as best as he or she can tell, the object is in the same condition as it was when he or she initially observed the object. (c). ii. Chain of Custody (a). the foundation for chain of custody must be laid during the testimony of each link in the chain: the witness initially received the object at a certain time and place. the witness safeguarded the object; the witness testifies to circumstances making it unlikely that substitution or tampering occurred. the witness ultimately disposed of the object (retention, destruction, or transfer to another person). as best he or she can tell, the exhibit is the object he or she previously handled and is in the same condition as it was when he or she initially received it. (b). (c). (d). (e). iii. Exclusion (a). the probative value of the article or object is outweighed by its prejudicial effect; or the probative value of the article or object is outweighed by danger that the article or object will cause confusion of the issues or will mislead the jury; or the probative value of the article or object is outweighed by danger that the article or object will cause undue delay, or needless presentation of cumulative evidence. F ED. R. CIV. EVID. 403. 52 (b). (c). (d). the article or object is not in the same condition as it was when the witness initially received it and a chain of custody cannot be established and it is likely that substitution or tampering may have occurred. iv. Commentary (a). the trial court has considerable discretion regarding the degree to which “chain of custody” must be established. if there is not evidence that an object offered is either the same or in a state substantially similar to the condition it was in at the time of the event in question, then the predicate may include a “chain of custody” and a showing of lack of opportunity for abuse, changes, etc. when objects or articles can be brought into court and exhibited, it is more satisfactory than a mere description of them by witnesses that have inspected them outside of court. Hayes v. Gainesville St. Ry. Co., 8 S.W.2d 491 (Tex. 1888) [“when objects or articles can be brought into court and exhibited, it is more satisfactory than a mere description by witnesses that have inspected them outside of court.”]; Imperial Cas. & Indemn. Co. of Omaha, Neb. v. Terry, 451 S.W.2d 303 (Tex. Civ. App. - Tyler 1970, no writ). [“if there is not evidence that an object offered is the same or in a state substantially similar to the condition it was in at the time the event in question, then the predicate may include a ‘chain of custody’ and a showing of lack of opportunity for abuse, changes, etc.”]. (b). (c). (d). f. Summaries i. Admission (a). the proof(s) involve the contents of “voluminous writings, recordings, or photographs” which 53 “cannot collectively be examined in court.” (b). the originals, or duplicates, are made available to opposing counsel for examination at a reasonable time and place. the person who prepared the chart or summary should be available in court to testify or explain it. there should be a reasonable guarantee of the accuracy of any summaries or charts. (c). (d). ii. Exclusion (a). the summary is not an accurate representation of its underlying documents. the titles of the summaries should not themselves be either prejudicial or take an independent meaning. (b). iii. Commentary (a). under the Rule, the summaries themselves and not the underlying documents, be they in chart form or otherwise, are the evidence which the trier of fact may consider. Thus, so long as the summaries are based upon admissible documents which have been previously made available on reasonable terms, the underlying documents themselves need not be offered into evidence. counsel should disclose, not only underlying documents, but copies of all summaries/charts sufficiently in advance to either obtain stipulations regarding accuracy and admissibility or allow for a pretrial examination and rulings by the court. Lloyd v. United States, 226 F.2d 9 (5th Cir. 1955) (In tax litigation, the use of the terms “overstated,” “unreported” and “unpaid” in summary chart captions were questioned as conclusionary where the issue involved whether income or overstated, 54 (b). (c). unreported or unpaid). (d). the admissibility of summaries is a matter within the discretion of the court. Baires v. United States, 426 F.2d 833 (5th Cir. 1970). Tex. R. Evid. 1006. (e). g. Tape Recordings. i. admission (a). (b). the operator of the equipment was qualified. the operator recorded at a certain time and place using proper procedures and equipment in good working order. the tape is a good reproduction of the conversation. the speakers must be identified. the statements were made without inducement. establish chain of custody (operator accounts for the tape’s custody between the time of taping and the time of trial) and that no changes, additions, or deletions have been made. (c). (d). (e). (f). ii. Exclusion (a). the probative value of the tape recording is outweighed by its prejudicial effect; or the probative value of the tape recording is outweighed by danger that the tape recordings will cause confusion of the issues or will mislead the jury; or the probative value of the tape recording is outweighed by daner that the tape recording will cause undue delay, or needless presentation of 55 (b). (c). cumulative evidence. F ED. R. CIV. EVID. 403. iii. Commentary (a). the Texas Supreme Court has held that some of the elements may be inferred and need not be shown in detail. The court also held that specific objections are required to preserve error in improperly admitting recordings. Seymour v. R. L. Gillespie, 608 S.W.2d 897 (Tex. 1980). the rule of optional completeness applies to tape recordings introduced during trial. This rule provides that the adverse party may at any time introduce any other part or any other recorded statement which ought in fairness to be considered contemporaneously with it. FED. R. CIV. EVID. 106. Cummings v. Jess Edwards, Inc., 445 S.W.2d 767 (Tex. App. - Corpus Christi 1969, writ refused n.r.e.) (b). (c). h. Television Tapes. i. Admission (a). witness is familiar with the scene, etc. that is portrayed on the television tape. witness explains the basis for his familiarity. witness recognizes the scene, etc. that is portrayed on the television tape. witness testifies that the tape is a “fair,” “accurate,” “true,” or “good” portrayal of the persons, objects, devices, places, processes, etc. shown. (b). (c). (d). ii. Exclusion (a). the probative value of the television tape is outweighed by its prejudicial effect. FED. R. CIV. 56 EVID. 403. (b). the probative value of the television tape is outweighed by danger that the television tape will cause confusion of the issues or will mislead the jury; or (c). the probative value of the television tape is outweighed by danger that the television tape will cause undue delay, or needless presentation of cumulative evidence. F ED. R. CIV. EVID. 403. iii. Commentary (a). where an issue exists as to whether the tape was broadcast, and perhaps the extent of broadcast, it is necessary to present the testimony of a witness with knowledge as to these matters. Pritchard v. Downie, 326 F.2d 323, 326 (8th Cir. 1964). where the fact of broadcast is irrelevant to the proponent, (e.g., the tape is offered because it depicts a relevant scene) then authenticating testimony can be provided by any witness with knowledge as to fairness and accuracy of the depiction. Tex. R. Evid. 1001(b). (b). (c). iv. the above is all that is technically required to admit videotape. However, other predicates may be necessary (waivable by agreement) and one would be well served to be prepared to offer the following additional information should it be required by a Court: (a). (b). proof that the equipment operator was competent. the type and mechanics of the videotape equipment used and the nature of accessory, backup or other devices used in connection with the making of the tape. 57 (c). the type, specifications and sensitivity of the videotape used. in cases where the videotape is being used in a manner similar to a movie camera, such as when making a movie of a process or a machine in operation or the scene of an accident, there should be some proof regarding the type of lens used, any distortions or exaggerations produced by the type lens used, particularly if a wide-angle or telephoto lens is employed, and a full explanation of the techniques used. the type and amount of artificial lighting, if any, used for the making of the tape. differences, if any, between the scene, device or process shown in the videotape and the scene, device or procees as it was at the time of the events in question must be explained. Obviously, similarity is required, and any differences should be as minor as you can make them. a chain of custody will be a required element of proof in the absence of an agreement. Of course, in regard to depositions, the stenographic record would tend to prove the verity of the videotape. if moving devices, processes or tests are shown, the the speed of the videotape camera and playback equipment should be shown, to demonstrate that there is no material speeding up or slowing down of the process, without full explanation of the speed change. Slow motion or stop motion is okay, but needs to be explained and be relevant to the point to be made. any changes, editing, or deletions, if not done in pre-trial or by agreement, should be explained or the proof should show the absence of changes, editing or deletions. (d). (e). (f). (g). (h). (i). i. Videotapes. 58 i. Admission (a). witness is familiar with the scene, etc. that is portrayed on the videotape and explains the basis for his familiarity. witness recognizes the scene, etc. that is portrayed on the videotape and testifies that the videotape is a “fair,” “accurate,” “true,” or “good” portrayal of the persons, objects, devices, places, processes, etc. shown. (b). ii. the above is all that is technically required to admit videotape. However, other predicates may be necessary (waivable by agreement) and one would be well served to be prepared to offer the following additional information should it be required by a Court: (a). (b). proof that the equipment operator was competent. the type and mechanics of the videotape equipment used and the nature of accessory, backup or other devices used in connection with the making of the tape. the type, specifications and sensitivity of the videotape used. in cases where the videotape is being used in a manner similar to a movie camera, such as when making a movie of a process or a machine in operation or the scene of an accident, there should be some proof regarding the type of lens used, any distortions or exaggerations produced by the type lens used, particularly if a wide-angle or telephoto lens is employed, and a full explanation of the techniques used. the type and amount of artificial lighting, if any, used for the making of the tape. differences, if any, between the scene, device or process shown in the videotape and the scene, 59 (c). (d). (e). (f). device or process as it was at the time of the events in question must be explained. Obviously, similarity is required, and any differences should be as minor as you can make them. (g). a chain of custody will be a required element of proof in the absence of an agreement. Of course, in regard to depositions, the stenographic record would tend to prove the verity of the videotape. if moving devices, processes or tests are shown, then the speed of the videotape camera and playback equipment should be shown, to demonstrate that there is no material speeding up or slowing down of the process, without full explanation of the speed change. Slow motion or stop motion is okay, but need to be explained and be relevant to the point to be made. any changes, editing, or deletions, if not done in pre-trial or by agreement, should be explained or the proof should show the absence of changes, editing or deletions. (h). (i). iii. Exclusion (a). the probative value of the videotape is outweighed by its prejudicial effect; or the probative value of the videotape is outweighed by danger that the videotape will cause confusion of the issues or will mislead the jury; or the probative value of the videotape is outweighed by danger that the videotape will cause undue delay, or needless presentation of cumulative evidence. F ED. R. CIV. EVID. 403. (b). (c). iv. Commentary. (a). the term “videotape” is included within the term “photograph” in FED. R. CIV. EVID. 1001. Therefore, the predicate for admission is the 60 same. (b). in reard to videotaped depositions, “chain of custody” is not a necessary element to establish a foundation for admissibility as it is with other videotapes because the stenographic record tends to prove the verity of the videotape. Tex. R. Evid. 1001(b). (c). j. Views i. Admission The foundational elements are as follows: (a). witness who is familiar with the place or object the subject of the view and explains his familiarity. witness recognizes the place or object the subject of the view and testifies that the scene or object the subject of the view is a place or object in issue and is what it purports to be. the place or object the subject of the view must currently be in the same or substantially similar condition as it was at the time in issue. (b). (c). (d). ii. the view must be relevant to an issue in the case. Exclusion (a). the trial judge should control the ultimate decision of allowing or disallowing the view. The judge has broad discretion to allow or disallow the view even where all parties consent to the view. 2. VALUING VALUATION. The materials in Section V herein provide the sources for proof in the valuing of a business and for direct and cross examination of a business valuation expert. 61 D. PROPERTY. The following types of property may or may not be subject to division depending upon federal and state constitutions, statutes and case law, to wit: 1. REAL ESTATE a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. description type location value (equity / fair market value) liens income taxes expenses partition sale estate in years insurance receivership foreign realty* domestic realty PRACTICE NOTE: If a court has in personam jurisdiction of the parties, it has the power to require the parties to execute the deed to the property. Allis v. Allis, 378 F.2d 721, 725-726 (5th Cir.), cert. denied, 389 U.S. 953, 88 S.Ct. 337, 19 L.Ed. 363 (1967). 62 2. PERSONAL PROPERTY. Personal property is any property that is not real property and is unlimited in its categorization. Some common items of personalty encountered in divorces are: a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. p. q. r. s. Jewelry Personal effects Household furnishings Motor vehicles Boats Airplanes Cycles Checking accounts Savings accounts Accounts with financial institutions Certificates of deposit Money market funds Credit unions Stocks Bonds Life insurance IRA’s KEOGH accounts Retirement benefits 63 t. u. v. s. t. u. v. w. x. y. z. aa. bb. cc. dd. ee. ff. E. Safe deposit box contents Livestock Artwork / collections Trusts, estate, and custodial assets Sole proprietorships General partnerships Limited partnerships Joint ventures Closely held corporations Professional practice Goodwill in a professional practice Money judgments Life estates Workers compensation benefits Federal government benefits Degrees earned during marriage Membership in a voluntary association FACTORS CONSIDERED IN DIVIDING PROPERTY. 1. GENERAL. Except where otherwise provided by state constitution or statute the matrimonial court is given the equitable authority to divide the property in a manner that is just and right. The equity court has the broadcast discretion in executing that authority. Its discretionary division will be 64 overturned on appeal only upon a clear showing of abuse. Appellate courts generally indulge every reasonable presumption in favor of the trial court’s proper exercise of discretion because the trial court in a divorce case has the opportunity to observe the parties on the witness stand, determine their credibility, evaluate their needs and potentials, both social and economic. as the trier of fact, the court is empowered to use its legal knowledge and its human understanding and experience. Although many divorce cases have similarities, no two of them are exactly alike. Mathematical precision in dividing property in a divorce is usually not possible. 2. PARTICULAR FACTORS a. Future Need for Support The probable prospective need for support may be the most important factor. Carle v. Carle, 234 S.W.2d 1002 (Tex. 1950); Goren v. Goren, 531 S.W.2d 897 (Tex. App. - Houston [1 st. Dist.] 1975, writ dism’d). [the probable prospective need for support has been said to be the most important factor]; Pickett v. Pickett, 401 S.W.2d 846 (Tex. App. - Tyler 1966, no writ). b. Fault in the Breakup of the Marriage In states allowing fault as a consideration in dividing and awarding the party not at fault a greater percentage because of such conduct, the court must allow reasonable discovery on the issue of fault in the breakup of the marriage. However, it is not mandatory that fault must be considered in all cases where a divorce is granted on fault grounds. Hooper v. Hooper, 403 S.W.2d 215 (Tex. App. - Amarillo 1966, writ dism’d). However, the Supreme Court has stated that this does not mean that fault must be considered in all cases where a divorce is granted on fault grounds. Young v. Young, 609 S.W.2d 758 (Tex. 1980). c. Disparity of Incomes or of Earning Capacities In considering the disparity of earning power between the spouses the court may look to the spouses’ respective business opportunities, capacities and abilities. In Re: Marriage of McCurdy, 489 S.W.2d 712 (Tex. App. - Amarillo 1973, writ dism’d). 65 d. Spouses Capacities and Abilities A spouse’s mental capacity and abilities may be considered in the division of property because mental capacity and abilities have a direct correlation of the ability to obtain and retain employment. Murff v. Murff, 615 S.W.2d 696 (Tex. 1981); Eikenhorst v. Eikenhorst, 746 S.W.2d 882 (Tex. App. - Houston [1st Dist.] 1988, no writ). e. Benefits the Innocent Spouse Would Have Derived from the Continuation of the Marriage This factor is important because it could, for example, include medical benefits to which the spouse would have been entitled as a wife of a retired military officer. Hedtke v. Hedtke, 248 S.W. 21 (Tex. 1923). f. Business Opportunities Business opportunities, capacities, and abilities of the parties may be relevant in the division of property because the spouse with a history of business opportunities has a better chance of recouping or recovering from an unequal division of property. Murff v. Murff, 615 S.W.2d 696 (Tex. 1981); In Re: Marriage of McCurdy, 489 S.W.2d 712 (Tex. App. - Amarillo 1973, writ dism’d). g. Education and Training Education and specialized training have a direct correlation to the ability to obtain and retain employment as well as the opportunity and ability to make money. Murff v. Murff, 615 S.W.2d 696 (Tex. 1981); Cooper v. Cooper, 513 S.W.2d 229 (Tex. App. - Houston[1st Dist.] 1974, no writ). h. Relative Physical Conditions A person’s physical condition usually affects their ability to obtain 66 and retain employment. One spouse in excellent physical condition married to another spouse in poor physical condition should and most times does weigh in the judge’s decision on division of property. Murff v. Murff, 615 S.W.2d 696 (Tex. 1981); Hahne v. Hahne, 663 S.W.2d 77 (Tex. App. - Houston [14th Dist.] 1983, no writ). i. Relative Financial Condition and Obligations Pre marriage wealth or financial obligations affect the division of property because of the usual transfer of monies back and forth during the marital existence. Murff v. Murff, 615 S.W.2d 696 (Tex. 1981); Horlock v. Horlock, 533 S.W.2d 52 (Tex. App. Houston [14th Dist.] 1975, writ dism’d). j. Disparity of Ages Any combination of scenarios come to mind, to wit: i. ii. iii. iv. wage earner old - non-wage earner young wealthy spouse old - non-wealthy spouse young both spouses young both spouses old Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) k. Size of Marital Estate The size of the marital estate can determine the percentage, if any, of disproportionate division of property. The larger the estate, the less disproportionate division of property. Wilkerson v. Wilkerson, 515 S.W.2d 52 (Tex. App. - Tyler 1974, no writ). l. Size of Non-Marital Estate Even though there may be a prohibition of divestiture of a spouse’s non-marital property, this does not prevent the trial court from taking into account the non-marital property of spouses when making a division of property. Murff v. Murff, 615 67 S.W.2d 696 (Tex. 1981); Thomas v. Thomas, 603 S.W.2d 356 (Tex. App. - Houston [14th Dist.] 1980, writ dism’d). m. Expected Inheritance of Spouses The expectations of an inheritance is a proper consideration in the property division. Whittenburg v. Whittenburg, 523 S.W.2d 797 (Tex. App. - Austin 1975, no writ). n. Nature of Property The court should consider which party would benefit from a particular marital property asset. A unique chattel, especially beneficial to one party, should be awarded to that party. It should be reversible error in the division of property where a spouse is significantly deprived or adversely affected with respect to his/her business or means of income production. Goren v. Goren, 531 S.W.2d 897 (Tex. App. - Houston [1 st Dist.] 1975, writ dism’d); Hooper v. Hooper, 403 S.W.2d 215 (Tex. App. - Amarillo 1966, writ dism’d); Wilson v. Wilson, 225 S.W.2d 236 (Tex. App. - Fort Worth 1949, no writ). o. Attorneys’ Fees The amount, size or award of attorneys’ fees is a factor to be considered in the division of property especially when the fees have been incurred due to the hiding, secreting, or other hypothecation of marital assets. Murff v. Murff, 615 S.W.2d 696 (Tex. 1981); Carle v. Carle, 234 S.W.2d 1002 (Tex. 1950). p. Custody of Children The fact that a spouse is awarded custody of a child or children, in itself should justify an unequal division of property. Boriak v. Boriak, 541 S.W.2d 237 (Tex. App. - Corpus Christi 1976, writ dism’d). [the courts said that the fact that the father was awarded custody “in itself would justify an unequal division of the property”]; Young v. Young, 609 S.W.2d 758 (Tex. 1980) [care of adult children may also be considered]. q. Reimbursement Between Estates 68 Reimbursement between estates is a factor to consider in the division of property when money, property, time, talent and labor from one estate has been used or expended to financially benefit or enhance another estate and there has been no quid pro quo from the receiving estate. Harris v. Holland, 867 S.W.2d 86 (Tex. App. - Texarkana 1993, no writ); Jensen v. Jensen, 665 S.W.2d 107 (Tex. 1984); Vallone v. Vallone, 664 S.W.2d 455 (Tex. 1982). r. Gifts to Spouse During Marriage Gifts between or to spouses during the marriage which have the effect of enhancing the non-marital estate and decreasing the marital estate should be considered in the division of property. Additionally, and in some states, a conveyance of property from a parent to a child (spouse of a marriage which is ending in divorce) is presumptively considered to have been conveyed as a gift. Thus, the property will be considered to be the separate property of the receiving spouse unless the petitioning spouse can rebut the presumption. Dorfman v. Dorfman, 457 S.W.2d 417 (Tex. App. - Texarkana 1970, no writ); Kyles v. Kyles, 832 S.W.2d 194 (Tex. App. - Beaumont 1992 no writ). s. Excessive Marital Property Gifts to Others A disproportionate division of property is justified when a spouse wrongfully spends a substantial amount of marital asset money on girlfriends, boyfriends and the like. In Re: Marriage of McCurdy, 489 S.W.2d 712 (Tex. App. - Amarillo 1973, writ dism’d); Morrison v. Morrison, 713 S.W.2d 377 (Tex. App. Dallas 1986, writ dism’d). t. Wasting Marital Assets If a spouse is guilty of wasting, dissipating or grossly negligent management of the marital estate, the court may consider this factor in dividing the remaining marital estate. On the other hand, if a spouse, in good faith, merely makes an unwise investment of marital property resulting in losses to the marital estate ,this does not necessarily justify an unequal distribution of the remaining marital property. Reaney v. Reaney, 505 S.W.2d 338 (Tex. App. - Dallas 1974, no writ); Andrews v. Andrews, 677 S.W.2d 171 69 (Tex. App. - Austin 1984, no writ). u. Out of State Property The purchase of property beyond the jurisdiction of the court is a proper consideration by the trial court in dividing the marital estate. Difficulty can be encountered in enforcing liens, judgments and receiverships absent in personam jurisdiction. Walker v. Walker, 231 S.W.2d 905 (Tex. App. - Texarkana 1950, no writ). v. Tax Consequences Unpaid tax liabilities are proper factors to be considered in making a division of property. Allowing a spouse an offset for future tax consequences in the event of sale of property awarded to that spouse in a divorce action is an abuse of discretion where the question whether the property would ever be subject to capital gains tax can only be answered by engaging in speculation or surmise. McCartney v. McCartney, 548 S.W.2d 435 (Tex. App. - Houston [1 st Dist.] 1976, no writ); Cole v. Cole, 532 S.W.2d 102 (Tex. App. - Dallas 1975, no writ), on remand 568 S.W.2d 152 (Tex. App. - Dallas 1978, no writ); Benedict v. Benedict, 542 S.W.2d 692 (Tex. App. - Fort Worth 1976, writ dism’d); Harris v. Holland, 867 S.W.2d 86 (Tex. App. Texarkana 1993, no writ); Freeman v. Freeman, 497 S.W.2d 97, 99 (Tex. Civ. App. - Houston [14th Dist.] 1973, no writ); Simpson v. Simpson, 679 S.W.2d 39, 41 (Tex. App. - Dallas 1984, no writ). w. Credit for Temporary Alimony Paid Court ordered temporary payments which are paid during the pendency of the case may be considered by the court in the property division. Likewise, the failure of a spouse to make the temporary support payments as ordered by the court may also be taken into consideration. Schecter v. Schecter, 579 S.W.2d 502 (Tex. App. - Dallas 1978, no writ); Edsall v. Edsall, 240 S.W.2d 424 (Tex. App. - Eastland 1951, no writ); Jones v. 70 Jones, 699 S.W.2d 583 (Tex. App. - Texarkana 1985, no writ). x. Insurance Proceeds The proceeds of a life insurance policy which are purchased with marital funds are generally held to be marital property. This property is something like a chose in action which matures at the death of the insured. This despite the fact that the policy has named someone other than the insured’s spouse as the beneficiary, the spouse is entitled as a creditor beneficiary to reimbursement of the marital funds expended on the policy during the spouse’s marriage to the deceased-insured. La v. Lone Star Life Insurance Co., 01-91-00365-CV, 7/92, Houston [1st Dist.], 1992. y. Fraud Fraud on the marital estate may give rise to a recovery in recoupment to the marital estate. Schlueter v. Schlueter, 975 S.W.2d 584 (Tex. 1998). z. Torts Recoveries for marital torts may duplicate any disproportionate division of property based upon fault and thus constitute “double dipping.” Some recoveries in tort such as for pain, suffering, mental anguish and emotional distress are recoveries to the spouse’s separate estate as opposed to past lost wages, past medical bills and past impairment of earning capacity. Schlueter v. Schlueter, 975 S.W.2d 584 (Tex. 1998). F. TECHNIQUES FOR DIVISION OF PROPERTY. The division of property on divorce may be accomplished by any legal or equitable means appropriate under the circumstances of the case. There follows some of the techniques that may be employed by the court in the division of property. 1. PARTITION OR SALE OF PROPERTY The court has the duty to determine if the marital property is subject to partition in kind. If it determines it is, then it shall divide the marital 71 property between the parties. It is not subject to partition in kind, the court can order such property sold. Although the trial court cannot award the separate property of one spouse to the other spouse, where the property is owned in undivided interests between the marital estate and the non-marital estate of a spouse, the trial court may order the entire sold and partition the proceeds between the spouses. Hailey v. Hailey, 331 S.W.2d 299 (Tex. 1960); Braswell v. Braswell, 476 S.W.2d 444 (Tex. App. - Waco 1972, writ dism’d); Ellis v. Ellis, 225 s.W.2d 216 (Tex. App. - San Antonio 1949, no writ). 2. SALE OF HOMESTEAD The homestead may be ordered sold and its proceeds divided in order to partition the marital estate of the parties. But the court cannot order that the proceeds of the homestead be used for the purpose of paying unsecured creditors. McIntyre v. McIntyre, 722 S.W.2d 533 (Tex. App. San Antonio 1986, no writ); Harrington v. Schuble, 608 S.W.2d 253 (Tex. App. - Houston [14th Dist.] 1980, no writ); Posten v. Posten, 572 S.W.2d 800 (Tex. App. - Houston [14th Dist.] 1978, no writ); Delaney v. Delaney; 562 S.W.2d 594 (Tex. App. - Houston [14th Dist.] 1978, writ dism’d). 3. SETTING ASIDE HOMESTEAD a. General. The trial court may award the use of the spouses’ homestead to either spouse or for the benefit of the children, whether the homestead is separate or marital property. While it is less common for the court to set aside the homestead to a spouse where there are no minor children, the court is clearly empowered to do so. Hedtke v. Hedtke, 248 S.W. 21 (Tex. 1923); Girard v. Girard, 521 S.W.2d 714 (Tex. App. - Houston [1st Dist.] 1975, no writ); Bakken v. Bakken, 503 S.W.2d 315 (Tex. App. - Dallas 1973, no writ); Villarreal v. Laredo National Bank, 677S.W.2d 600 (Tex. App. - San Antonio 1984, writ refused n.r.e.). b. Limitations Upon Use of Homestead The court may set specific conditions or the occurrence of 72 specified events (i.e. abandonment, remarriage, non-payment of related expenses, custody or minority of the children, etc.) which will cause a forfeiture of the former spouse’s right to the continued use and occupancy of the homestead. Kurtz v. Jackson, 859 S.W.2d 609 (Tex. App. - Houston [1 st Dist.] 1993, no writ). c. Obligation to Make Payments, Etc. The court should clearly and precisely provide for the payment of the mortgage, taxes, insurance, maintenance and repairs, and to place specific obligations in regard thereto. Starkey v. Holoye, 536 S.W.2d 438 (Tex. App. - Houston [14th Dist.] 1976, writ refused n.r.e.). Where the parties remain owners of an undivided interest, the spouse who has the right under the decree to exclusive occupancy of the property is entitled to reimbursement for funds paid on the lien indebtedness and improvements which enhance the value of the property. No offset is allowed for the value of the use of the property so long as it is occupied. Gilleland v. Meadows, 351 S.W.2d 656 (Tex. App. - Dalls 1961, no writ). However, the spouse who has the right to exclusive occupancy has the obligation to pay the ad valorem taxes. Miller v. Two Investors, Inc., 475 S.W.2d 610 (Tex. App. - Dallas 1971, writ refused n.r.e.); Berg v. Berg, 232 S.W.2d 782 (Tex. App. - Dallas 1950, no writ). d. Disposition of Proceeds The decree should further specify the exact manner and method of determining the disposition of the proceeds at the time of sale. Provisions should be made for reimbursement of any costs paid by one spouse where the decree placed the obligation upon the other spouse, perhaps with interest. Starkey v. Holoye, 536 S.W.2d 438 (Tex. App. - Houston [14th Dist.] 1976, writ refused n.r.e.) 4. SOLE PROPRIETORSHIP 73 An interest in a going business may be divided as any other asset. The trial court has the power to divide the specific assets of the business between the parties or award the “going business” entity to one spouse. Hopf v. Hopf, 841 S.W.2d 898 (Tex. App. - Houston [14th Dist.] 1992). 5. GENERAL PARTNERSHIP a. General Where adopted, The Uniform Partnership Act is applicable to all partnerships, regardless of when formed. Under the Act, the legal concept of a partnership is that of an entity, and the partner’s only property right is his “interest in the partnership.” b. Division of Partnership Interests Where the partner’s “interest in the partnership” is marital property, it is subject to division by the court in a divorce. It is generally preferred to award the non-partner spouse other property of equal value in exchange for the partnership interest. i. The Extent of Property Rights of a Partner The spouse-partner holds three separate property rights in the partnership; (a). (b). (c). ii. his rights in specific partnership property, .his interest in the partnership; and his right to participate in the management. Extent of Marital Property Rights of Partner’s Spouse The marital property rights of a partner’s spouse are state in section 28-A of the UP. (a). Rights in Specific Partnership Property A partner’s right in specific partnership are not marital property. 74 (b). Management Section 28-A(3) states that a partner’s right to participate in the management is not marital property. Mundy v. Mundy, 653 S.W.2d 954 (Tex. App. - Dallas 1983, no writ). (c). Interest in Partnership Only a “partner’s interest in the partnership” may be marital property and thus subject to division by a court under section 28-A(2). The term 11a partner’s interest in the partnership” is defined by the Act as “his share of the profits and surplus, and the same is personal property for all purposes.” §26. The Act recognizes that this may be held by a non-partner; thus, it can be subject to division by the court. c. Cannot Award Specific Partnership Assets. The divorce court cannot award specific partnership assets to the non-partner spouse. d. Effect of Award to Non-Partner Spouse Where the court divides the partner-spouse’s interest on the divorce of a partner, the non-partner spouse (to the extent of such spouse’s interest in the partnership) is regarded for purposes of the UP as an assignee and purchaser of such interest from the partner-spouse. §28-B(1)(a). The legal effect of the division of the partnership interest is to vest a proportional share of the marital interest in each party. Mundy v. Mundy, 653 S.W.2d 954 (Tex. App. - Dallas 1983, no writ). i. ii. iii. No management rights Entitled to receive profits Entitled to partnership records 75 iv. Liability The assignee-spouse does not become personally liable for partnership debts or to make contributions to partnership. v. Dissolution of Partnership An award to a partner’s spouse of an interest in the partnership does not of itself dissolve the partnership. §27. vi. Right to Surplus In case of a dissolution of the partnership, the assigneespouse is entitled to receive his or her share of the surplus in accordance with the interest awarded in the divorce. §27(d). 6. LIMITED PARTNERSHIPS a. General The Uniform Partnership Act is applicable to limited partnerships “except insofar as the statutes relating to such partnerships are inconsistent herewith.” Horn v. Builders Supply Company of Longview, 401 S.W.2d 143 (Tex. App. - Tyler 1966, writ refused n.r.e.); Park Citys Corp. v. Byrd, 534 S.W.2d 668 (Tex. 1976). b. Division of Divorce A limited partner’s interest in the partnership is personal property. The interest of the limited partner in the partnership is assignable and is subject to division on divorce. The non-partner spouse who is a awarded all or part of the limited partner’s interest in the partnership upon divorce becomes an assignee for purposes of the UP. 7. JOINT VENTURES 76 The courts have encountered difficulty in classifying a joint venture. Thus, it has been stated that it is a partnership, is not a partnership, is a legal entity in the nature of a partnership, and is a legal entity distinct from a partnership. Legal writers have encountered the same difficulty. Rice v. Lambert, 408 S.W.2d 287 (Tex. App. - Corpus Chrisit 1966, no writ); Champion v. D’Yarmett, 293 S.W. 587 (Tex. App. - Amarillo 1927, writ ref’d); Brown v. Cole, 291 S.W.2d 704 (Tex. 1956); Tex. Co. Grain v. Happy Wheat Growers, Inc., 542 S.W.2d 934 (Tex. App. - Amarillo 1976, no writ). The elements of a joint venture are: (1) mutual right of control, (2) community interest, (3) agreement to share profits as principals, and (4) agreement to share losses, costs or expenses. Coastal Plains Development Corp. v. Micrea, Inc. 572 S.W.2d 285 (Tex. 1978); Chandler v. Herndon, 450 S.W.2d 703 (Tex. App. - Corpus Christi 1970, writ refused n.r.e.); Holcombe v. Lornio, 79 S.W.2d 307 (Tex. 1935) [has been described as a leading case in determining whether a joint venture exist]. It has been held that a joint venture is governed by the same rules as partnerships. Thus, marital interest in a joint venture may be treated like marital interest in a partnership. Weatherford v. Lee, 364 S.W.2d 730 (Tex. App. - San Antonio 1963, writ refused n.r.e.). 8. CLOSELY HELD CORPORATIONS a. General As a general rule, the underlying assets of a corporation are not divisible by the court. Only the shares of stock in the corporation, acquired since marriage, may be divided. Thomas v. Thomas, 738 S.W.2d 342 (Tex. App. - Houston [1 st Dist.] 1987, no writ). There is an exception to this rule if the court finds that the corporate entity has been used by a spouse as an alter ego. The trial court may partition the shares in a closely held corporation between the husband and wife, even though the award results in a minority interest in one spouse and the other spouse retains control of the corporation, although the courts have generally said it is not wise to award individual interests in 77 a going business between parties who are “already antagonistic.” Braswell v. Braswell, 476 S.W.2d 444 (Tex. App. Waco 1972, writ dism’d); Matter of Marriage of Trujillo, 580 S.W.2d 873 (Tex. App. - Texarkana 1979, no writ). b. Alter Ego The theory of alter ego is applied in order to achieve an equitable result. In a divorce case, it is used as a device to cause corporate assets acquired since marriage to be included within the community estate. The legal fiction of corporate entity may be disregarded where the fiction is used by a spouse as a means of perpetrating fraud upon the other spouse, or is relied upon to justify wrong. The unity of a spouse with the corporate entity must be such that the separateness of the corporation has ceased and an adherence to the fiction of the separate existence of the corporation would under the particular circumstances, sanction a fraud or promote an injustice. Lifshutz v. Lifshutz, 61 S.W.3d 511(Tex. App. - San Antonio 2001, pet. denied); Castleberry v. Branscombe, 721 S.W.2d 270 (Tex. 1986); Zisblatt v. Zisblatt, 693 S.W.2d 944 (Tex. App. - Fort Worth 1985, writ dism’d). 9. PROFESSIONAL PRACTICE Generally, the assets of a professional practice of one spouse are of no particular benefit to the other spouse and are of much greater value in the hands of the professional. Hanson v. Hanson, 672 S.W.2d 274 (Tex. App. - Houston [14t h Dist.] 1984, writ dism’d w.o.j.); Goren v. Goren, 531 S.W.2d 897 (Tex. App. - Houston [1 st Dist.] 1975, writ dism’d). Any disposition of such assets, whether by partition or sale, would have an adverse affect on the professional practice and the professional spouse’s earning capacity. A professional education degree earned during marriage is not divisible upon divorce. Frausto Frausto, 611 S.W.2d 656 (Tex. App. - San Antonio 1980, writ dism’d) 10. GOODWILL a. General 78 Goodwill may represent a valuable asset of the business. Goodwill is generally understood to mean the advantages that accrue to a business on account of its name, location, reputation and success. The fact that the goodwill of a business was created by or resulted from years of hard work and business effort on the part of only one or two of the several partners does not necessarily render the goodwill of the business personal to them. The value of the “goodwill” of a business depends upon the fixed and favorable consideration of customers arising from an established and well known and well conducted business. Taormina v. Culicchia, 335 S.W.2d 569 (Tex. App. - El Paso 1962, writ refused n.r.e.). b. Goodwill of Professional Practice In Texas, the goodwill of a professional practice is not marital property subject to division on divorce where it does not possess value or constitute an asset separate and apart from the individual’s ability to practice as a professional. Nail v. Nail, 486 S.W.2d 761 (Tex. 1972). In Finn v. Finn, 658 S.W.2d 735 (Tex. App.-- Dallas 1983, writ ref’d n.r.e.), the court announced a two-pronged test to determine whether the goodwill attached to a professional practice is subject to division upon divorce. First, goodwill must be determined to exist independently of the personal ability of the professional spouse. Second, if such goodwill is found to exist, then it must be determined whether that goodwill has a commercial value in which the marital estate is entitled to share. In Rathmell v. Morrison, 732 S.W.2d 6 (Tex. App.-- Houston [14th Dist.] 1987, no writ), it was held that the trial court in valuing the insurance companies should have excluded the value of the husband’s personal goodwill, but could consider goodwill not attributable to the husband. Goodwill in a professional corporation is a part of the property to be taken into consideration on divorce. Geesbreght v. Geesbreght, 570 S.W.2d 427 (Tex. App.-- Fort Worth 1978, writ dism’d). In Geesbreght, the Fort Worth Court of Civil Appeals distinguished the holding in Nail when faced with an ownership 79 interest in the professional corporation in which the husband owned a 50% interest. The corporation employed ten full-time and 50 to 100 part-time physicians to fulfill its obligations to furnish emergency services at eight different hospital locations. The issues of whether a professional corporation has goodwill, apart from the individual goodwill of the professionals who own the corporation, is a question of fact. Simpson v. Simpson, 679 S.W.2d 39 (Tex. App.-Dallas 1984, no writ) (for case on remand, see 727 S.W.2d 662 (Tex. App.-- Dallas 1987, no writ). 11. FOREIGN PERSONALTY The trial court has the power and authority to dispose of personalty located outside of Texas as long as it has in personam jurisdiction over the spouse who owns or controls the property. Moor v. Moor, 63 S.W. 346 (Tex. App. 1901, writ ref’d). 12. MONEY JUDGMENT a. General The court may be justified in dividing property in a manner other than “in kind” when due consideration is given to such matters as the nature and type of particular property involved, and the relative conditions, circumstances, capabilities, and experience of the parties. In Re: Marriage of Jackson, 506 S.W.2d 261 (Tex. App. - Amarillo 1974, writ dism’d). The trial court may utilize a money judgment to achieve an equitable division of the estate assets in kind, this method should be used instead of a money judgment. Hanson v. Hanson, 672 S.W.2d (Tex. App. - Houston [14th Dist.] 1984, writ dism’d). b. Terms of Payment The court may order either party to pay a cash sum to the other, even if there is no cash in marital property to be divided. Thomas v. Thomas, 603 S.W.2d 356 (Tex. App. - Houston [14th Dist.] 1980, writ dism’d); Garrett v. Garrett, 534 S.W.2d 381 (Tex. App. 80 - Houston [1 st Dist.] 1976, no writ); In Re: Marriage of Jackson, 506 S.W.2d 261 (Tex. App. - Amarillo 1974, writ dism’d); Brunnell v. Brunnell, 494 S.W.2d 621 (Tex. Civ. App. - Dallas 1973, no writ). A trial court should set the term for payment of the cash judgment for as short a period as possible without imposing a serious hardship on the party responsible to pay the judgment. Hanson v. Hanson, 672 S.W.2d 274 (Tex. App. - Houston [14th Dist.] 1984, writ dism’d). c. Security for Payment The trial court should provide security for money judgments which are granted to achieve an equitable division of a marital estate, unless there is some compelling reason to do otherwise.Hanson v. Hanson, 672 S.W.2d 274 (Tex. App. - Houston [14t h Dist.] 1984, writ dism’d); Murff v. Murff, 601 S.W.2d 116 (Tex. App. Dallas 1980), rev’d on other grounds 615 S.W.2d 696 (Tex. 1981). However, a trial court’s failure to provide security for a money judgment does not automatically constitute an abuse of discretion. Wren v. Wren, 702 S.W.2d 250 (Tex. App. - Houston [ 1st Dist.] 1985, writ dism’d). d. Execution of Promissory Note The trial court may order a party to execute a promissory note under threat of contempt if the party fails to do so. Kidd v. Kidd, 584 S.W.2d 552 (Tex. App. - Austin 1979, no writ). e. Settlement of Breach of Contract Action The trial court may not issue a clarifying order which alters or modifies the original decree when the divorce decree is unambiguous as to the division of settlement proceeds awarded in breach of contract action. Pierce v. Pierce, 850 S.W.2d 675 (Tex. App. - El Paso 1993). 13. APPOINTMENT OF RECEIVER, TRUSTEE, OR COMMISSIONER 81 a. General In the division of the estate of the parties in a divorce case, the trial court in its discretion may enlist the aid of a trustee, receiver, or a commissioner to effectuate the terms and provisions of its judgment, the court may even do so in the absence of an application to make certain that the provisions of the judgment are fully complied with. Hailey v. Hailey, 331 S.W.2d 299 (Tex. 1960). Note that the cases holding that appointment of a receiver is a drastic remedy, that good cause must be shown for appointment of a receiver, and that a receiver may be appointed only where the property is in danger of being lost, removed, or materially injured are all limited to circumstances where the appointment of a receiver is sought as a temporary order before judgment. Readheimer v. Readheimer, 728 S.W.2d 872 (Tex. App. Houston [1 st Dist.] 1987, no writ(. b. No Bond Required In a divorce case the court, as a matter of discretion, may dispense with the necessity of a bond. Posten v. Posten, 572 S.W.2d 800 (Tex. App. - Houston [14th Dist.] 1978, no writ). 14. EQUITABLE LIEN a. General The trial court has the power to impress an equitable lien upon marital property awarded to one spouse to secure a money payment ordered to be made to the other spouse. Ex Parte McKinley, 578 S.W.2d 437 (Tex. App. - Houston [1 st Dist.] 1979, no writ). A lien expressly created in the decree of divorce to secure the division of property is considered to be an equitable lien, does 82 not owe its existence to any statute and can stand independent of any statutory recording requirements at least as to the parties to the divorce. Day v. Day, 610 S.W.2d 195 (Tex. App. - Tyler 1980, writ refused n.r.e.). b. Judgment Lien Distinguished A judgment lien exists only by virtue of statute and, therefore, is created only by compliance with the law governing such liens. Consequently, before a money judgment can ripen into a lien, the abstract of judgment must be recorded and indexed in the proper county, as required by statute. Day v. Day, 610 S.W.2d 195 (Tex. App. - Tyler 1980, writ refused n.r.e.). c. Lien on Homestead A spouse may be entitled to a lien payment based on the terms of a marital property agreement which allows the other spouse to remain living in the house free of the lien, until such time as he/she may remarry or cohabited with another person. Knatz v. Jackson, 859 S.W.2d 609 (Tex. App. - Houston [1 st Dist.] 1993, no writ). In Texas, it is clear that homestead property is exempt from a money judgment in a court ordered division, where the trial court elects not to create an express lien. Ealy v. Ealy, 616 S.W.2d 420 (Tex. App. - Texarkana 1981, writ dism’d); Spence v. Spence, 455 S.W.2d 365 (Tex. App. - Houston [14th Dist.] 1970, writ refused n.r.e.). A lien may be placed upon a spouse’s homestead to secure the payment of the amount awarded to the other spouse for that spouse’s homestead interest. Wierzchula v. Wierzchula, 623 S.W.2d 720 (Tex. App. - Houston [1 st Dist.] 1981, no writ). Also, the trial court may place an equitable lien on the homestead to secure equitable rights of reimbursement. Eggemeyer v. Eggemeyer, 623 S.W.2d 462 (Tex. App. - Waco 1981, writ granted), affirmed, 554 S.W.2d 137 (Tex. 1977), appeal after remand, 623 S.W.2d 462 (Tex. App. - Waco 1981, writ dism’d). The decree of divorce must expressly award a lien on the homestead interest. It has been held that even though the 83 divorce judgment named the husband as trustee and ordered him, as trustee, to pay the wife a monthly sum “for her equity in the home, household furniture and fixtures,” no lien attached by the award. Ealy v. Ealy, 616 S.W.2d 420 (Tex. App. - Texarkana 1981, writ dism’d). d. Lien on Separate Property The trial court may place an equitable lien on the separate property with the right to foreclosure and sell if the judgment is not paid to secure a judgment based on the community right to reimbursement. Dakan v. Dakan, 83 S.W.2d 620 (Tex. 1935). The overwhelming majority of cases hold that an equitable lien may be imposed on the separate property of a spouse to secure the payment of a money judgment as part of the other spouse’s interest in the total property of the parties. Buchan v. Buchan, 592 S.W.2d 367 (Tex. App. - Tyler 1979, writ dism’d). 15. PROPERTY PURCHASED IN NAME OF THIRD PARTIES It is the general rule of resulting trusts that where one person buys property and pays for it with his own funds and takes title in the name of another, a trust results in favor of the person whose money was used in making the purchase. The one furnishing the money is the equitable owner of the property and the named grantee is a mere trustee and holds the property for the benefit of the person who paid the purchase money. A resulting trust for purchase money must arise at the time of passage of title. Cohrs v. Scott, 338 S.W.2d 127 (Tex. 1960). Likewise, where it is shown that marital property funds of a marriage are used to pay for the purchased property and title is taken in the name of a third person, a resulting trust arises in favor of the marital estate. First State Bank of Carbon v. Thurman, 12 S.W.2d 146 (Tex. Comm’n. App. 1929). Where a resulting trust is claimed, the burden of proof is upon the one claiming the trust. Bell v. Smith, 532 S.W.2d 680 (Tex. App. - fort Wroth 1976, no writ). Where a spouse uses marital property funds to purchase property and takes title in the name of a third party, a trust results to the marital estate. There is no requirement of showing fraud or intent to deceive the other 84 spouse, although active fraud is often present. The recovery is not based on the fiduciary duty of one spouse to the other; instead it only must be shown (1) that marital funds were used to make the purchase and (2) there was no intent for the actual ownership to vest in the third party. Turner v. Dinwiddie, 276 S.W. 144 (Tex. App. - Houston 1925, no writ). 16. FRAUDULENT TRANSFERS OF PROPERTY a. General During marriage, each spouse has the sole management, control, and disposition of (1) his or her separate property; and (2) of the marital property that he or she would have owned if single, including but not limited to personal earnings, revenue from separate property, recoveries for personal injuries, and the increase and mutations of, and the revenues from, all property subject to his or her sole management, control, and disposition. However, the authority of a spouse to deal with the marital property subject to his or her sole management, control, and disposition is subject to limitations. There must not be fraud. As to what constitutes fraud, the authorities speak of “actual fraud” and “constructive fraud.” i. Actual Fraud To sustain a cause of action for actual fraud, the complaining spouse has the burden of showing that the transaction was made with the primary purpose of depriving such spouse from having the use and enjoyment of the assets comprising the transaction. Actual fraud involves dishonesty of purpose or intent to deceive. Horlock v. Horlock, 533 S.W.2d 52 (Tex. App. - Houston [14th Dist.] 1975, writ dism’d); Land v. Marshall, 426 S.W.2d 841 (Tex. 1968); Archer v. Griffith, 390 S.W.2d 735 (Tex. 1964). ii. Constructive Fraud Constructive fraud is the breach of some legal or equitable duty, which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others, to violate confidence, or to injury public interest. Constructive fraud does not require an intent to defraud; 85 instead it is an equitable doctrine employed by the courts to rectify an injury resulting from the breach of a fiduciary relationship. Archer v. Griffith, 390 S.W.2d 735 (Tex. 1964); Carnes v. Meador, 533 S.W.2d 365 (Tex. App. Dallas 1975, writ refused n.r.e.). A trust relationship exists between the husband and the wife as to that portion of the marital property controlled by the managing spouse. For that reason, any unfair transfer of marital property or rights by a spouse outside of the marital estate would be a constructive fraud. Murphy v. Metropolitan Life Insurance Company, 498 S.W.2d 278 (Tex. App. - Houston [14th Dist.] 1973, writ refused n.r.e.); Brownson v. New, 259 S.W.2d 277 (Tex. App. - San Antonio 1953, writ dism’d). b. Gifts to Third Parties Courts have set aside any gift of marital property funds as a constructive fraud on the other spouse if the gift is capricious, excessive, or arbitrary. Hartman v. Crain, 398 S.W. 2d 387 (Tex. App. - Houston 1966, no writ); Carnes v. Meador, 533 S.W.2d 365 (Tex. App. - Dallas 1975, writ refused n.r.e.). c. Transfers to Paramours There are no circumstances concerning a gift, transfer or other disposition of marital property in which the transaction is scrutinized more closely than in transactions between a spouse and his or her paramour. The courts have taken a dim view toward gifts by the husband to “strangers” of the marriage, particularly of the female variety. Spruill v. Spruill, 625 S.W.2d 694 (Tex. App. - El Paso 1981, writ dism’d). d. Fraudulent Concealment and Dissipation Where a spouse has been defrauded by the managing spouse’s wrongful disposition of the marital property, the aggrieved spouse is not confined to a recovery of the property, but may hold the managing spouse personally liable for the loss in damages. Swisher v. Swisher, 190 S.W.2d 382 (Tex. App. - Galveston 86 1945, no writ). The excessive loss or capricious dissipation of marital assets by the managing spouse is presumptively fraudulent. In such cases, the managing spouse has the burden to establish that the loss and dissipation of the marital assets were not an abuse of managerial powers. Hartman v. Crain, 398 S.W.2d 387 (Tex. App. - Houston 1966, no writ); Reaney v. Reaney, 505 S.W.2d 338 (Tex. App. - Dallas 1974, no writ). e. Remedies i. Constructive Trust A constructive trust is an equitable remedial concept imposed by law to prevent unjust enrichment resulting from unconscionable conduct. It may be imposed where actual fraud is apparent or where the conduct of one is so violative of good conscience that equity may deem it to be constructive fraud. Fraud, either actual or constructive, is a basic element before a constructive trust should be imposed. May v. Little, 473 S.W.2d 632 (Tex. App. - El Paso 1971, writ refused n.r.e.). The violation of a fiduciary duty may also give rise a constructive trust as constituting constructive fraud. FitzGerald v. Hull, 237 S.W.2d 256 (Tex. 1951). A constructive trust is imposed by law because the person holding the title to property would profit by a wrong or would be unjustly enriched if he were permitted to keep the property. Omohundro v. Matthews , 341 S.W.2d 401 (1960); Meadows v. Bierschwale, 516 S.W.2d 125 (Tex. 1974). The rule is that a trust relationship exists between the husband and wife as to that portion of the marital estate controlled by the managing spouse. For that reason any unfair transfer of marital property by a spouse to one outside of the marital estate would be constructive fraud. Such a transfer will be set aside and a constructive trust may be imposed upon the property for the benefit of the marital estate. 87 ii. Money Judgment Upon a suit for divorce, one spouse may recover a money judgment against the other spouse for loss or damage resulting from the abuse of managerial powers in connection with the division of the estate of the parties. Belz v. Belz, 667 S.W.2d 240 (Tex. App. - Dallas 1984, writ refused n.r.e.). 17. CONSTRUCTIVE TRUSTEE The trial court may appoint either spouse a trustee to safeguard or receive money, benefits or other property awarded to the other spouse. Typically this is necessary in the case of retirement benefits where the husband receives the entire benefit payment and is ordered to pay the wife a portion thereof upon receipt. The husband is appointed as trustee of the wife’s portion. Ex Parte Gorena, 595 S.W.2d 841 (Tex. 1979). A constructive trust may be imposed in favor of the wife regarding the joint purchase of residence prior to marriage, when title was taken in the husband’s name only. A constructive trust is the formula through which the conscience of equity finds expression. Andrews v. Andrews , 677 S.W.2d 171 (Tex. App. - Austin 1984, no writ). 18. DEBTS AND ENCUMBRANCES The “estate of the parties” to be divided by the court almost invariably includes assets and liabilities. The power to divide necessarily includes the power to order one of the parties to pay such debts or liabilities. Goggin v. Goggin, 738 S.W.2d 375 (Tex. App. - Corpus Christi 1987, no writ); Janik v. Janik, 634 S.W.2d 323 (Tex. App. - Houston [14th Dist.] 1982, no writ). However, further factors must be considered: (1) if the spouses are jointly liable, the creditor may still seek satisfaction from the other spouse; and (2) in most instances that which is a “marital liability” is also a separate liability of the contracting, indebted, or tortious spouse. a. Debts Owned to Third Persons The division of debts and liabilities must be done in subordination to the rights of the spouses’ creditors. Contractual 88 obligations between spouses and creditors cannot be altered by decree of divorce. Broadway Drug Store v. Trowbridge, 435 S.W.2d 268 (Tex. App. - Houston [14th Dist.] 1968, no writ). b. Disposition of Exempt Property Unsecured creditors have no interest in the disposition of the exempt property of husband and wife, and cannot satisfy their claims against such property after partition in the decree of divorce. Klein v. Klein, 370 S.W.2d 769 (Tex. App. - Houston 1963, no writ). c. Disposition of Non-Exempt Property The decree of divorce may not prejudice the rights of creditors to subject non-exempt marital property to the payment of marital debts. Dorfman v. Dorfman, 475 S.W.2d 423 (Tex. App. Texarkana 1970, no writ). d. Right of Indemnity The decree of divorce should make provisions for indemnity and hold harmless when one spouse discharges an indebtedness set aside to the other spouse. Walker v. Walker, 527 S.W.2d 200 (Tex. App. - Fort Wroth 1975, no writ). e. Right to Reimbursement In the case where a marital estate debt has been paid by the sale of separate property of a spouse, that spouse is entitled to reimbursement. Graham v. Graham, 836 S.W.2d 308 (Tex. App. - Texarkana 1992, no writ). 19. TAX LIABILITIES In the disposition of property upon divorce, the matter of tax liability is an element for consideration. The imposition of liability for the discharge of the obligation (affecting only the rights of the parties, one against the other) should be considered in the property division. Able v. Able, 725 S.W.2d 778 (Tex. App. - Houston [14th Dist.] 1987, writ refused n.r.e). a. Tax is Not a Debt 89 A provision in the decree of divorce requiring one spouse to pay “all marital estate debts” does not include a potential income tax obligation. And the court cannot relieve a spouse of personal liability to the taxing authority in a decree of divorce. Brooks v. Brooks, 515 S.W.2d 730 (Tex. App. - Houston 1974, writ refused n.r.e.); Able v. Able, 725 S.W.2d 778 (Tex. App. - Houston [14th Dist.] 1987, writ refused n.r.e.); Highland Park Independent School Dist. v. Republic Insurance Co., 162 S.W.2d 1056 (Tex. App. - Dallas 1942) rev’d on other grounds, 171 S.W.2d 342 ( Tex. 1943). Likewise, ad valorem tax is not a “debt” in the ordinary sense of the word; although it is a liability and obligation. Blair v. Commissioner, 300 U.S. 5 (1937); McCartney v. McCartney, 548 S.W.2d 435 (Tex. App. - Houston [1 st Dist.] 1976, no writ). b. Liability for Tax Assessments With respect to marital estate income, federal income tax liability follows ownership. In the determination of ownership, state law controls. Each spouse is individually liable for the income tax on one-half of the marital estate income for the year of divorce, and for prior years during the marriage. If joint returns have been filed, each spouse remains liable for the entire tax due for the years of each joint return. Blair v. Commissioner, 300 U.S. 5 (1937); McCartney v. McCartney, 548 S.W.2d 435 (Tex. App. Houston [1 st Dist.] 1976, no writ). c. Payment and Reimbursement The decree of divorce should clearly establish, as between the parties, the responsibility for payment of any potential tax liabilities. Provision should be made for indemnity and reimbursement in the event one spouse is required to any tax assessment assumes by the other spouse. Cole v. Cole, 532 S.W.2d 102 (Tex. App. - Dallas 1975, no writ); Walker v. Walker, 527 S.W.2d 200 (Tex. App. - Fort Worth 1975, no writ); Gaulding v. Gaulding, 256 S.W.2d 684 (Tex. App - Dallas 1953, no writ). 20. BENEFICIAL INTERESTS IN INSURANCE POLICIES The proceeds of a life insurance policy which were purchased with marital estate funds was held to be marital property. Court held this 90 property to be something like a chose in action which had matured at the death of the insured. Thus, despite the fact that the policy had named someone other than the insured’s spouse as the beneficiary, she was entitled as a creditor beneficiary to reimbursement for the marital estate funds expended on the policy during her marriage to the deceased. La v. Lone Star Life Insurance Co. 01-91-00365-CV, 7/30/92, Houston [1 st Dist.] 1992. Also, a spouse is entitled to compensation from the settlement of a personal injury accident when that settlement involved money damages to compensate the injured spouse for lost wages. If the petitioning spouse has made a claim for a portion of these benefits, the spouse who received the settlement has the burden of proving that none of the funds constitute payment for lost wages or earning capacity during the marriage. Kyles v. Kyles, 832 S.W.2d 194 (Tex. App. - Beaumont 1992, no writ). 21. RETIREMENT BENEFITS The courts have recognized that pension and retirement benefits have become an increasingly significant part of the consideration earned for military, governmental, and private services, sometimes being the principal asset accumulated by the marital estate. Cearley v. Cearley, 544 S.W.2d 661 (Tex. 1976); Taggart v. Taggart, 552 S.W.2d 422 (Tex. 1977); Berry v. Berry, 647 S.W.2d 945 (Tex. 1983). 22. BANKRUPTCY AND DIVORCE The increase in bankruptcies in the U.S., and particularly in Texas, have given rise to the question of how bankruptcy effects the distribution of property when joined by a divorce action. The recent U.S. Supreme Court case, Farrey v. Sanderfoot, 111 S.Ct. 1825, 114 L.Ed.2d 337 (1991), dealt with such a conflict and set forth the following guidelines. This Wisconsin case involved a home which the couple had held title to in joint tenancy, each holding a one-half undivided interest. In the divorce, the husband was given title to the property, the house and the real estate, and ordered to pay the wife $29,208.44 as her share of the property. Before the husband made payment, he attempted to avoid the debt by filing for bankruptcy pursuant to §522(f) (1) of the Bankruptcy Code. In addressing the issue of whether a debtor may avoid a lien in this 91 manner under §522(f)(1), the Supreme Court held that such may be done only if the debtor possessed the interest before the lien attached. Id.,111 S.Ct. at 1829. Furthermore, whether the debtor possessed the interest at some point before the lien attached is a question to be determined by state law. Id., 111 S.Ct. at 1830. Since the lien did not attach to the husband’s pre-existing interest until after the decree of divorce, under Wisconsin law, the husband could not avoid the lien. The lien had attached to his fee simple created as a result of the decree, which has also created the wife’s lien. Id., 111 S.Ct. at 1831. V VALUATION B. Sources of Valuing Assets This checklist is intended to provide information regarding various sources for determining the value of assets. Some of the sources may not provide admissible evidence of value, but may help the parties to reach an agreement regarding the value of an asset. 1. Real Estate a. b. c. 2. Certified Commercial or Residential Appraisers Real Estate Agents or Brokers Client Automobiles, Planes, Boats a. “Blue Books” i. ii. iii. iv. N.A.D.A. Official Used Car Guide (actually an “orange book”) Kelly Blue Book online www.kbb.com (includes motorcycles) John Smale’s Family Boats home page www.familyboats.com.au/ Centric BicycleLINK Blue Book www.bicyclelink.com/bluebook/index.html b. c. d. Used car dealers and brokers Client Local auctioneers 92 3. Manufactured Homes a. b. Dealers and brokers www.mobilehome.net/seller.html is an online advertiser of manufactured homes that also provides price quotes through Email 4. Businesses a. Certified Business Appraiser i. ii. Confirm that the appraiser has courtroom experience Confirm that the appraiser has experience with evaluating the type of business in question (ie. law firm, food service business, etc.) b. A Certified Public Accountant with experience in evaluating business Broker who specializes in the sale of the type of business in question Other individuals who have previously bought and sold businesses of the type in question Client c. d. e. 5. Retirement Benefits a. b. c. d. Human Resources employees with the employer Plan Administrators An Actuary with experience evaluating retirement benefits A Certified Public Accountant with experience evaluating retirement benefits e. Discuss the various assumptions that the Actuary or Certified Public Accountant routinely makes and determine how they may impact your client before choosing the Actuary or CPA 93 6. Intellectual Property and Trade-Marks, Names or Secrets a. Find an attorney who specializes in this type of property i. ii. Have the attorney explain the valuation issues Have the attorney direct you to valuation experts 7. Animals and Livestock a. Regional or national organizations for the breed or type of animal in question (many of these organizations may be contacted online) Local breeders and trainers b. 8. Crops and Timber a. b. c. Local publications of prices Client Other individuals who buy and sell crops and timber 9. Household Items a. b. c. Auctioneers specializing in estate sales Client Resale dealers 10. Art, Jewelry and Collectibles a. Organizations of persons who collect the type of items in question b. c. d. e. Dealers, especially those specializing the items in question Auctioneers Client Other collectors 11. Club Memberships a. The club (by laws) 94 b. Client VI PROPERTY AGREEMENTS Property agreements are covered by Texas Family Code, Title 1 [Husband and Wife], Subtitle B [Property Rights and Liabilities], Chapter 5 [Marital Property], Subchapter C [Property Agreements §5.41-5.56 [new §§4.001-4.106] and Texas Probate Code, Part 3, Community Property with Right of Survivorship §§451-462. A. REFERENCE MATERIAL Oldham, J. Thomas - “Texas Marital Property Rights”, [3rd ed.], Chapter 19 Paying Party, p.p. 496-539; Simpson & Tindall’s Texas Family Code Annotated, Lawyer’s Coop Publishing, 1996 Edition [Red Cover]; Kazen’s Practical Texas Family Code, YBY Publications, P O Box 1582, Santa Teresa NM 88008 (1996 Edition); State Bar of Texas Fam. L. Prac. Man., Chapter 48. A generous thanks to Harry Tindall for the Disposition Tables used to recodify Title I of the Texas Family Code and to Richard Orsinger of San Antonio, Texas, to use and reprint his excellent article on characterization. B. UNIFORM PREMARITAL AGREEMENT ACT Texas Family Code sections on this Act are boldly printed. 1. DEFINITIONS [OLD §5.41, NEW §4.001]. a. In this part: (i). “Premarital agreement” means an agreement between prospective spouses made in contemplation of marriage and to be effective on marriage. “Property” means an interest, present or future, legal or equitable, vested or contingent, in real or personal property, including income and earnings. (ii). b. This section contemplates the broadest possible definition of property, but does not embrace “living together” agreements or arrangements where there is not contemplation of marriage. Pre-act agreements were impliedly validated by the passage of TEX. CONST. art. XVI, §15 amendment relating to separate and community property of husband and wife. Beck v. Beck, 814 c. S.W.2d 745 (Tex. 1991), cert. denied, 117 L. Ed. 2d 494, 112 S. Ct. 1266 (1992). 2. FORMALITIES [OLD §5.42, NEW §4.002] a. A premarital agreement must be in writing and signed by both parties. It is enforceable without consideration. While the agreement must be in writing and signed by both parties, there is no formal requirement of a notary acknowledgment. See TEX. FAM. CODE ANN. §5.54 for similar post-martial provisions. In a pre UPAA case, the Texas Supreme Court held in Williams v. Williams, 569 S.W.2d 867, 871 (Tex. 1978) that mutual promises to marry, subsequently performed, provide valid consideration for a pre-marital agreement. The only “consideration” for the agreement is that there must be a marriage, formal [ceremonial] or informal [common law]. As in all contracts, both parties must have the capacity to contract. b. c. d. 3. CONTENT [OLD §5.43, NEW §4.003] a. Parties to a premarital agreement may contract with respect to: (i) the rights and obligations of each of the parties in any of the property of either or both of them whenever and wherever acquired or located; the right to buy, sell, use, transfer, exchange, abandon, lease, consume, expend, assign, create a security interest in, mortgage, encumber, dispose of, or otherwise manage and control property; the disposition of property on separation, marital dissolution, death, or the occurrence or nonoccurrence of any other event; (ii) (iii) 96 (iv) (v) the modification or elimination of spousal support; the making of a will, trust, or other arrangement to carry out the provisions of the agreement; the ownership rights in and disposition of the death benefit from a life insurance policy; the choice of law governing the construction of the agreement; and any other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty. (vi) (vii) (viii) b. The Right of a child to support may not be adversely affected by a premarital agreement. Cross reference Texas Probate Code §59A [Contracts Concerning Succession] c. The “grocery list” of matters listed in old §5.43, new §4.003 is not exclusive; and, other matters not in violation of public policy or any statute imposing a criminal penalty may be included. Obligations of a party relating to a child may not be impaired. Case examples relating to this section are as follows: (i). Homestead rights may be waived. Williams v. Williams, supra. Provision for income from all separate property to remain separate property precluded creation of community property. Dokmanovic v. Schwarz, 880 S.W.2d 272 (Tex. App.-- Houston [14th Dist.] 1994, no writ). Future earnings may be partitioned between persons about to marry. Winger v. Pianka, 831 S.W.2d 853 (Tex. App.-- Austin 1992, writ denied). “Excess” income was separate property. Scott v. Scott, 805 S.W.2d 835 (Tex. App.-- Waco 1991, writ denied). 97 d. e. (ii) (iii) (iv) (v) Earnings from separate property were separate property although personal earnings were not so included. Dewey v. Dewey, 745 S.W.2d 514 (Tex. App.-- Corpus Christi 1988, writ denied). Personal earnings were to be separate property, upheld. Huff v. Huff, 554 S.W.2d 841 (Tex. Civ. App.-- Waco 1977, writ dism’d w.o.j.). Agreement of intent to annually partition or exchange community property was not, in and of itself, a partition or exchange. Bradley v. Bradley, 725 S.W.2d 504, 504 (Tex. App.-- Corpus Christi 1987, no writ). Agreements are construed according to contract law with question of whether contract is ambiguous determined as a matter of law by the court and the interpretation thereof is a fact issue. Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). (vi) (viii) (ix) 4. EFFECT OF MARRIAGE [OLD §5.44, NEW §4.004] a. A premarital agreement becomes effective on marriage. Cross reference Texas Business and Commerce Code §26.01 [Promise or Agreement must be in writing] which requires an agreement arising out of “nonmarital conjugal cohabitation” be in writing and signed by the party charged with the obligation. b. However, a premarital agreement of the first marriage is inapplicable to the parties’ later remarriage to each other. Marshall v. Marshall, 735 S.W.2d 587 (Tex. App.-- Dallas 1987, writ ref’d n.r.e.). 5. AMENDMENT OR REVOCATION OF AGREEMENT [OLD §5.45, NEW §4.005] a. After marriage, a premarital agreement may be amended or revoked only by a written agreement signed by the parties. The amended agreement or the revocation is enforceable without consideration. 98 b. Because of such tales about “tearing up” or “burning it in the fireplace”, any amendment or revocation of the agreement must be in writing. 6. ENFORCEMENT [OLD §5.46, NEW §4.006] a. A premarital agreement is not enforceable if the party against whom enforcement is sought proves that: (i) (ii) that party did not execute the agreement voluntarily; or the agreement was unconscionable when it was executed and, before execution of the agreement, that party: (A) was not provided a fair and reasonable disclosure of the property or financial obligations of the other party; did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; and (B) (C) did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party. b. An issue of unconscionability of a premarital agreement shall be decided by the court as a matter of law. The remedies and defenses in this section are the exclusive remedies or defenses, including common law remedies or defenses. These conditions must be proven to avoid enforcement. d. Whether an agreement was entered into voluntarily is a question for the trier of fact. PRACTICE NOTE: Videotaping the execution of the agreement will help dispose of any claim of involuntariness. c. 99 e. “Unconscionability” is determined at the time of the execution of the agreement. Hartz v. Hartz, 248 Md. 47, 234 A.2d 865 (1967). The test of “unconscionability” is drawn from the Uniform Marriage and Divorce Act (UMDA) §306. The standard of unconscionability is used in commercial law under Texas Business and Commerce Code §17.45(5) which defines “unconscionability” as: “...an act practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree.” PRACTICE NOTE: For a family law application, change “consumer” to “prospective spouse” [premarital] or “spouse” [postmarital]. f. g. Under UMDA §306 “the court may look to the economic circumstances of the parties resulting from the agreement and any other relevant evidence such as conditions under which the agreement was made, including the knowledge of the other party.” Under § 5.46(a)(2)(A) “A fair and reasonable disclosure of the property or financial obligations of the other party” is usually accomplished by production of the following documents: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) tax returns financial statements appraisal reports bank disclosure statements life insurance policies cash flow statements profit and loss statements credit card balances 100 h. (ix) i. titles to and liens on property Under §5.46(a)(2)(B) a written waiver, involuntarily and expressly made, must be made prior to the execution of the premarital agreement waiving any right to disclosure of property or financial obligation beyond that already made. PRACTICE NOTE: Sometimes attorneys overlook this requirement. While there are no Texas cases construing this provision, the statute is very clear on this point. j. Under §5.46(a)(2)(C) and in addition to (A) and (B) above, the proponent of unenforceability must also show that the proponent “did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party.” PRACTICE NOTE: Depending on the length and depth of the relationship this could be a considerable hurdle for the proponent, especially if the contesting spouse has been “exposed” to the resisting spouse’s estate. k. Under §5.46(b) the issue of unconscionability is decided by the court, as a matter of law. PRACTICE NOTE: Some courts will withhold making this determination until after the finder of fact, usually a jury, determines the other elements of unenforceability. l. Case examples relating to this section are as follows: (i) Whether the agreement is “fair” or “unfair” is immaterial; unconscionability is the legal stand. Chiles v. Chiles, 779 S.W.2d 127 (Tex. App.-- Houston [14th Dist.] 1989, writ denied). Signing the agreement the day before the wedding does not in and of itself invalidate the agreement. Williams v. Williams, 720 S.W.2d (Tex. App.-- Houston [14th Dist.] 1986, no writ). (ii) 101 (iii) Summary judgment is a proper procedure in upholding such agreement. Grossman v. Grossman, 799 S.W.2d 511 (Tex. App.-- Corpus Christi 1990, no writ). 7. E NFORCEMENT IN THE EVENT OF A VOID MARRIAGE [OLD §5.47, NEW §4.007] a. If a marriage is determined to be void, an agreement that would otherwise have been a premarital agreement is enforceable only to the extent necessary to avoid an inequitable result. This section give the court discretion in the event the marriage is voided. b. c. A case example relating to this section is as follows: This section is consistent with Davis v. Davis, 521 S.W.2d 603 (Tex. 1975) which held that a good faith putative spouse is entitled to the same property right as a legal spouse. d. See also 46 ALR 3d 1403 annotation “Enforcement of antenuptial contract or settlement conditioned upon marriage, where marriage was subsequently declared void.” 8. LIMITATIONS OF ACTIONS [OLD §5.48, NEW §4.008] a. Any statute of limitations applicable to an action asserting a claim for relief under a premarital agreement is tolled during the marriage of the parties to the agreement. However, equitable defenses limiting the time for enforcement, including laches and estoppel, are available to either party. Under §5.48 limitations on claims of unenforceability of the agreement is tolled during the marriage. Equitable defenses such as laches and estoppel are available. PRACTICE NOTE : Many times the parties will “abandon” the agreement only to claim enforceability/unenforceability at a later time. Such conduct raises the equitable defenses. 102 b. c. 9. APPLICATION AND CONSTRUCTION [OLD §5.49, NEW §4.009] a. Sections 5.41 through 5.50 of this subchapter shall be applied and construed to effect their general purpose to make uniform the law with respect to the subject of these sections among states enacting them. This provision states as a general purpose that these provisions [§§5.41-5.48] be construed consistently per the Uniform Acts. b. 10. SHORT TITLE [OLD §5.50, NEW §4.010] a. b. This part may be cited as the Uniform Premarital Agreement Act. These sections may be cited as UPAA. C. OTHER PROPERTY AGREEMENTS Family Code sections on this Act are in bold. The provisions of F.C. §§5.51-5.56 [new §§ 4.101-4.106] serve the same purpose as the UPAA but relate to partitions and exchanges between a married Texas couple. Also the same definitions, formalities, and enforcement provisions apply. 1. PROPERTY DEFINED [OLD §5.51, NEW §4.101] a. In this part: (i) “Premarital agreement” means an agreement between prospective spouses made in contemplation of marriage and to be effective on marriage. “Property” means an interest, present or future, legal or equitable, vested or contingent, in real or personal property, including income and earnings. (ii) 2. PARTITION OR EXCHANGE OF COMMUNITY PROPERTY [OLD §5.52, NEW §4.102] 103 a. At any time, the spouses may partition or exchange between themselves any part of their community property, then existing or to be acquired, as they may desire. Property or a property interest transferred to a spouse by a partition or exchange agreement becomes his or her separate property. By Constitutional amendment in 1948, spouses were permitted to partition or exchange property. This statute codifies that amendment. b. c. Case examples relating to the section are as follows: (i) The shift in the burden of proof is procedural for postmarital agreements and applies to pre-statute agreements. Blonstein v. Blonstein, 831 S.W.2d 468 (Tex. App.-- Houston [14th Dist.] 1992, writ denied). See also, Pearce v. Pearce, 824 S.W.2d 195 (Tex. App.-- El Paso 1991, writ denied). A premarital agreement that contemplated future partitions as written, held: property not partitioned Bradley v. Bradley, 725 S.W.2d 503 (Tex. App.-- Corpus Christi 1987, no writ). In a pre UPAA case, the Texas Supreme Court held in Hilley v. Hilley, 342 S.W.2d 565, 568 (Tex. 1961) that separate property cannot be converted to community property, but the reverse can occur by gift. A forfeiture provision relating to community property is invalid because it attempted to create separate property in a manner not provided for by the Texas Constitution or Texas Family Code. McBride v. McBride, 797 S.W.2d 689, 692 (Tex. App.-- Houston [14th Dist.] 1990, writ denied). (ii) (iii) (iv) 3. AGREEMENTS BETWEEN SPOUSES CONCERNING INCOME OR PROPERTY DERIVED FROM SEPARATE PROPERTY [OLD §5.53, NEW §4.103] a. At any time, the spouses may agree that the income or property arising from the separate property then owned by one of them, or 104 which may thereafter be acquired, shall be the separate property of the owner. b. This section codifies the 1980 Constitutional Amendment allowing income from separate property to be separate property. A case example relating to this section is as follows: (i) An agreement for income from separate property to be separate property signed before the 1980 amendment is valid under the doctrine of “implied ratification”), Beck v. Beck, 814 S.W.2d 745 (Tex. 1991), cert. denied, 117 L. Ed. 2d 494, 112 S. Ct. 1266 (1992). c. 4. FORMALITIES a. A partition or exchange agreement must be in writing or signed by both parties. TEX. CONST. art XVI § 15's requirement of a “written instrument” is codified in this section. Case examples of this section are as follows: (i) Listing property as separate property on joint tax return does not constitute a partition agreement. Collins v. Collins, 752 S.W.2d 636 (Tex. App.-- Fort Worth 1988, writ ref’d). Agreement does not require judicial approval. Patino v. Patino, 687 S.W.2d 799 (Tex. App.-- San Antonio 1985, no writ). Verbal agreement does not comply with requirements. Recio v. Recio, 666 S.W.2d 645 (Tex. App.-- Corpus Christi 1984, no writ); Miller v. Miller, 700 S.W.2d 941, 951 (Tex. App.-- Dallas 1985, writ ref’d n.r.e.) b. c. (ii) (iii) 5. ENFORCEMENT [OLD §5.55, NEW §4.105] a. A partition or exchange agreement is not enforceable if the party against whom enforcement is sought provides that: 105 (i) (ii) that party did not execute the agreement voluntarily; or the agreement was unconscionable when it was executed and, before execution of the agreement, that party: (A) was not provided a fair and reasonable disclosure of the property or financial obligations of the other party; did not voluntarily and expressly waive, in writing, any right to disclosure of the property or financial obligations of the other party beyond the disclosure provided; and did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party. (B) (C) b. An issue of unconscionability of a partition or exchange agreement shall be decided by the court as a matter of law. The remedies and defenses in this section are the exclusive remedies or defenses, including common law remedies or defenses. The wording is identical to §5.45 except for the enforcement of the word “premarital” with “partition or exchange”. Case examples of this section are as follows: (i) This section applies to “income from separate property” agreements. Daniel v. Daniel, 779 S.W.2d 110 (Tex. App.-- Houston [1st Dist.] 1989, no writ). Standard of enforcement is that in effect at time of divorce. Daniel v. Daniel, supra. Agreement was not voluntary where evidence revealed that husband was hiding parties’ child at the time. Matthews v. Matthews , 725 S.W.2d 275 (Tex. App.-Houston [1st Dist.] 1986, writ ref’d n.r.e.). c. d. e. (ii) (iii) 106 (iv) Issue of “unconscionability” must be addressed on a case-by-case basis with focus on “circumstances” rather than the “disproportionate effect” of agreement. Fanning v. Fanning, 828 S.W.2d 135, 145 (Tex. App.-- Waco 1992), aff’d in part, rev’d in part on other grounds, 847 S.W.2d 225 (Tex. 1993). 6. PARTITION OR EXCHANGE AGREEMENTS: RIGHTS OF CREDITORS , RECORDATION. [OLD §5.56, NEW §4.106] a. A provision of a partition or exchange agreement made under this subchapter is void with respect to the rights of a preexisting creditor whose rights are intended to be defrauded by it. A partition or exchange agreement made under this subchapter may be recorded in the deed records of the county in which a party resides and in the county in which the real property affected is located. An agreement, partition, or exchange agreement made under this subchapter is constructive notice to a good faith purchaser for value or a creditor without actual notice only if the instrument is acknowledged and recorded in the county in which the real property is located. Any agreement which intentionally defrauds creditors is void. This is consistent with the Texas Fraudulent Transfers Act. Recordation is recommended because agreements get lost over time and attorneys do not like to maintain such agreements indefinitely. PRACTICE NOTE: The agreement and videos of the signing of the agreement should be kept by the parties in a safe or safe deposit box. b. c. d. 7. SUMMARY a. The burden of proof is on the opponent of an agreement to challenge and statutorily prove its unenforceability to the trier of fact. In all instances, the “unconscionability” of the agreement is decided by the court. b. 107 c. “Living together” agreements are not covered by the Texas Family Code but are covered by the Texas Business and Commerce Code §26.01. “Consideration” is not a requirement for validity of all agreements. Capacity to contract is required in all instances. Almost anything can be covered in the agreement, except binding parent-child agreements. Tearing up or burning the agreement does not revoke it. Videotaping the signing of the agreement will aid or assist the trier of fact on the question of whether the agreement was voluntarily signed. “Unconscionability” is determined at the time of the signing of the agreement. A “fair and reasonable disclosure of property or financial obligations” is best handled by production of tax returns, financial statements, and other documents indicating value of property or liability thereon. An express written waiver is necessary before signing the agreement beyond that property or liability already disclosed. Whether the agreement is “fair” or “unfair” is immaterial. Unconscionability is the standard. Limitations are tolled during marriage but are subject to equitable defenses such as laches and estoppel. d. e. f. g. h. i. j. k. l. m. D. Marital Agreement - Litigation The Texas Uniform Premarital Agreement Act is a modified version of the Uniform Premarital Agreement Act, a uniform statute that has been enacted in a number of states. When planning for litigation over a premarital agreement, you should consider the following questions-to-be-answered checklist: 108 1. IS THE AGREEMENT THE PRODUCT OF AN ARMS-LENGTH TRANSACTION OR AN EQUAL BARGAINING POSITION? a. What were and are the mental capacity, intelligence, education and age of the parties? What were and are the mental and physical health of the parties? What experience do the parties have in life generally, as well as in specific business or financial matters? How many marriages has each party had? Has one party been through this before while this is a first marriage for the other? What are the personality traits or characteristics of the parties? Who is the dominant force in the relationship and who is the weaker personality? b. c. d. e. 2. WHAT WAS THE STATUS OF THE PARTIES BEFORE THE AGREEMENT WAS SIGNED AND AT THE TIME OF ENFORCEMENT? a. Was either party unemployed or regularly employed in an income-producing capacity? Did either party demand, ask, volunteer, or suggest that one party abandon employment in whole or in part? Why? Was either party receiving or paying alimony, spousal support, or child support? Did either party demand, ask, volunteer, or suggest that alimony, spousal support, or child support be abandoned? Why? Was either party in school? Did either party demand, ask, volunteer, or suggest that education be abandoned? Why? How long did the parties know each other before they signed the agreement and were married? b. c. d. e. f. g. 109 h. Did either of the parties abandon statutory or common law rights in former marriages or prior separation agreements because of the present relationship or possible marriage? What was given up and why? Was there a history of physical or mental abuse before the agreement was requested and signed? Which party asked for or proposed the idea of a prenuptial agreement? Was the support of children from former marriages discussed? Did the parties discuss the desire to have children of their own? What were the initial reasons given by the person asking for the prenuptial agreement? How do they compare with the factors considered in the agreement? When, where, and on what occasion did the parties discuss the agreement before it was signed? Did the parties talk to anyone (aside from attorneys) about the contemplated or signed agreement, such as friends, relatives, business associates or partners, clergy, or counselors? When and where? How were the household and daily living expenses handled? If there were two incomes, did one or both go into a joint or individual checking account and was one or both used for accumulating assets through investments or savings? Were any IRA's set up before or after the agreement was signed? Were any contributory pension or profit sharing plans set up before or after the agreement was signed? Was there any property owned jointly before the agreement was signed? Was it later transferred to either party individually before or after the agreement was signed? i. j. k. l. m. n. o. p. q. r. s. 110 t. Was there a joint checking account before or after the agreement was signed? Were oral or written promises (apart from the agreement) ever made before or after the agreement? (Consider birthday, anniversary, or Valentine's Day cards, love notes or apology letters, statements made at parties or statements in the nature of "Don't worry, if anything ever happens, I'll take care of you, no matter what the agreement says.") u. 3. WAS THERE ADEQUATE LEGAL REPRESENTATION FOR BOTH PARTIES? a. b. c. Did each party have a lawyer of his or her own choice? How were the lawyers selected? Did the lawyers share office space or were they located in the same building or on the same floor? If so, was that a coincidence? Did the lawyers meet with both clients separately or together before the agreement was in draft or in final form? Did each lawyer participate in the drafting of the agreement? Was there more than one working draft? Were any copies marked up by the parties or the lawyers? Are you endangering your client's rights by representing him or her now if you did so at the time of the agreement? If you have to testify, consider all your options in favor of your client's wellbeing. Who paid the fees of both lawyers and from what checking accounts were the checks drawn? If the lawyers rendered a written bill, was it in the name of one or both of the parties? Do time records show the name of one or both parties? d. e. f. g. h. i. 111 j. Did the drafting lawyers issue letters to the clients disclaiming the enforceability of the agreement or did they do so verbally? (Beware of the problem of privileged communication.) Where and when was the agreement signed by the parties? Were the drafting lawyers present? Who witnessed the signing of the agreement? Were there any notable emotions such as fear, joy, sadness or anger? Did both parties get signed copies of the agreement? When? Were any transfers of property made by the parties' subsequent acts or deeds contrary to the agreement? Were the lawyers consulted? Did the lawyers fully, completely, and openly explain to the parties every aspect of the agreement before it was signed? Did they explain the effects it would have on the parties' future rights. Did the lawyers request and receive financial documents such as tax returns, financial statements and stock valuations? k. l. m. n. o. p. 4. WAS THERE FULL AND COMPLETE DISCLOSURE BEFORE THE AGREEMENT WAS SIGNED? a. Was all financial information regarding income, expenses, assets and liabilities attached to the agreement? Did the income disclosures include averages over several years? Were the assets properly valued, as they would be in a divorce disclosure? Were the assets valued at cost, market, or book, or any of the other valuation methods? How do the current valuations compare to what they were before the agreement was signed? Was the duty to inform rather than the right to know really explained to the parties? b. c. d. e. 112 f. Were any backup documents, such as old tax returns or financial statements, offered or shown to the parties or their lawyers? Did either party or lawyer choose not to examine them? Were potential future assets or obligations disclosed? Was life insurance, revocable or irrevocable, ever disclosed, discussed or promised before or after the agreement was signed? Were medical benefits ever abandoned through either the loss of employment or remarriage? Was the cost of the loss of benefits considered and disclosed before or after the agreement was signed? Were pension benefits with or without the right of survivorship discussed and disclosed before or after the agreement was signed? Were the rights and elections under social security law discussed and disclosed before or after the agreement was signed? Were the federal and state income, estate and gift tax consequences discussed and disclosed before or after the agreement was signed? (For example, if a joint tax return would save one party large sums of money each year, was that fact disclosed and negotiated in the waiver of certain rights? Was the potential tax liability in a joint return for taxes, interest and penalties discussed and disclosed?) Did either party divest themselves of property or property rights immediately before the agreement was signed, so that--in the nature of a fraudulent conveyance--it did not have to be disclosed? Was the response to a request for backup documents cooperative, dilatory or nonexistent? Were the parties made aware of the existence or availability of any relevant documents such as partnership agreements, corporate returns and documents, trust agreements, trade agreements or estate inventories? 113 g. h. i. j. k. l. m. n. o. p. Was either party ever made aware of assets not owned by the other party but in which he or she had a beneficial interest? Did either party decline or neglect to pursue available opportunities to investigate the other party's income or assets? Did the parties share the same account? q. r. 5. WAS EITHER PARTY PRESSURED TO SIGN THE AGREEMENT THROUGH UNDUE INFLUENCE, DURESS, OR COERCION? a. Was either party threatened in any way, such as illegal or social extortion or embarrassment? Were there any threats or acts of withholding money if the agreement was not signed, or refusal to go to a "friendly" lawyer? Was abandonment ever threatened? Was physical abuse ever used or threatened? Were mental or psychological pressures ever made or threatened? Were there threats to cancel the wedding unless the agreement was signed? When, where, and with whom did acts of coercion, duress, or undue influence take place? Was financial nonsupport of children ever threatened or carried out for failure to sign the agreement? Were sexual acts ever withheld or forced for failure to sign the agreement? b. c. d. e. f. g. h. i. 6. WAS THERE LEGAL CONSIDERATION OR ADEQUATE CONSIDERATION FOR THE WAIVER OF STATUTORY OR COMMON LAW RIGHTS IN THE AGREEMENT ITSELF? a. b. What was received? What was paid or promised? 114 c. d. e. When and where was it received or paid? How was it received or paid? What is the relationship between what was waived and what was received? Were documents required to be executed after the agreement was signed, such as a will, deed or trust? Were they actually drawn and executed? Were documents required under the agreement executed and subsequently revoked such as a will, life insurance policy, assignment of pension benefits or trust? Were transfers of property or assets by or to a third party contemplated? What was to be transferred, by whom, to whom, and when? f. g. h. 7. PROVING SPOUSE UNDERSTOOD AGREEMENT AT TIME OF EXECUTION Q. Did you direct ____________ [surviving spouse's attorney] to draw up an antenuptial agreement prior to your marriage to ____________ [decedent]? Yes. Did you ask ____________ [decedent] to prepare a schedule of assets for this antenuptial agreement? Yes. Did you prepare a schedule of your own assets for this agreement? Yes. At the meeting on (date), attended by yourself, your future husband, ____________ [decedent], and the two attorneys, did you have an opportunity to read the complete antenuptial agreement which your attorney had prepared? A. Q. A. Q. A. Q. 115 A. Q. A. Q. A. Q. A. Q. I don't remember whether I read through the entire agreement. You were given a copy of the agreement, weren't you? Yes, I had a copy of it. Well, did you just thumb through it then, or read it in any way? I simply don't remember. When did you receive your copy of the agreement? My attorney handed it to me after we had sat down. And it just remained in your lap or in your hands throughout the entire meeting? No, I referred to it from time to time to keep up with what was being said. A. [Counsel hands witness the antenuptial agreement] Q. I show you now ____________ [plaintiff's or defendant's] Exhibit _____, and ask you if this is the antenuptial agreement which you had your attorney prepare and which you referred to at the meeting on (date). It is. Did you sign the agreement at the meeting on (date)? Yes. Did you at the time of the signing of this antenuptial agreement understand what an antenuptial agreement was? I had a vague idea; I know I had previous experience with them. What was your understanding of the significance of an antenuptial agreement at that time? An antenuptial agreement is a document which two people draw up to protect their interests. 116 A. Q. A. Q. A. Q. A. Q. A. Their financial interests? Yes. Pitcher, Waiver of Spousal Rights in Estate of Deceased Spouse, 7 P.O.F.2d 443. 8. PROVING SPOUSE HAD ADEQUATE TIME TO CONSIDER TERMS OF ANTENUPTIAL AGREEMENT PRIOR TO EXECUTION Q. When you signed the antenuptial agreement on (date), did you feel rushed? I'm not sure what you mean. Did you feel you needed more time to understand the provisions and implications of the agreement? I'm still not sure what you are asking. A. Q. A. Q. Did you at any time during the meeting ask for a delay in signing the agreement so that you could examine it closely? No. You felt that it could be signed at that meeting? Yes. So you didn't disagree with the agreement at that time? I don't recall whether I had any specific disagreements. But you did sign it that day, did you not? Yes, I did. And you can't now tell the court whether you had any specific disagreements prior to signing the document? I don't recall any. A. Q. A. Q. A. Q. A. Q. A. 117 Pitcher, Waiver of Spousal Rights in Estate of Deceased Spouse, 7 P.O.F.2d 443. 9. CONSCIONABILITY - DEFINITION a. Uniform Premarital Agreement Act. The Uniform Premarital Agreement Act defines unconscionability by reference to Section 306 of the Uniform Marriage and Divorce Act which provides that the standard of unconscionability is that standard used in commercial law where its meaning includes protection against one-sidedness, oppression or unfair surprise. (1) The unconscionability standard includes: (a) Overreaching; (b) Concealment of assets; and (c) Sharp dealing not consistent with the obligation of marital partners to deal fairly with each other. Uniform Premarital Agreement Act 9B U.C.A. 10. (2) To determine conscionability the court may look to: (a) The economic circumstances of the parties resulting from the agreements; (b) Any other relevant evidence such as: (i) The conditions under which the agreement was made; (ii) b. Knowledge of the other party. Texas Business and Commerce Code § 2.302. The Texas Business and Commerce Code makes it possible for the courts to police against contracts or contract clauses which the courts find unconscionable. As noted in the comment to Section 2.302, the principle is one of prevention of oppression and unfair surprise. (1) Oppression. 118 The agreement "leaves a post-divorce economic situation that is unjustly disproportionate," i.e., onesidedness. Lewis v. Lewis, 748 P.2d 1362 (1988). VII FRINGE BENEFITS OF EMPLOYMENT. Texas generally applies the inception of title approach (See §II p. 1 herein) to characterize acquisitions over time. The only exception to this rule appears to be defined benefit pensions. See Taggart, supra. Unfortunately, the court has never expressly discussed the scope of this exception. A. Long-Term Employment Agreements. Divorces involving spouses with long-term employment agreements have arisen in states that generally apply the pro rata allocation approach. In these states, if a spouse divorces before the end of the term of the contract, courts have concluded that compensation due after divorce is for post-divorce efforts and is therefore the employee's separate property. See Garfein v. Garfein, 93 Cal. Rptr. 714 (Cal. App. 1971); Marriage of Anderson, 811 P.2d 419 (Colo. App. 1990). See generally Oldham, supra, sec. 7.13. (Of course, if for salary cap or other reasons the contract payments extend over a period longer than the spouse's playing career, it is conceivable that the community could have a claim to some portion of these payments even under a pro rata analysis.) Under inception of title, it would seem clear that the contract payments due after divorce would be community property. The question would be how to calculate the reimbursement award for the post-divorce efforts needed to earn the payments. Such a calculation might not be identical to a pro rata calculation. For example, assume an athlete signs a long-term generous contract during marriage, and further assume his skills have eroded during marriage. Possibly the reimbursement award in this instance would be calculated based on the value of the athlete's services as of the time of divorce, which presumably might be significantly less than the contract rate. If the employee received some kind of signing bonus, the treatment may also differ based on whether a pro rata approach is used or inception of title. Under a pro rata approach, to characterize the bonus a court might apportion the signing bonus over the life of the contract. In inception of title states, the bonus would seem to be all community property (if received during marriage), regardless of whether the marriage ends before the expiration of the contract. B. Bonuses. 119 Key employees frequently receive periodic bonuses for services. A characterization question arises if the spouse divorces before the bonus is received. Like a number of marital property issues involving employment benefits, the question presented is what period of services is being compensated by the bonus. Is the bonus intended to induce the employee to be a better employee in the future, is the bonus intended to reward past efforts, or both? The characterization question therefore may be strongly fact-driven. If the bonus is intended to reward future efforts, the bonus received after divorce should be the employee's separate property. If the bonus is intended to reward past services, a post-divorce bonus might be partially community. See, for example, Schanck v. Schanck, 717 P.2d 1 (Alaska 1986); Preis v. Preis, 649 So.2d 593 (La. App. 1994); Lineberger v. Lineberger, 399 S.E.2d 786 (S.C. App. 1990). Cf. Marriage of Nelson, 222 Cal. Rptr. 790 (Cal. App. 1986) (holding that the bonus was not community property because the employee had no vested right to it before divorce). Similarly, a bonus received during marriage could be separate property if it was intended to compensate premarriage services. See Moore v. Moore, 192 S.W.2d 929 (Tex. Civ. App. -- Ft. Worth 1946, no writ). It is now the custom of some large law firms in Texas to give a law student a bonus when the student commits to come to work for them. This commitment is made in the fall; the job does not begin until the next summer. If the student marries in the spring, is the bonus separate or community property? What services, if any, are being compensated? C. Restricted Stock and Stock Options. Key employees also receive stock options and/or restricted stock. The key similarity between these two types of compensation is that the employee's right to receive the compensation is contingent upon the employee remaining employed for a certain specified period (unless the employee dies). Once the specified period lapses, the benefits are said to vest. Please note: 1. Reference is made to articles on stock options by Todd Franks, “Division of Stock Options on Divorce”, 11 Am. J. Fam. L. 119 (1997) and Lindsay Short and Sharon Cammack, 1996 Adv. Fam. Course, at II-7, 8 & 11. Under a stock option, typically the employee is given the right (but doesn't have the obligation) to purchase the company's stock from the company at the market price on the date of grant. The option becomes exercisable at a specified period in the future, but only if the employee is still employed by the company on the date of exercise. 120 2. 3. Restricted stock is bought by the employee at a very favorable price (or given to the employee), but the employee doesn't have the right to sell it until a certain specified period expires. If the employee quits before that point, the stock must be returned to the company. 4. Vested benefits (such as unrestricted stock or exercisable stock options) received during marriage for services are fairly simple to characterize. They normally would be considered 100% community (unless they would be considered to be compensation for a period of employment before marriage). See Myklebust v. Myklebust, 605 S.W.2d 397 (Tex. Civ. App. -- Houston [14th Dist.] 1980), rev'd on other grounds, 615 S.W.2d 187 (Tex. 1981). (This assumes that the stock, once purchased with the options, could be freely traded. If the stock would be still subject to some restrictions after exercise, questions similar to those discussed below could arise. See Marriage of Walker, 265 Cal. Rptr. 32 (Cal. App. 1989).) The more complicated question involves how to characterize benefits that are not vested at divorce. Some courts other than Myklebust, supra, have stated that options received during marriage are community. See Demler v. Demler, 836 S.W.2d 696 (Tex. App. -- Dallas 1992, no writ). This case did not state whether the options were exercisable at divorce. No Texas court has yet expressly discussed how to treat options that are unexercisable at divorce. How might a Texas court handle unexercisable options? Courts in other states have taken a number of different approaches. Some courts have held that an unexercisable option is not divisible at divorce. See Hann v. Hann, 655 N.E.2d 566 (Ind. App. 1995). However, in these states unvested rights are not divisible, a rule not consistent with Texas law. In Echols v. Auston, Inc., 529 S.W.2d 840 (Tex. Civ. App. -- Austin 1975, writ ref., n.r.e.) the court focused on whether the employee had a vested right to the option as of the date of divorce. Note, however, that Echols was decided before Cearley, supra. Many courts agree that, to characterize unexercisable options, it is very important to try to determine what period of service is being compensated by the options. For example, one court has said that, if the options were granted to induce an employee not to start a competing company and to work for the employer, such options would be all 121 5. 6. 7. 8. community, even if unexercisable at divorce. See Marriage of Short, 890 P.2d 12, 16 (Wash. 1995). Although options almost always require the employee to continue to work for the employer, this does not necessarily mean that the options are intended to compensate postdivorce services. For example in Marriage of Miller, 915 P.2d 1314, 1318-19 n.7 (Colo. 1996) the court stated that "there is a distinction between conditioning the receipt of benefits on the employee remaining in the employ of the employer and providing benefits in consideration of the performance of future services." 9. Some courts have concluded that unexercisable stock options are 100% marital property. See Smith v. Smith, 682 S.W.2d 834 (Mo. App. 1984); Chen v. Chen, 416 N.W.2d 661 (Wis. App. 1987); Goodwyne v. Goodwyne, 639 So.2d 1210 (La. App. 1994); Pascale v. Pascale, 660 A.2d 485 (N.J. 1995); DeJesus v. DeJesus, 620 N.Y.S.2d 704 (N.Y. Sup. 1994). Indeed, in Goodwyne the court concluded that options granted after divorce were 100% marital because the options rewarded efforts during marriage. Other courts have suggested different approaches. In Green v. Green, 494 A.2d 721 (Md. App. 1985) the court suggests valuing the options as of the date of divorce. See also, Richardson v. Richardson, 659 S.W.2d 510 (Ark. 1983). A number of other courts, concluding that options are intended to compensate the employee for a period of service, have applied some type of pro rata allocation. To these courts, the percentage of the options that are marital is calculated by determining the time being compensated during marriage before the cut-off date and dividing that by the total period being compensated. So, for example, in Marriage of Hug, 201 Cal. Rptr. 676 (Cal. App. 1984) the court determined that the employee was being compensated for the period of time from the time he began working with the company until the exercise date. So, the fraction that would be community was the portion of that period (before the cut-off date) the employee was married. In Nelson v. Nelson, 222 Cal. Rptr. 790 (Cal. App. 1986), the court applied a different type of pro rata formula. Here the court determined that the options were intended to compensate the employee for the period between the date of grant and the date of exercisability. So, as in Hug, the community percentage would be the portion of that period 122 10. 11. 12. 13. (before the cut-off date) the employee was married. Some other courts have also applied a pro rata allocation of some kind. See Salstrom v. Salstrom, 404 N.W.2d 848 (Minn. App. 1987); In re Frederick, 578 N.E.2d 612 (Ill. App. 1991). 14. If a court applies a pro rata allocation, it may want to keep in mind that the options may become exercisable earlier than expected, for example if the employee retires, dies, or the company is taken over. See Garcia v. Mayer, 920 P.2d 522 (N.M. App. 1996). Although restricted shares are similar to stock options, courts have not always applied an identical approach when considering restricted shares. For example, Miller, supra, involved both stock options and restricted shares. Both were granted during marriage but were unvested at divorce. Regarding the options, the Colorado Supreme Court remanded for a determination about what services the options were intended to compensate. In contrast, apparently because the employee already owned the restricted shares at divorce, the court concluded that these were 100% marital property, even though they were still restricted (and required continuing employment to remove the restrictions). A number of other courts have also treated restricted stock as 100% marital property, even though still restricted at divorce. See Mestayer v. Williams, 569 So.2d 1102 (La. App. 1990); Camp v. Camp, 580 So.2d 553 (La. App. 1991); McGinnis v. McGinnis, 22 Fam. L. Rep. (BNA) 1310 (Ky. App. 1996). In contrast, one case has treated such restricted shares as in part compensation for post-divorce work. See Klingenberg v. Klingenberg, 675 A.2d 551 (Md. App. 1996). So, given these cases from other states, how might a Texas court deal with unexercisable options at divorce? It seems clear that a Texas court, under inception of title, would have to conclude that the options are community property. If the options are considered compensation only for services during marriage, the options then fairly clearly would be 100% community property. (Remember the statement from Miller, supra, that there is a distinction between conditioning benefits on remaining in the employ of the employer and the benefits being compensation for future post-divorce services.) 15. 16. 17. However, what if the court determines that the options are intended to compensate for post-divorce services? Some means of calculating a reimbursement award would be needed. How could this be done? Unfortunately, there is as yet no guidance about how to do this. James 123 Loveless has argued that, due to the treatment in Joiner of unvested profit-sharing plan rights, Joiner would be authority for the argument that an unexercisable stock option is a mere expectancy to which the community should have no claim. See 1997 Marriage Dissolution Institute materials, at page G-25. (He does "urge caution when citing Joiner for this proposition." Id.) 18. To the extent that the community has a claim to the options, how would this work? Options generally are not transferable, and would have to be exercised by the employee. The decree would have to address a number of questions, such as (:) who would decide when to exercise the options--would all the community options have to be exercised at the same time, or could the non-employee choose to exercise some at a time when the employee did not want to exercise any; (ii) how would the community claim be computed--for example, is the community claim the premium at the time of exercise, or the profit generated by the purchase, if the employee keeps the shares for a period after exercise; (iii) how do tax consequences fit in--should the community claim be reduced for taxes due; and (iv) if funds need to be provided to exercise the options, who needs to provide the funds? In Smith v. Smith, 682 S.W.2d 834 (Mo. App. 1984), the court considered all the options 100% marital property. The employee was given the right to choose when to exercise the options. The employee was ordered to give the non-employee notice 30 days before any such exercise. The non-employee had to provide 50% of the funds necessary to exercise the options, or forfeit those rights. Tax consequences were shared. In Goodwyne v. Goodwyne, 639 So.2d 1210 (La. App. 1994) the court reduced the community claim by the amount of tax due. In Nelson v. Nelson, supra, the court reduced the community claim by 20% for taxes; if the actual tax due exceeded 20%, the employee should receive a credit for that. In Chen, supra, the court also deducted from the marital claim all tax due. In Marriage of Walker, 265 Cal. Rptr. 32 (Cal. App. 1989) the court awarded de facto control over a certain number of options to the nonemployee. The non-employee was given the right to instruct the employee when to exercise the options. Once the non-employee did this, and paid the cost of exercise, the stock was to be delivered to the non-employee. 19. 20. 21. 124 D. Vacation Time. Divorcing spouses frequently have accumulated vacation time or sick leave during marriage. Although I could find no Texas discussion of this issue, courts in other states have considered it, to-wit: 1. One court concluded that vacation time was not a divisible asset because it could not immediately be converted to cash by the employee. In re Lorenz, 194 Cal. Rptr. 237 (Cal. App. 1983). This seems to be inconsistent with the analysis applied in pension cases, where rights to be enjoyed after divorce are considered marital property even though they cannot be converted to cash immediately. A Maryland court also concluded that vacation benefits should not be included in the marital estate. In this case, the spouse would receive cash for all vacation time not taken when the employee quit or retired. The court determined that such a cash payment would be unlikely, however, since most people take all of their vacation time as it becomes available. Thomasian v. Thomasian, 556 A.2d 675 (Md. App. 1989). A majority of courts have determined that the portion of vacation time accumulated during marriage does create a marital claim, particularly if the employee has the right to receive cash upon termination of employment for unused vacation time. Schober v. Schober, 692 P.2d 267 (Alas. 1984); Lesko v. Lesko, 457 N.W.2d 695 (Mich. App. 1990); Bortnick v. Young, 16 Fam. L. Rep. (BNA) 1459 (D.C. Super. 1990); In re Nuss, 18 Fam. L. Rep. (BNA) 1312 (Wash. App. 1992); In re Sheffer, 802 P.2d 817 (Wash. App. 1990); In re Gonzalez, 214 Cal. Rptr. 634 (Cal. App. 1985). These courts emphasize that the rights are valuable rights accumulated during marriage due to efforts. A New York decision permitted the non-employee to share in the vacation benefits only if, as, and when the employee received a cash payment in lieu of the vacation time. Grund v. Grund, 17 Fam. L. Rep. (BNA) 1530 (N.Y. Sup. 1991). 2. 3. VIII RETIREMENT PLANS A. FILL OUT A FACT SHEET FOR EACH RETIREMENT PLAN: IF THIS INFORMATION IS OBTAINED THROUGH THE DISCOVERY REQUEST TO THE COMPANY, THEN REFERENCE THE DISCOVERY ON THIS FACT SHEET 1. Participant 125 a. b. c. d. e. f. g. h. i. j. k. l. m. n. Name (P or R): SS#: DOB: Current address: Attorney for Participant: Position(s) held during entire employment and the date of each position: Date of employment: Place of employment: Employee I.D. No.: Date termination of employment (if any): Beginning date of participation in the plan: Date of termination of participation in the plan (if any): Is the Participant currently receiving benefits? If not, dates upon which Participant becomes eligible to receive benefits (in other words, when is Participant vested to receive benefits): Employment status of Participant: hourly, salaried, active, laid-off, retired, other: o. 2. Alternate Payee a. b. c. d. Name (P or R) SS#: DOB: Current address: 126 e. f. Attorney for Alternate Payee: Alternate Payee's beneficiaries upon Alternate Payee's death: 3. Facts a. b. c. d. Date of Marriage: Date of Divorce: Date of Valuation: How is the plan to be divided? (BE SURE TO INCLUDE FOR EACH ANY AMOUNT IN ADDITION TO THE PERCENTAGE AWARDED IN THE DECREE) Benefit to Participant: Benefit to Alternate Payee: e. Page number and section (if applicable) in decree for retirement division: 4. The Plan NOTE: Inquire about all retirement programs available to the employee. a. b. Complete name of the Plan: Circle whether the plan is a Defined Contribution Plan or Define Benefit Plan Name of Plan Administrator: Address of Plan Administrator: Telephone AND fax numbers of Plan Administrator: c. d. e. 127 f. g. h. i. j. k. l. Name of Plan Sponsor: Address of Plan Sponsor: Telephone AND fax numbers of Plan Sponsor: Name of Plan Trustee: Address of Plan Trustee: Telephone AND fax numbers of Plan Trustee: Address for parties to keep the Plan Administrator informed of current address: _______________________________________________ ____ Will the Plan Administrator or any department look at the QDRO for pre-approval? Y / N How long does the pre-approval process generally take? Address to submit QDRO for PREVIEW: Address to send certified copy of QDRO after filing with the court: Does a prior QDRO related to the Participant exist? If plan is a defined benefit plan: What is the Participant's current accrued benefit under the plan as of the anticipated date of divorce? ________________________. Request a statement of the Participant's benefits!!! Does the plan have preretirement survivorship coverage? If yes, does the employer pay for it? Y / N. If the employer does not pay for it, then the employee does, so find out how much it costs. (We will need to allocate this cost in the QDRO to either the Alternate Payee or the Participant). Be sure to inquire if it is a one-time cost and, if not, how frequently does it have to be paid for, etc. m. n. o. p. q. r. 128 Can an Alternate Payee designate a beneficiary or beneficiaries? Y / N If yes, how may can the Alternate Payee designate? Has the Participant made any elections regarding the plan? Y / N If so, what elections and when were they made? Has the qualified joint and survivor annuity been waived? If so, ask for a copy of the written, signed document doing same--there must be a written document. Have the plan's funding levels been met? Y / N (The point of this questions is to alert us if the plan is in any financial trouble.) If the plan is a defined contribution plan: What is the Participant's total account balance as of the last valuation date? (Remember that a Participant's account may be made up of several subaccounts, such as the pretax account, after-tax account, and matching employer contribution account.) ______________ Request a statement of the Participant's account(s). What is the Participant's total account balance as of the date this questionnaire is filled in? (Remember that a Participant's account may be made up of several subaccounts, such as the pretax account, after-tax account, and matching employer contribution account.) ________________ Request a statement of the Participant's account(s). Is there a life insurance contract that's part of the plan? Y / N Can an Alternate Payee designate a beneficiary or beneficiaries? Y / N If yes, how many can the Alternate Payee designate? 5. To Do a. Obtain authorization from the Participant early in the case by having Participant sign a release. Obtain a copy of the formal plan document. b. 129 c. Obtain a copy of the summary plan description or employee booklet. Obtain a copy of the summary annual report. Ask the Plan Administrator if the company uses a standard format for QDROS and also ask if you can have a copy of the Plan Administrator's checklist, used for determining if the QDRO qualifies (which may be the plan's procedures for QDROs--they must have a procedure for QDROs under ERISA rules). If so, request copies. Make sure the copy is current before the final draft is submitted for preapproval! Statement of accrued benefits, which may require a written request and a copy of a release signed by the Participant. Internal Revenue Form 5500. d. e. f. g. Person who completed this questionnaire: Name: Address: Telephone: FACT SHEET FOR THE PLAN 1. Employee Information a. b. c. d. e. f. g. h. The employee's name is: Position(s) held during entire employment and the date of each position: Date of employment: Employee I.D. No. (if one): Date of termination of employment (if any): Beginning date of participation in the plan: Date of termination of participation in the plan (if any): Is the employee currently receiving benefits? B. 130 i. If not, dates upon which employee becomes eligible to receive benefits: Is the employee vested in any benefits at this time? Y / N If so, how much of the benefits are vested? Employment status of employee: hourly, salaried, active, laid-off, retired, or other: j. k. 2. The Plan a. b. Complete name of the Plan: Circle whether the plan is a Defined Contribution Plan or Defined Benefit Plan Name of Plan Administrator: Address of Plan Administrator: Telephone AND fax numbers of Plan Administrator: Name of Plan Sponsor: Address of Plan Sponsor: Telephone AND fax numbers of Plan Sponsor: Name of Plan Trustee: Address of Plan Trustee: Telephone AND fax numbers of Plan Trustee: Address for parties to keep the Plan Administrator informed of current address: Will the Plan Administrator or any department look at the QDRO for pre-approval? Y / N How long does the pre-approval generally take? Address to submit QDRO for PREVIEW: 131 c. d. e. f. g. h. i. j. k. l. m. n. o. p. Address to send certified copy of QDRO after filing with the court: Does a prior QDRO related to the employee exist? If plan is a defined benefit plan: What is the employee's current accrued benefit under the plan as of [INSERT THE ANTICIPATED DATE OF DIVORCE] Please send the most current statement of the employee's benefits AND any other information helpful to determining the value on the above date. For preretirement survivorship coverage: Does the employer pay for it? Y / N. If the employer does not pay for it, then how much does the coverage cost the employee? $________________. Does the employee have to elect the coverage, or is it built into the plan? If the employee has to elect the coverage, what is the procedure for doing so? Can an Alternate Payee designate a beneficiary or beneficiaries? Y / N If yes, how many can the Alternate Payee designate? Has the employee made any elections regarding survivorship rights? Y/N If so, what elections and when were they made? Can such elections be changed? Y / N Have any annuities been waived? Y / N If yes, was the spouse's consent in writing received by the plan? Y/N Is the plan a single life annuity plan? Lump Sum Value? or Period of Years? Have the plan's funding levels been met? 132 q. r. If the plan is a defined contribution plan: What is the employee's total account balance as of the last valuation date, including subaccounts, such as the pretax account, after-tax account, and matching employer contribution account? $_____________. Please send the most recent statement(s) of the employee's account(s). What is the employee's total account balance as of the date this questionnaire is filled out, including subaccounts, such as the pretax account, after-tax account, and matching employer contribution account? $____________. Please send the most recent statement(s) of the employee's account(s). Is there a life insurance contract that is part of the plan? Y / N Can an Alternate Payee designate a beneficiary or beneficiaries? Y / N If yes, how many can the Alternate Payee designate? Are any survivor benefits available? If so, what are they and how are they to be elected? Has the employee made any elections regarding survivorship benefits? Y / N If so, what elections and when were they made? Can such elections be changed? Y / N i. If a defined contribution plan, will/can the Alternate Payee have voting rights? If a defined contribution plan, will/can the Alternate Payee have theright to direct investments? If a defined contribution plan, is life insurance part of the plan? Y / N ii. iii. t. Employee's retirement date under the plan: ______________ This is typically the date that the employee can commence 133 his/her accrued benefit under the plan on an unreduced basis (normally age 65). u. v. When is the employee vested? What are the Plan's rules regarding Alternate Payee's benefits if Alternate Payee dies before receiving all of his/her benefits? w. What are the Plan's rules regarding the employee's death before an Alternate Payee receives all Alternate Payee's benefits before the employee begins to receive benefits? x. What are the Plan's rules regarding the employee's death before an Alternate Payee receives all Alternate Payee's benefits after the employee begins to receive benefits? y. Alternate benefits: i. What alternate benefits are available and what reduction occurs for each benefit available? When does the employee make the election as to the alternate benefits? Can the Participant's election be changed? Y/N ii. iii. z. Collateral benefits available (i.e. medical insurance plans, fringe benefits, etc.): Are there any outstanding loans vs. the plan: Y / N the current outstanding loan amount is: Will loans be available in the future? Y / N If yes, aa. bb. 134 cc. dd. ee. Does remarriage of the employee affect any area of the Plan? Does returning to work affect the Plan? Are there any benefits available in the future? i. ii. iii. Cost of living increases? Y / N Early retirement subsidies? Y / N Benefits resulting from Plan amendments? Y / N ff. Is benefit or account balance available for immediate distribution per QDRO? Y / N If not, when? Are any portions of benefit or account balance available for nontaxable direct distributions? When is the earliest the Alternate Payee can receive benefits? gg. hh. ii. What is the latest the Alternate Payee may have to wait to receive benefits? Will the Plan Sponsor agree to a distribution prior to the "earliest retirement date?" jj. 3. Please send the following: a. b. c. d. e. f. The formal plan document. A copy of the summary plan description or employee booklet. A copy of the summary annual report. Your procedures regarding QDROs. Your model QDROs. A copy of Internal Revenue Form 5500. 4. Please provide any other information that you think would be helpful. 135 Person who completed this questionnaire: Name: Address: Telephone: C. FACT SHEET FOR THE ATTORNEY 1. The Plan a. Is the Plan a governmental or church plan? Yes or No If yes, ERISA does not apply. See the Plan for specific instructions. In some plans, there may be an antialienation clause, making a motion to clarify the only way to ensure an Alternate Payee's right to receive the benefit awarded. b. Participant's retirement date under the Plan: ________________ This is typically the date that the Participant can commence his/her accrued benefit under the Plan on an unreduced basis (normally age 65). Determine the Plan benefits as of a specific date/specific circumstances: 1) 2) When is Participant vested? Alternate Payee's death: a) b) c) 3) Before beginning to receive benefits, then After receiving benefits, then The Alternate Payee's beneficiary(ies) is/are: c. Participant's death: 136 a) b) c) 4) Before beginning to receive benefits, then After receiving benefits, then The Participant's beneficiary(ies) is/are: Survivor benefits: a) What survivor benefits are available and what reduction occurs for each benefit available? When does the Participant make the election as to the survivor benefits? Has the Participant made any elections? Y/N If yes, what elections has he/she made? Can the P's election be changed? Y / N Have the survivor annuities been waived? Y N / b) c) d) e) If yes, you should investigate the procedures for revocation of the waiver and accomplish that revocation. 5) Amount of actuarial reduction commencement of benefits: Alternate benefits: a) What alternate benefits are available and what reduction occurs for each benefit available? When does the Participant make the election as to the alternate benefits? Can Participant's elections be changed? Y / N for the early 6) b) c) 7) Collateral benefits available (i.e. medical insurance plans, fringe benefits, etc.): 137 8) Are there any outstanding loans vs. the plan? Y / N If yes, the current outstanding loan amount is: Will loans be available in the future? Y / N Does remarriage of the Participant affect any area of the Plan? Does returning to work affect the Plan? If a defined contribution plan, will/can the Alternate Payee have voting rights? If a defined contribution plan, will/can the Alternate Payee have the right to direct investments? If a defined contribution plan, is life insurance part of the plan? Y / N 9) 10) 11) 12) 13) 14) d. Determination of benefits available in the future: 1) 2) 3) Cost of living increases: Early retirement subsidies: Benefits resulting from Plan amendments: e. Property interests: 1) 2) Calculation of community and separate property interest in Plan benefits: Were benefits accruing before the marriage? Y / N f. Is benefit and account balance available for immediate distribution per QDRO? Y / N If not, when? Are any portions of benefit and account balance available for non-taxable direct distributions? When is the earliest the Alternate Payee can receive benefits? What is the latest the Alternate Payee may have to wait to receive benefits? 138 g. h. i. j. Will the Plan Sponsor agree to a distribution prior to the "earliest retirement date"? 2. Other considerations: a) Is the goal to divide the monthly benefit of a defined benefit plan or to divide the actuarial value? What consideration, if any, should be given to early retirement subsidies? In a defined contribution plan, how should you handle contributions due but not yet allocated? Will the Plan Sponsor agree to a distribution prior to the "earliest retirement date?" If the Participant has made any elections regarding survivorship rights which are bad for your client's interest, consider having them revoked. Such a revocation must be in writing to the Plan before the Plan can do anything! If there is a QDRO in place for a previous Alternate Payee, then address if there is enough money left for your client! b) c) d) e) f) D. Action Needed 1. Closing the Property Date Completed Documents to be Submitted to the Court: A. Final Decree of Divorce/Agreement Incident to Divorce a. b. Copy provided to opposing party's attorney Certified copy ordered c. d. e. Certified copy mailed to client Copy served on defaulting party Copy filed with Child Support Office ________ ________ ________ ________ ________ _________ ________ ________ ________ ________ 139 ________ ________ B. ________ ________ ________ ________ f. g. Certified copy recorded with County Clerk's office Other:________________________ ________ ________ Order Withholding from Earnings for Child Support a. b. c. d. Copy provided to opposing party's attorney Certified copy provided to client Copy served on defaulting party Request filed with District Clerk for service of order on obligor's employer Certified copy served on obligor's employer Other:________________________ ________ ________ ________ ________ ________ ________ ________ C. ________ e. f. Qualified Domestic Relations Order a. Review checklist for preparation of QDRO set out in section M herein QDRO pre-approval letters mailed to each Plan Administrator Certified copy of QDRO served on each Plan Administrator Confirmation of qualification of QDRO received from each Plan Administrator ________ ________ b. ________ ________ c. ________ ________ d. ________ Date Completed Action Needed ________ e. If QDRO rejected by Plan Administrator, file Motion in Aid and Clarification to clarify and/or correct QDRO Other:________________________ ________ ________ ________ D. ________ ________ ________ 2. f. Family Relationship Information Sheet a. b. c. Completed and signed by Attorney for Petitioner Filed with Court Other:________________________ ________ ________ ________ Miscellaneous Real Estate Documents: A. Special Warranty Deed 140 ________ a. Original executed by proper party (and properly notarized) Original filed with County Clerk's Office and receipt obtained Recorded original/copy mailed to client Other:________________________ ________ ________ b. ________ ________ ________ ________ ________ B. ________ c. d. Quitclaim Deed a. Original executed by proper party (and properly notarized) Original filed with County Clerk's Office and receipt obtained Recorded original/copy mailed to client Other:________________________ ________ ________ b. ________ ________ ________ ________ ________ C. ________ ________ ________ ________ c. d. Real Estate Lien Note a. b. c. d. Original executed by proper party Original/copy mailed to client Original/copy provided to opposing party's attorney Other:________________________ ________ ________ ________ ________ Action Needed D. ________ Deed of Trust a. Original executed by proper party (and properly notarized) Original filed with County Clerk's Office and receipt obtained Recorded original/copy mailed to client Other:________________________ Date Completed ________ ________ b. ________ ________ ________ ________ ________ E. ________ c. d. Deed of Trust to Secure Assumption a. Original executed by proper party 141 (and properly notarized) ________ ________ b. Original filed with County Clerk's Office and receipt obtained Recorded original/copy mailed to client Notify superior lien holders of existence of inferior lien and request notice of default of superior lien(s) Other:________________________ ________ ________ ________ ________ c. d. ________ ________ ________ F. ________ e. Transfer of Lien a. Original executed by proper party (and properly notarized) Original filed with County Clerk's office and receipt obtained Recorded original/copy mailed to client Other:________________________ ________ ________ b. ________ ________ ________ ________ ________ G. ________ ________ c. d. Assignment of Escrow Funds Letter a. b. Original executed by proper party Original mailed to mortgage company with copy of Special Warranty Deed Copy mailed to client ________ ________ ________ Date Completed ________ Action Needed ________ H. c. d. Other:________________________ ________ Notice of Assignment of Homeowner's Policy with cover letter to insurance carrier Assignment of Utility Deposits a. b. Original executed by proper party Copy mailed to gas, water, electric, cable and phone company with cover letter Original given to client ________ I. ________ ________ ________ ________ ________ ________ c. 142 ________ d. Other:________________________ ________ 3. Sale of Real Estate A. Facilitate and monitor the sale of real estate a. Establish reminder system (1) Client monitor for a remarriage, death, cohabitation, etc., which would trigger the sale requirement Create a reminder for required listing or sale date ________ ________ ________ ________ ________ (2) ________ ________ b. Check official records (for example, to determine whether there has been a marriage) ________ B. ________ Review and obtain execution of real estate listing agreement a. If being sold by both parties in accordance with terms of decree, have both parties sign listing agreement Insure that the property is kept in sellable condition Verify compliance with all other applicable terms of the decree (such as showing the property to prospective buyers or periodic inspections to make certain that the property is being kept sellable) Assist or arrange for appraisals Notify lenders concerning real estate payment provisions Date Completed and request notification in the event of a default in payment ________ ________ ________ ________ ________ b. c. ________ ________ ________ ________ Action Needed d. e. C. ________ If disposition of real estate results in a taxable event: a. Insure that copies of all relevant documents will be provided to client or to you Aid in the determination of client's tax basis Recommend that client seeks advice from tax attorney/C.P.A. ________ ________ ________ ________ b. c. ________ 143 D. ________ Satisfaction and discharge of liens a. Refer specifically to paragraph and document number in decree and document number of other instrument creating the lien Promptly record the release of lien or other instrument satisfying the lien Especially for registered property, include a copy of the instrument for return to you with information marked ________ ________ b. ________ ________ c. ________ 4. Miscellaneous Transfer Documents A. Certificates of Title - Vehicles a. Obtain executed original title or executed power of attorney to transfer motor vehicle form from opposing party's attorney Original(s) given to client Other:________________________ ________ ________ ________ b. ________ B. c. Seller, Donor, or Trader's Affidavit/Application for Certificate of Title - Vehicle a. Original(s) given to client Other:________________________ ________ ________ ________ ________ C. D. ________ Action Needed ________ E. ________ ________ b. Letter to automobile insurance carrier Irrevocable Stock or Bond Power a. Original given to client with instructions ________ Date Completed b. Other:________________________ ________ Assignment of Interest - For Business a. b. Original given to client Other:________________________ ________ ________ 144 F. ________ ________ G. ________ ________ H. ________ I. ________ ________ J. ________ ________ ________ K. ________ ________ ________ L. Assignment of Interest - For Financial Accounts a. Original given to client b. Other:________________________ ________ Assignment of Interest - For Partnership/Joint Venture a. b. Original given to client Other:________________________ ________ Assignment of Interest - Miscellaneous a. ______________________________ ________ Special Power of Attorney a. b. Original given to client Other:________________________ ________ Operating Trust Agreement for Jointly Owned Property After Divorce a. b. c. Copy provided to opposing party's attorney Copy provided to client Other:________________________ ________ ________ ________ Collateral Pledge Agreement a. b. c. Original filed with County Clerk's office Copy provided to client Other:________________________ ________ ________ ________ Transfer of Nonrealty Assets Action Needed ________ a. Assist client in preparing and filing necessary instruments and documents ________ (1) Assist client in executing and filing vehicle certificates of title Date Completed ________ ________ 145 ________ (2) Prepare and have executed stock powers, change of beneficiaries or other indices of ownership ________ ________ b Assist in the physical transfer of property, such as household items Prepare and send appropriate correspondence concerning nonrealty property transfers ________ c ________ 5. Insurance A. Insure that required medical, hospitalization and dental insurance coverage is retained or obtained a. b. Review all policies Write to insurance carrier requesting notification of change in coverage, beneficiary, etc. Communicate with insurance carrier concerning provisions of the decree Set up necessary monitoring systems COBRA notice letter for continued coverage mailed to insurance carrier Health insurance letter for direct payment of benefits to sole managing conservator mailed to insurance carrier ________ ________ ________ ________ c. ________ ________ d. e. ________ ________ f. B. ________ ________ Insure that required life insurance is retained or obtained a. b. Review all policies Obtain change of beneficiary forms; complete and send to insurance carrier ______ Action Needed c. Write insurance company requesting notification of noncompliance with decree and/or restrictions to changes in beneficiaries Date Completed 146 6. Custody and Payment of Support A. Implement shared custody arrangement a. Prepare and send appropriate letters to schools, doctors, day care centers and other necessary parties Insure equal access to confidential information Inform child care providers of joint parenting ________ ________ ________ ________ ________ ________ B. ________ ________ b. c. Provide names of persons to mediate or arbitrate conflicts a. With the client's permission, contact the mediator (1) Provide the mediator with a copy of relevant portions of the decree Put mediator in contact with client ________ ________ ________ ________ C. ________ (2) Instruct client concerning payment of alimony or support a. Instruct client regarding due dates, address where to send payments and proper notations on payments Establish reminder system regarding any future lump sum payments ________ ________ b. ________ 7. Tax Matters A. Obtain all relevant documentation, or copies thereof, for preparation of returns and tax planning a. Provide copies of past filed returns to client or accountant Supply all documents concerning tax basis, deductible items, etc., to client or accountant ________ ________ b. ________ ________ B. C. ________ Action Needed Communicate directly with accountant concerning decree Advise client regarding dependency exemptions a. Explain the Multiple Support Declaration form, federal Date Completed form 2120, and any comparable state forms ________ ________ b. Instruct client to maintain records regarding child support ________ 147 ________ c. Instruct client to maintain records regarding all monies paid during each calendar year for the child's needs for use in determining who provided how much for child's support ________ D. ________ Communicate with client concerning tax effect of decree a. Advise client of the necessity to reinvest proceeds from certain sales of the homestead to avoid tax Work with client's C.P.A. or accountant or advise client to obtain qualified tax advisor ________ ________ b. ________ E. Assist client concerning federal W-4 form and any comparable state form Obtain and divide tax refunds or credits a. b. Assist in preparing tax returns Review returns before execution by client ________ F. ________ ________ G. ________ ________ Determine deductibility or adjustment to basis relating to attorney's fees and costs a. b. Review all time records and related documentation Provide written communications dealing with tax deductible portion of attorney's fees and costs and adjustment of tax basis ________ ________ ________ ________ H. Provide tax deductibility or adjustments to tax basis allocation on periodic billings a. Prepare separate letters concerning tax deductibility and basis adjustment Provide any other written material to aid client (e.g. billing statements and records) ________ ________ ________ b. ________ I. ________ Action Needed ________ ________ Tax exemption for child(ren) - IRS Form 8332 a. Original signed by opposing party ________ Date Completed b. c. Original given to client Other:________________________ ________ ________ 148 8. Payment of Indebtedness A. B. Provide payor with payment books, payment detail, etc. Communicate with creditors, requesting notification of default a. Prevent initiation of suit if there is default with appropriate communication In case of default, prevent assets from being lost by taking appropriate action ________ ________ ________ ________ ________ b. ________ 9. Change of Name A. Assist client in changing public records, driver's license, social security, etc. Obtain multiple certified copies of decree as needed by client ________ ________ B. 10. Military Retirement/Survivor's Benefit Plan A. Documents to be executed by opposing party: a. Agreement to Name Former Spouse Beneficiary Under the Armed Services Survivor Benefit Plan Survivor Benefit Plan Election Statement for Former Spouse Coverage - Form 20-237 Survivor Benefit Plan Election Change Form 20-238 ________ ________ ________ b. ________ ________ ________ B. ________ ________ C. ________ c. Documents to be executed by client: a. b. Request for Former Spouse Payments from Retired Pay Letter requesting survivor Benefit Plan Election ________ ________ Documents to be executed by attorney: (a) Certification of Finality of Court Order Under the Provisions of Title 10, U.S. Code, Section 1408 Letter requesting Survivor Benefit Plan Election ________ ________ Date Completed ________ Action Needed (b) 149 11. Civil Service Retirement A. Documents to be executed by client: a. Application for Apportionment of Retirement Benefits Under Public Law 95-366 ________ ________ B. ________ Documents to be executed by attorney: a. Notice letter to office of Personnel Management requesting direct payments ________ 12. Follow-up Communications A. B. Review of file to determine items to be returned to client Prepare appropriate letter explaining provisions of decree and detailing items returned and/or explain same in conference with client Letter to client advising that other legal services may be needed, wills, etc. Prepare necessary finalization of communications relative to final bill a. b. Write letter to client with final billing Send copy of bill to opposing party through counsel (if opposing party is to pay) Create a reminder system regarding payment ________ ________ ________ C. ________ D. ________ ________ ________ ________ ________ 13. c. Checklist for Preparation of Qualified Domestic Relations Order A. B. Is the document in the form of an order to be signed by the Court? Does the document clearly appear to be a judgment, decree, or order (including approval of a property settlement agreement)? Does the order clearly appear to relate to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child or other dependent of a Participant? Does the order clearly appear to be made pursuant to a state domestic relations (including a community property law)? l a w C. D. E. Does the order clearly appear to create or recognize the existence of an Alternate Payee's right, or assign to an Alternate Payee the right to receive all or portion of a Participant's accounts? 150 F. Does the order clearly specify the name and last known mailing address (if any) Participant? of the G. Does the order clearly specify the name and mailing address of each Alternate Payee covered by the order? Does the order clearly specify the amount or percentage of the total of the vested portions of a Participant's accounts to be paid to each Alternate Payee or the manner in which such amount or percentage is to be determined? percentage H. I. Does the order clearly specify the manner and times at which such amount or will be paid to each Alternate Payee? J. K. L. M. N. Does the order clearly specify the account or plan to which it applies? Is it clear that the order requires payment in a lump sum or installments? Is it clear that the times of payment are permissible under the terms of the Plan? Is it clear that the percentage described in item No. 8 is 100% or less? Is it clear that the order does not require the payment of benefits to an Alternate Payee which are required to be paid to another Alternate Payee under another order previously determined to be a qualified domestic relations order? IX Military and Civil Service Retirement Benefits A. Military Members 1. Active Duty Member The retired pay of an active duty service member is clearly subject to division by the divorce Court. In preparing for trial, the attorney for each party should plan to put into evidence the following information: a. b. c. d. The service member’s PEBD (“Pay Entry Base Date”) The date of the parties’ marriage The service member’s pay grade (rank) at divorce The number of months (or years and months) the service member has been on active duty at the time of divorce (longevity) 151 e. The number of months (or years and months) the parties have been married while the service member has been on active duty at divorce The service member’s base pay at divorce Your calculation (percentage and/or dollar amount), based upon the above, of the community estate’s interest in the service member’s retired pay at divorce subject to being divided by the Court Compliance with the Soldier’s and Sailor’s Civil Relief Act (SSCRA). 50 App. USCA §§3501 et. seq. The service member’s retired pay will be annually affected by Cost Of Living Adjustments (COLA), if you represent the service member’s spouse f. g. h. i. Most of this information is available on the service member’s Leave and Earnings Statement (LES). You should therefore introduce at least the most current LES into evidence. It is recommended, however, that you also prepare an exhibit of your own creation, in addition to introducing one or more LES’s, which summarizes your contentions and have your client testify to those calculations. 2. Retired Active Duty Member When a retired active duty member is involved, you do not have as much to prove and the various benchmarks which go into determining the community estate’s interest in the retired pay is fixed. Thus, in this instance, all you need to ensure is in the record are the following: a. b. c. The service member’s PEBD (“Pay Entry Base Date”) The date of the parties’ marriage The number of months (or years and months) the service member has been on active duty at the time of retirement (longevity) The number of months (or years and months) the parties had been married while the service member was on active duty at the time of his retirement 152 d. e. f. The service member’s current retired pay Your calculation (percentage and/or dollar amount), based upon the above, of the community estate’s interest in the service member’s retired pay subject to being divided by the Court The service member’s retired pay will be annually affected by COLA’s, if you represent the service member’s spouse g. It is not necessary to prove compliance with the Soldier’s and Sailor’s Civil Relief Act (SSCRA) when the service member is not on active duty since that is the only category of service member it protects. You should ensure, however, that the record clearly reflects that the service member is retired at the time the divorce was filed and/or finalized and that compliance with the SSCRA is therefore not applicable to this proceeding. Although not a necessary element of proof, it is nevertheless suggested that, as part of your “routine” evidentiary proof, you also include the service member’s pay grade (rank) at the time of retirement. 3. Reserve Component/National Guard Member a. b. c. d. The service member’s PEBD (“Pay Entry Base Date”) and Reserve Anniversary Date The date of the parties’ marriage The service member’s pay grade (rank) at divorce Both the: i. Number of months (or years and months) the service member has accrued for pay purposes duty at the time of divorce (longevity); and Number of retirement points the service member has earned or accumulated a the time of divorce ii. e. Both the: i. Number of months (or years and months) the parties have been married while the service member has been in the active reserves at divorce; and 153 ii. Number of retirement points the service member has earned or accumulated during then parties’ marriage at the time of divorce f. g. The service member’s base pay at divorce Your calculation (percentage and/or dollar amount), based upon the above, of the community estate’s interest in the service member’s retired pay at divorce subject to being divided by the Court (choose the correct “retirement point” formula or using the “time” formula, depending on which best suits your client’s situation) Compliance with the SSCRA if the reserve component member is then on active duty; otherwise, compliance is not applicable The service member’s retired pay will be annually affected by COLA’s, if you represent the service member’s spouse h. I. 4. Retired Reserve Component/National Guard Member When a retired reserve component member is involved, as with a retired active duty service member, you do not have as much to prove since he is already retired and the various benchmarks which go into determining the community estate’s interest in the retired pay is fixed. Thus, in this instance, you need to ensure the following is in the record: a. b. c. The service member’s PEBD (“Pay Entry Base Date”) and Reserve Anniversary Date The date of the parties’ marriage Both the: i. Number of months (or years and months) the service member has accrued for pay purposes at the time of divorce (longevity); and Number of retirement points the service number has earned or accumulated at the time of his retirement (the number upon which his retired pay is based) ii. d. Both the: 154 i. Number of months (or years and months) the parties have been married while the service member has been in the active Reserves at the time of his retirement; and Number of retirement points the service member has earned or accumulated during the parties’ marriage at the time of divorce ii. e. f. The service member’s current retired pay Your calculation (percentage and/or dollar amount), based upon the above, of the community estate’s interest in the service member’s retired pay at divorce subject to being divided by the Court (choose the correct “retirement point” formula or using the “time” formula, depending on which best suits your client’s situation.) The service member’s retired pay will be annually affected by COLA’s, if you represent the service member’s spouse g. As noted above it is not necessary to prove compliance with the SSCRA when the service member is retired. As a precaution, however, ensure that the record clearly reflects that the service member is retired at the time the divorce was filed and/or finalized and that compliance with the SSCRA is therefore not applicable to this proceeding. Although not a necessary element of proof, it is nevertheless suggested that as part of your “routine” evidentiary proof that you also include the service member’s pay grade (rank) a the time of his retirement. 5. Military Retirement Apportionment Request Pursuant to the terms of the Uniformed Services Former Spouses’ Protection Act, 10 U.S.C. § 1408, as amended, enclose the following documentation a. An Application for Direct Payments from a Member’s United States (Branch of Service) Retirement Pay, Form DFAS-IN FORM 0-1767 A copy of the [Decree of Divorce and/or Domestic Relations Order for (Military Retirement)] that has been certified within the last 90 days A Certification of Finality of Court Order executed by me 155 b. c. d. e. B. 1. A copy of the parties’ Marriage Certificate Address and telephone number Civil Service Retirement Benefits Two Federal Retirement Systems a. Civil Service Retirement System (CSRS) i. b. Statutory Authority - 5 U.S.C. §8301 et seq. Federal Employees Retirement System (FERS) i. Statutory Authority - 5 U.S.C. §8401 et seq. c. 2. No Federal Preemption Benefits Available a. CSRS i. ii. iii. iv. Retirement Annuity Lump Sum Benefits Survivor Annuities Thrift Savings Plan b. FERS i. ii. iii. iv. Basic Retirement Annuity Lump Sum Benefits Survivor Annuities Thrift Savings Plan c. Protection for Spouses and Former Spouses - Both Systems i. ii. Will not pay lump sum credit without notification of spouse and others of application for lump sum credit Transfers, loans, and changes in election under Thrift Plan require notice and waiver 156 iii. Survivors annuities are provided unless waived by both spouses 3. Division of Retirement Benefits and Direct Payments a. b. Court can award up to 100% of the benefit Notice of award to Office of Personnel Management (OPM) of the Executive Director is required and applies only to payments made subsequent to receipt of notice of the decree Express direct payment provisions are necessary c. 4. Survivor Benefits for Former Spouses a. CSRS i. Survivor Annuity for Former Spouse A. B. C. D. E. Election of Survivor Benefit A Court Order 5 Years of Service Maximum Annuity for Former Spouse - 55% of Gross Annuity Commencement Date of Former Spouse Annuity is determined by the decree, order or agreement but cannot commence before death of employee spouse or before the 1st day of the 2nd month after OPM receives notice and required documents. Termination Date (i). In accordance with decree, order of agreement (ii). Death of former spouse or (iii). Remarriage of former spouse prior to age 55 Decree is not effective to a survivor annuity that has previously been waived “Former Spouse” is a term of art Division of survivor annuity between former spouse and current spouse is possible F. G. H. I. ii. Lump Sum Credit A. No survivor annuity for former spouse if employee spouse separates from service with fewer than 5 years of service 157 B. If former spouse is designated beneficiary, former spouse may receive decreased former employee’s lump sum credit b. FERS i. Basic Survivor Annuity A. Election of benefit for former spouse is required B. Court order is required C. Required years of service - 10 years D. Maximum annuity - generally 50% of gross annuity (i). Supplemental annuity may be available E. Commencement date - same as CSRS F. Termination date - generally same as CSRS G. Decree is ineffective where there has been a prior waiver H. “Former Spouse” is a term of art I. Division of survivor benefits between former spouse and current spouse is possible Lump Sum Survivor Benefit A. Court order is required B. Eighteen months of service prior to employee’s death is required C. Notice to OPM of decree - applies to payments after notice and required documents are received ii. iii. Thrift Savings Plan A. Election of benefit for former spouse is required B. Court order is required C. Eighteen months of service prior to employee’s death is required D. May be available to former spouse of a deceased former employee who died is entitled to an immediate or deferred annuity under FERS basic annuity Commencement date - same as CSRS Termination date - same as CSRS Decree is ineffective where there has been a prior waiver E. F. G. 5. Drafting Enforceable Decrees 158 a. General Rules Regarding Court Orders i. Definitional section of regulations apply to CSRS and FERS A. Civil Service Retirement System (CSRS) - The retirement system for federal employees described in Subchapter III of Chapter 83 of Title 5 of the United States Code B. Federal Employees Retirement System (FERS) The retirement system for federal employees described in Chapter 84 of Title 5 of the United States Code Court Order - Any judgment or property settlement issued by or approved by any court of any state, the District of Columbia, the Commonwealth of Puerto Rico, Guam, The Northern Marianna Islands, or the Virgin Islands, or any Indian Court in connection with, or incident to, the divorce, annulment of marriage, or legal separation of a federal employee or retiree Court Order Acceptable For Processing - A court order meeting the requirements of 5 C.F.R. Part 8383 to affect an employee annuity, a refund of employee contributions, or to award a former spouse survivor annuity. These requirements are discussed in detail hereafter Employee - An employee or member covered by CSRS or FERS Employee Annuity - The reoccurring payments under CSRS or FERS made to a retiree. “Employee annuity” does not include payments of accrued and unpaid annuity after the death of a retiree under 5 U.S.C. 8342(g) or 5 U.S.C. 8424(h) ERISA - The Employees Retirement Income Security Act, 29 U.S.C. 1001 et seq. Former Spouse - The term may have two definitions. In connection with a court order affecting an employee annuity or a refund of employee contributions, it is the living person whose marriage 159 C. D. E. F. G. H. to an employee has been subject to a divorce, annulment of a marriage, or legal separation resulting in a court order. In connection with a court order awarding a former spouse survivor annuity, it is a living person who was married for at least nine months to an employee or retiree who performed at least 18 months of civilian service creditable under FERS, and whose marriage to the employee or retiree was terminated prior to the death of the employee or retiree. I. Former Spouse Survivor Annuity - A recurring benefit under CSRS or FERS, or the basic employee death benefit under FERS as described in 5 C.F.R. Part 843, (the lump sum payment equal to 50% of the final annual pay rate of the employee plus $15,000), that is payable to a former spouse after the employee’s or retiree’s death Gross Annuity - The amount of monthly annuity payable after reducing the self only annuity to provide survivor annuity benefits, if any, but before any other deduction. Note that unless the court order specifically provides otherwise, a gross annuity is also interpreted to include the lump sum payments made to the retiree under 5 U.S.C. 8343(a) or 5 U.S.C. 8420(a). Member - A member of Congress covered by CSRS or FERS Net Annuity - The amount of monthly annuity after deducting from the gross annuity any amounts that are [1] owed by the retiree to United States, [2] deducted for health benefit premiums under 5 U.S.C. §8906 and 5 C.F.R. 891.401 and 891.401, [3] deducted for life insurance premiums under 5 U.S.C. §8714(a)(d), [4] deducted for medical premiums, [5] properly withheld for federal income tax purposes, if the amounts withheld are not greater than they would be if the retiree claimed all dependents to which he or she is entitled, or [6] properly withheld for state income tax purposes, if the amounts withheld are not greater than they would 160 J. K. L. be if the retiree claimed all dependents to which he or she was entitled. Note that unless the court order expressly provides otherwise, net annuity also includes any lump sum payments made to the retiree under 5 U.S.C. §8343(a) or §8420(a). M. Reduction to Provide Survivor Benefits - The reduction required by 5 U.S.C. §8339(j)(4) or §8419(a) Refund of Employee Contributions - A payment of the lump sum credit to a separated employee under 5 U.S.C. §8342(a) or §8424(a). A refund of employee contributions does not include lump sum payments under 5 U.S.C. §8342(c) through (f), or 5 U.S.C. §§8424(d) through (g). Retiree - A former employee or member who is receiving recurring payments under CSRS or FERS based on his or her services as an employee. Note that retiree does not include a person receiving an annuity only as a current spouse, former spouse, child or person with an insurable interest. Self Only Annuity - The recurring payments to a retiree who has elected not to provide a survivor annuity to anyone. Note that unless the court order expressly provides otherwise, a self only annuity includes any lump sum payments made to the retiree under 5 U.S.C. §8343(a) OR §8420(a). Separated Employee - A former employee or member who has separated from a position in the federal government covered by CSRS or FERS, who is not currently employed in such a position, and who is not a retiree N O. P. Q. ii. Anti-Alienation Provisions A. Benefits are not assignable by employees, retirees or state courts except as specifically provided for in 5 C.F.R. Part 838 Benefits are not subject to execution, levy, attachments, garnishment or other legal process 161 B. except as is expressly provided for under federal law iii. Multiple Court Orders A. Employee annuity or former spouse annuity - will be honored to the extent possible on a first come first serve basis Refunds of employee contributions - if the Court orders affects two or more former spouses, the refund will not be paid if either court order prohibits payment of the refund, otherwise the orders will be honored in the order in which they were issued until the contributions have been exhausted Validity of Court Order (i). If conflicting court orders from the same jurisdiction are submitted, OPM will consider only the latest court order If the conflicting orders are from different jurisdictions and one order is from the employee’s address reflected on OPM’s records, OPM will consider only the order issued by that jurisdiction If none of the court orders are from the jurisdiction of employee’s address, OPM will only consider the latest court order Side agreements or settlements not in the form of a properly filed court order acceptable for processing will not be accepted Administrative appeals from OPM rulings (a). (b). (c). Issues concerning the application of the regulations are not appealable Issues concerning the validity of the regulations are appealable Appeal must be filed in accordance with the procedures established by the Merits System Protection Board B. C. (ii). (iii). (iv). (v). 162 (d). (vi.) Appeal may not be filed before OPM has issued a final opinion OPM address for filing court orders affecting CSRS and FERS benefits is: Office of Personnel Management Retirement and Insurance Group P. O. Box 17 Washington, DC 20044 The address for personal delivery of court orders affecting CSRS and FERS benefits by process servers, express carriers or other forms of hand-carried deliveries is: Court Ordered Benefits Section Allotment Branch Retirement and Insurance Group Office of Personnel Management 1900 E. Street, NW Washington, DC (vii). b. Court Orders Affecting Employee Annuities and Refunds of Contributions i. General Requirements for Court Orders Affecting Employee Annuities A. B. C. D. E. F. ii. Identify the system and divorce annuity Provide for payment to former spouse Provide information sufficient to compute award Specify type of annuity “Qualified Domestic Relations Orders” are prohibited Award for lifetime is prohibited General Requirements for Court Orders Affecting Refunds and Employee Contributions A. B. C. D. Identify the system and divide the annuity Provide for payment to former spouse Provide information sufficient to compute award An order barring refunds will not constitute an order acceptable for processing unless it meets requirements 163 iii. Terminology in Orders A. Must identify the retirement system, i.e., “CSRS”, “FERS”, “OPM” or “Federal Government” benefits payable “Annuities” vs. “Contributions” - are terms sufficient to identify employee annuity and the refund of employee contributions “Pro Rata Share” is a term of art Cost of living and salary adjustments (COLA) Computation of Length of Service (i). For inclusion of accrued sick leave - use the term “credible service” and specify amount of unused sick leave Decrees including formulas and dollar amounts are deemed to include the dollar amount only as the Court’s estimate amount of the initial payment. The formula or percentage will control. Portion of Annuity Being Divided (i). “Gross Annuity” (ii). “Net Annuity” = “Disposable Annuity”, “Retirement Check” (iii). “Self-Only Annuity” = “Life Rate Annuity”, “Unaccrued Annuity” and “Annuity Without Survivor Benefit” (iv). Any order that does not specify net annuity or self only annuity will be treated as a gross annuity B. C. D. E. F. G. iv. OPM Recommended Language for Dividing Employee Annuities A. B. Do not label order dividing CSRS or FERS benefits a “QDRO” Required language in order is labeled “QDRO”: “The Court has considered the requirements and standard terminology provided in Part 838 of Title 5, Code of Federal Regulation. 164 Terminology used in the provisions of this order concern benefits under the [Civil Service Retirement System/Federal Employees Retirement System] are governed by standard conventions established in that part.” Appendix A, Subpart F, Part 838, Title 5 Code of Federal Regulations, ¶101. C. Identify the Retirement Benefit, 5 C.F.R. §838.303 and Ordering Direct Payment, 5 C.F.R. §838.304. See Appendix A, Subpart F, Part 838, Title 5 Code of Federal Regulations ¶101 for recommended language. Protecting Former Spouse Entitled to Military Retired Pay. See Appendix A, Subpart F, Part 838, Title 5 C.F.R. for OPM promulgated language Computing Amount of Former Spouse’s Benefits. See Appendix A, Subpart F, Part 838, Title 5 C.F.R. ¶201 et seq. for clauses for awards. (i). (ii). (iii). (iv). (v). (vi). Award of fixed monthly amount - ¶201 Award of percentage - ¶201 Award of fraction - ¶203 Award of pro rata share - ¶204 Award based on formula - ¶211 Awarding COLA’s on fixed monthly amount ¶231 (vii). Excluding COLA’s on awards other than fixed monthly amounts ¶232 D. E. (viii). Awards must specify type of annuity (gross, net, or self only) if not a fixed dollar amount ¶300 et seq. v. Language Dealing With Refunds of Employee Contributions. See Appendix A, Subpart F, Part 838, Title 5 C.F.R. ¶311 et seq. A. Barring Payment of Refunds - ¶401 165 B. vi. Dividing Refunds of Employee Contributions ¶402 Language Dealing with Death of Former Spouse and Effect on Former Spouse’s Share of Employee Annuity no special provision is required to restore the entire annuity to the retiree upon the death of the former spouse. It is automatic unless the court order expressly provides otherwise. Order can provide for deceased former spouse’s share be paid to: A. B. C. Children Estate Court (to administer the funds) vii. OPM Procedures for Processing Court Orders Affecting Employee Annuities A. Availability and amounts subject to court orders. 5 C.F.R. §838.211(a)(1)(2)&(3), §838.211(b) and §838.211(c) Application Requirements (i). (ii). Must apply in writing (personally or by representation) Application must be accompanied by (a). Certified copy of court order acceptable for processing that is directed at the employee annuity A certification from former spouse or representative that court order is currently in force and has not been amended, superseded or set aside Information sufficient for OPM to identify the employee or retiree (name, social security number, CSRS or FERS claim number, and date of birth) The current mailing address of former spouse and employee B. (b). (c). (d). 166 (iii). If payments are subject to termination for remarriage under the terms of the order provide a statement to OPM certifying (a). (b). (c). Remarriage has not occurred Former spouse will notify OPM within 15 days of remarriage That former spouse will personally be liable for any overpayment to him or her C. D. OPM action on receipt of court orders acceptable for processing. See 5 C.F.R. §838.222 OPM action on receipt of court orders not acceptable for processing - OPM will inform former spouse that they cannot approve the application and provide specific reasons Contesting validity of court orders - 5 C.F.R. §838.224(a). Employee, retiree or separated employee must establish validity of the order by submitting an order that (i). (ii). Declares former spouse’s order invalid; or Sets aside former spouse’s order E. F. G. OPM processing of amended or clarifying court orders. 5 C.F.R. §838.225(a) and (b) Commencement of payment by OPM - first day of second month after OPM receives the court order and required documentation. 5 C.F.R. §838.221 Termination of payments to former spouse. 5 C.F.R. §838.237 OPM collecting arrearages. 5 C.F.R. §838.225 and 5 C.F.R. §838.234 OPM payment of lump sum awards. 5 C.F.R. §838.235 Court orders barring payment of employee annuity is invalid. 5 C.F.R. §838.236 Effect of death of former spouse 167 H. I. J. K. L. (i). Former spouse’s share terminates on the last day of the month before death of the former spouse and reverts to the retiree. 5 C.F.R. §838.237(a) unless there is an order to pay former spouse’s share to the children, her estate, or an officer of the court acting as a fiduciary M. viii. OPM payment of COLA’s. 5 C.F.R. §838.621 and 5 C.F.R. §838.241 OPM Procedures for Processing Court Orders Affecting Refunds of Employee Contributions A. B. C. Availability and amounts subject to court orders. 5 C.F.R. §838.411 Application requirements (same as for employee annuity). 5 C.F.R. §838.421 Time constraints on application. Application and order for refund will not be effective unless OPM receives the documentation required no later than the last day of the second month before payment of the refund or 20 days after OPM receives the statement required by 5 C.F.R. §838.207(c) or 5 C.F.R. §843.206(b). See 5 C.F.R. §838.422(a) OPM action on receipt of court order acceptable for processing. 5 C.F.R. §838.423 OPM action on receipt of court order not acceptable for processing. 5 C.F.R. §838.424 (same as for employee annuity) Contesting the validity of court orders. 5 C.F.R. §838.425 (same as for employee annuity) Court orders barring payment of refund. 5 C.F.R. §838.432; 5 C.F.R. §838.505 D. E. F. G. c. Court Orders Affecting Former Spouse Survivor Annuities i. General Requirements for Court Orders Affecting Former Spouse Survivor Annuity 168 A. Date of divorce limitation on CSRS awards divorced on or after May 7, 1985. 5 C.F.R. §838.802(a) and (b) “Qualified Domestic Relations Orders” prohibited unless order expressly contains provision that the court order is governed by 5 C.F.R. Part 838. 5 C.F.R. §838.803 No continuation of employee annuity following death of retiree. 5 C.F.R. §838.803 Express award of former spouse survivor annuity is required. 5 C.F.R. §838.804 OPM application of formulas. 5 C.F.R. §838.805. Court order must (i). Provide sufficient instructions and information so that OPM can determine the amount of the former spouse’s monthly benefit using only the express language of the court order, the regulations in 5 C.F.R. Part 838 and information from normal OPM files. If the court uses a formula, it must not use any variables whose values are not readily ascertainable from the face of the court order or normal OPM files Court order is not acceptable for processing if OPM would have to examine a state statute or court decision to understand, establish or evaluate the formula for computing the former spouse annuity B. C. D. E. (ii). (iii). F. Amended Court Orders. 5 C.F.R. §838.806 (i). An order issued after the date of retirement or death of the employee that modifies or replaces the first order dividing the property will not be treated by OPM as an acceptable order 169 G. Cost of Former Spouse Annuity. 5 C.F.R. §838.807(e) (i). Cost must be collected from the annuity paid by OPM, 5 U.S.C. §8419, or the annuity reduction required by 5 U.S.C. §8339 (j)(4) ii. Terminology in Orders Awarding Former Spouse Survivor Annuity A. Identifying the System (i). (ii). (iii). (iv). B. CSRS FERS OPM Federal Government Specifying Award of Former Spouse Annuity Required (i). Former Spouse Survivor Annuities. 5 U.S.C. §8341(b) for CSRS and 5 U.S.C. §8445 for FERS Insurable Interest Annuities. 5 U.S.C. §8339(k) for CSRS and 5 U.S.C. §8444 for FERS Internal contradictions within the order are controlled by the section reference. 5 C.F.R. §838.912(c) (ii). (iii). C. Determination of Amount of Former Spouse Annuity (i). An order which does not state the amount of the annuity will be interpreted by OPM as providing the maximum former spouse survivor annuity. 5 C.F.R. §838.921 D. E. Pro-rata Share Defined. 5 C.F.R. §922 Cost of Living Adjustments before death of retiree are deemed ordered unless the order expressly orders OPM not to add these adjustments. 5 C.F.R. §838.923 170 F. Temporary awards of survivor annuities becomes permanent when OPM is barred from honoring a modification of the court order. 5 C.F.R. §838.931 Court orders permitting election by former spouse to receive former spouse survivor annuity. 5 C.F.R. §838.932 Payment of Cost of Former Spouse Annuity. 5 C.F.R. §933 (i). Cost of annuity will be deducted from the former spouse’s share of the annuity (if sufficient to cover it) If not sufficient to cover the cost, then it will be deducted from the employee’s annuity and must be recovered from the former spouse by the employee G. H. (ii). iii. OPM Recommended Language for Court Orders Awarding Former Spouse Survivor Annuities. Clauses for the award of a former spouse annuity promulgated by OPM are found in Appendix A, Subpart I, Part 38, Title 5, C.F.R. A. B. Award of maximum survivor annuity Award that continues predivorce survivor annuity benefits C. D. E. Award of “pro rata” share. ¶703 Award of fixed monthly amount. ¶704 Award by percentage or fraction of employee annuity. ¶711 F. Award based on formula as share of employee benefit. ¶712 G. H. Award of percentage or fraction of maximum survivor annuity. ¶721 Award based on formula applied to share of maximum survivor annuity. ¶722 171 I. Award of reducing amount of former spouse survivor annuity on remarriage of employee prior to retirement. ¶751 Award of reducing amount of former spouse survivor annuity on remarriage of employee after retirement. ¶752 Paying cost of former spouse survivor annuity. ¶802 Refund of employee contributions. ¶901 and ¶902 J. K. L. iv. OPM Procedures for Processing Orders Awarding Former Spouse Survivor Annuity A. Application Requirements - 5 C.F.R. §838.721 (i). (ii). (iii). No special form Former spouse or representative Based upon a court order acceptable for processing (iv). B. Documents to be sent with application (same as employees annuities paragraph above) OPM Action on Receipt of Court Order Acceptable for Processing Living retiree. 5 C.F.R. §838.722(a) (i). (ii). Deceased employee, separated employee or retiree. 5 C.F.R. §838.722(b) Living employee or separated employee. 5 C.F.R. §838.722(c) C. D. OPM Action on Receipt of Court Order Not Acceptable for Processing. 5 C.F.R. §838.723 Contesting Validity of Court Orders. 5 C.F.R. §838.724 E. Commencing Date for Payments. 5 C.F.R. §838.731 F. G. Termination of Entitlement. 5 C.F.R. §838.732 Payment of Lump Sum Awards by Survivor Annuity. 5 C.F.R. §838.734 172 H. 6. Cost of Living Adjustments. 5 C.F.R. §838.735 Drafting Decrees Dealing with Awards of Thrift Savings Plan Benefits. Subpart I of Part 1859, Title 5 C.F.R. a. Alimony and Child Support Court Orders Thrift Savings Plan is subject to legal process. 5 U.S.C. §8437(e)(2) and (3) and §459 of the Social Security Act (42 U.S.C. §659) Division of Plan Benefits i. Will Only Honor Qualifying Retirement Benefits Order A. Court decree of divorce, annulment or legal separation, or any other court or court approved property settlement agreement incident to such decree. Expressly refer to participants thrift savings plan account C. Clear intent to deal specifically with the thrift savings plan as distinguished from other federal retirement benefits and contain terms appropriate to a defined contribution plan Expressly award a specific dollar amount, a percentage of the account as of a specific date or event or by applying a formula. 5 C.F.R. §1650.29(b)(1) and (2) b. B. D. ii. Status Quo Temporary and Clarifying Orders. 5 C.F.R. §1150.29(i) iii. Procedures for Payment. 5 C.F.R. §1650.30 A. B. C. Payment Dates Calculation of Amounts. 5 C.F.R. §1650.30(a)-(d) Exclusion of Interest and Earnings (i). Unless the order provides otherwise, a former spouse’s entitlement will not be credited with interest or earnings 173 (ii). Exception: Where order awards former spouse a percentage or fraction of an account to be calculated as of a future date or event and payment is made as a result of separation from federal service, earnings (or losses) shall be included from the date of which the entitlement was calculated. 5 C.F.R. §1650.30(e) D. Vested and Nonvested Amounts. 5 C.F.R. §1650.30(f) Ceiling on Payments - Payment to former spouse may not exceed the participant’s account balance less any nonvested money and excluding any outstanding loan amount. 5 C.F.R. §1650.30(g) Adjustments to Entitlement. 5 C.F.R. §1650.30(h) (i). (ii). Late contributions Negative adjustments (attributable lost earnings E. F. G. Form of Payment - Single Payment Only. 5 C.F.R. §1650.30(i) Effect of Death of Former Spouse Prior to Payment - Payment will be made to the estate of former spouse unless otherwise specified by the order. 5 C.F.R. §1650.30(j) H. iv. Processing of Court Orders Dividing Benefits A. Account will be frozen upon receipt by the federal retirement thrift investment board of a qualifying order and the parties will be notified. 5 C.F.R. §1650.31(a) Review by general counsel to determine whether or not the order is a qualifying retirement benefits order and the amount of former spouse’s entitlement. 5 C.F.R. §1650.31(e) 174 B. C. When Account Freeze Released. 5 C.F.R. §1650.31(f)(1)-(4) D. Information to be Provided With the Order (i). (ii). (iii). Full name Mailing address Social security number of the participant v. vi. Appeal Procedures. 5 C.F.R. §1650.32 Termination of Former Spouse Benefits. 5 C.F.R. §1650.43(a)-(c) 7. Transfer from CSRS to FERS a. b. c. d. Election period was from July 1, 1987 to December 31, 1987 Election period applied to current employees and members Potential problem - former employees who become re-employed Election may not be effective unless made with written consent of any former spouse entitled to benefits so long as OPM has received a copy of the qualifying order and documents. OPM can waive this requirement if it is shown that former spouse’s whereabouts cannot be acquired or if the employee or member presents a judicial determination that would warrant waiver based on exceptional circumstances. Transfer from CSRS to FERS will cancel any designation of a survivor beneficiary of the employees CSRS lump-sum credit. 5 C.F.R. §846.501 e. 8. Health Insurance Benefits 5 U.S.C. §8901 et seq. Civil Service Disability Benefits to the Extent They Are Earned During the Marriage Are Divisible Federal Worker’s Compensation Benefits 5 U.S.C. §8101 et seq. 9. 10. 175 Split of Texas Authority a. Divisible - Anthony v. Anthony, 624 S.W. 2d 388 (Tex. Civ. App.Austin 1981, writ dism’d) Not Divisible - Bonar v. Bonar, 614 S.W. 2d 472 (Tex. Civ. App.El Paso 1981, writ ref’d n.r.e.) b. 11. Assignment of Federal Employees Group Life Insurance Benefits Now Allowed 5 U.S.C. §8706(e) X MISCELLANEOUS TOPICS. A. Life Insurance Benefits. There are two basic types of life insurance: term insurance and whole life. For the divorce practitioner, whole life insurance has received more attention than term life, due to the fact that whole life has more obvious value at divorce than term insurance. It is clear that there is a community claim to the cash value of a whole life policy purchased during marriage with community funds. Womack v. Womack, 172 S.W.2d 307 (Tex. 1943); Grost v. Grost, 561 S.W.2d 223 (Tex. Civ. App. -- Tyler 1977, writ dism'd w.o.j.); In re Holmgren, 130 Cal. Rptr. 440 (Cal. App. 1976). In contrast, some courts have concluded that a term policy has no value at divorce. See Carter v. Massey, 668 S.W.2d 450 (Tex. App. -Dallas 1984, no writ). Some courts in other states have reached the same conclusion regarding term policies. See generally J. T. Oldham, Divorce, Separation and the Distribution of Property (1994), Section 7.08. Of course, spouses may agree in a settlement agreement to share term life insurance after divorce. Hudspeth v. Stoker, 644 S.W.2d 92 (Tex. App. -- San Antonio 1982, writ ref'd.). An analysis of the California cases show: 1. Although some California courts have agreed with what appears to be the current Texas view regarding term life policies (In re Lorenz, 194 Cal. Rptr. 237 (Cal. App. 1983)), other courts in California have questioned whether term life policies have no value. For example, one court noted that a term policy could have a value to the insured spouse if the spouse 176 became uninsurable after the purchase of the policy, and the spouse was only able to maintain life insurance coverage after divorce due to coverage purchased during marriage by the community. In re Estate of Logan, 236 Cal. Rptr. 368 (Cal. App. 1987); Modern Woodmen of America v. Gray, 299 Pac. 754 (Cal. App. 1931); Biltoft v. Wootten, 157 Cal. Rptr. 581 (Cal. App. 1979). (Under most term policies, the insurance company may not cancel the life policy for health reasons after it is purchased, and the insured need not provide any additional evidence of insurability.) Indeed, other courts have noted that the proper measure for the value of whole life policies should not be limited to cash surrender value if the insured has become uninsurable during marriage, or if certain other benefits will accrue to the insured at a favorable rate due to the payment of premiums with community funds during marriage. In re Marriage of Gonzalez, 214 Cal. Rptr. 634 (Cal. App. 1985). 2. One recent California decision that involved a spouse who became uninsurable during marriage was In Re Marriage of Spengler, 6 Cal. Rptr.2d 764 (Cal. App. 1992). The court disagreed with the argument that the community should have a claim to a term policy if the insured spouse becomes uninsurable during marriage. In this case, the life insurance was a fringe benefit of employment. The court concluded that in this situation the insured's right to continue the coverage was contingent both upon the insured continuing to work for the employer and the employer maintaining the group insurance plan. Because of these contingencies, the court concluded that there was no community property interest in the term insurance at divorce. Even if the insured did not become uninsurable during marriage, other courts have held that the term policy can have some value at divorce. For example, in Biltoft v. Wootten, supra, the insured continued to make premium payments after separation with separate property funds. The court found that the insured would not have been able to purchase the same coverage at the time of separation for the price he was paying had he not purchased the policy previously and paid the premiums with community funds. This court noted that this "discounted" insurance coverage was valuable and should be considered a community contribution. See also, In re Marriage of Gonzalez, 214 Cal. Rptr. 634 (Cal. App. 1985). In re Bowman, 217 Cal. Rptr. 174 (Cal. App. 1985) is the most interesting California case regarding term life insurance. The husband first became covered by his employer's group life insurance plan during 177 3. 4. marriage. When the husband and wife divorced, the decree was silent regarding the insurance policies. The husband later remarried and designated his new wife as beneficiary. When he died, the first wife claimed a portion of the proceeds. The court held that the term policy had economic value at the time of divorce, and was community property to be divided. Because this community property interest was not divided at divorce, under California law, like Texas, the spouses continue to hold the property as tenants in common. The court concluded that, on remand, the trial court should determine the amount of life insurance benefits the husband could have purchased had he terminated his employment as of the date of separation from his first wife. The portion of the life insurance proceeds that would be included in the first community would be the ratio between that amount and the amount of insurance that was in force when the insured died. 5. Not all California courts have endorsed the views expressed in Gonzalez and Bowman. See Logan, supra, and Spengler, supra. It is unclear whether Texas courts will ever accept the views expressed in Gonzalez and Bowman. Still, conservative Texas practitioners would be wise to include an award of term life insurance policies in the decree when your client is covered by a term policy. B. The Refinanced Home Loan. Many Texans have within the past decade refinanced loans obtained when interest rates were substantially higher. A marital property rights issue arises if the spouse bought the property (and obtained the loan) before marriage and refinances it during marriage. Before the refinancing, the legal rule is clear. Community funds used to make loan payments create a prima facie right of reimbursement, based on Pennick v. Pennick, 783 S.W.2d 194 (Tex. 1988). This right of reimbursement arises because community funds are being used to pay a separate (pre-marriage) debt. What does the refinancing do? Does the new loan become a community debt for purposes of reimbursement calculations? If so, does the character of the property change? Somewhat surprisingly, no Texas case has discussed this problem. In Yeldell v. Yeldell, 551 A.2d 832 (D.C. App. 1988) the court ignored a refinancing transaction when characterizing the property. 178 C. Paying Obligations from a Prior Marriage During a Subsequent Marriage. If a spouse pays premarriage debts with community property, this normally gives rise to a prima facie community reimbursement claim. What if the prior debt was an alimony or child support claim? 1. In Marriage of Moore, 890 S.W.2d 821 (Tex. App. -- Amarillo 1994, no writ) the court held that the community was entitled to reimbursement when the spouse used community funds to pay a property division obligation that arose from a prior divorce. In Zieba v. Martin, 928 S.W.2d 782 (Tex. App. -- Houston [14th Dist.] 1996) the husband paid $147,000 during marriage in child support to children from a prior relationship. The wife argued at the time of divorce that he should reimburse the community for these expenditures. The court rejected this argument, noting that "these obligations were imposed by court order." Id. at 790. This explanation is a bit odd. Why does it matter that the obligation was in the form of a court order? Are these somehow more "real" debts than contract debts? How is Zieba different from Moore (since both involve debts in a decree)? Zieba's cursory statement leaves the state of Texas law in this area unclear. For example, should the result be affected by whether the other spouse consented to using community funds for these expenditures? Is it relevant whether the obligor had separate funds that could have been used? Joan Jenkins has noted that the result in Zieba seems fair, in that the other spouse "got what she bargained for, a used spouse complete with court-ordered financial obligations." See "Recent Cases, Interesting, Alarming and Otherwise," 1997 Marital Dissolution Institute, at J-l. This may be true, but how is this different from any other situation when a spouse marries another with premarriage debts and both are aware of the debts? Is there something different about child support? In Pelzig v. Berkville, 931 S.W.2d 398 (Tex. App. -- Corpus Christi 1996) a spouse asserted a Zieba-type reimbursement claim for community funds used to pay alimony and child support. The court considered this claim in more detail than the court did in Zieba. The court concluded that it was not an abuse of discretion not to award reimbursement in this situation. Here the husband apparently had separate property but made 179 2. 3. 4. 5. 6. payments with community funds. The court noted that the wife was aware of these obligations when she married him, and that the wife never tried to get the husband to use separate property for these obligations. 7. Pelzig leaves a few unanswered questions (assuming that it is the most detailed statement of Texas law to date). First, would it have been an abuse of discretion if the court had granted reimbursement? Second, would the result have been different if the wife had objected to the use of community funds? Callendar v. Callendar, 625 So.2d 257 (La. App. 1993) reached a result consistent with Zieba. However, Louisiana has adopted a statute that expressly states that a support obligation is a community obligation. In California, the community would have a right to reimbursement in a Zieba situation only to the extent that the obligor had separate property from which the obligation could have been paid. See Cal. Fam. Code sec. 915. (Note that this rule probably would have caused a different result in Pelzig). In Schweitzer v. Schweitzer, 915 P.2d 575 (Wash. App. 1996), the mother remarried and, over her husband's objection, used $35,000 in community funds to pay post divorce college expenses for a child of the first marriage. The appellate court reversed the trial court's order that she had to reimburse the community for these costs. 8. 9. 10. D. Alimony Until recently, Texas has not permitted court-ordered post-divorce alimony. Even now, statutory rules governing post-divorce alimony are quite restrictive. This makes it important what constitutes "alimony." Please note: 1. Texas courts may award a money judgment at divorce, as long as that award is tied to community property rights. See Price v. Price, 591 S.W.2d 601 (Tex. Civ. App. -- Tyler 1979, no writ). May a court do anything else? In Price, supra at 603, and in Francis v. Francis, 412 S.W.2d 29, 32-33 (Tex. 1967) the courts stated that an order to pay income from a spouse's property to the other spouse after divorce is NOT ALIMONY. No Texas court has since commented on this statement. So, is there another form of post-divorce support that now is possible in Texas, other than that set forth in TEX. FAM. CODE ANN. 180 2. §3.9601? See also, Le Blanc v. Le Blanc ,761 S.W.2d 450 (Tex. App.-Corpus Christi 1988, writ denied) which says, in dictum, that a divorce court may award the non-owner a homestead interest in the other spouse’s separate realty. E. Quasi-Community Property. What happens when spouses accumulate property in another state, come to Texas, and divorce? Tex. Fam. Code sec. 3.63(b) was enacted to avoid the traditional result that such property was "separate" property in a Texas sense, regardless of whether it was accumulated due to a spouse's efforts during marriage. See Cameron v. Cameron, 641 S.W.2d 210 (Tex. 1982). 1. A number of complicated problems have arisen under this statute. First, what happens if spouses come from a community property state with things that are characterized as community property in the state of the prior domicile (say, a personal injury recovery) and divorce in Texas, where the item is considered separate? One approach would be that the property was community property before the move and should not be changed by the move. The language of the statute could support such a construction. But should all the property brought here be construed under Texas law, or only that accumulated here (as well as that property brought from the prior domicile that would be community property under Texas law, even though separate under the law of the prior domicile)? A similar problem arises when parties move from a common-law marital property state to Texas, and the divorce law of the prior domicile would have created a larger divisible estate than would arise under Texas law. Which law should govern--that of Texas or the prior domicile? Should the answer depend upon whether the court believes the spouse migrating to Texas did so to forum shop for a more favorable divorce law? Should the answer depend on whether one or both spouses have moved to Texas? 2. 3. Some of these questions were most recently litigated in Dawson-Austin v. Austin, 920 S.W.2d 776 (Tex. App. -- Dallas 1996, writ granted). Here the couple moved to Texas from Minnesota and divorced. Under the law of Minnesota, all of the increase in value during marriage of the husband's separate business would be marital; under Texas law, the community would have no claim. The husband argued that Texas law should always apply. The court rejected this approach, but did determine that Texas in this instance was the place of most significant relationship 181 and did apply Texas law. Id. at 790-91. Cf. Dawson, which applied the law of the forum, to Seizer v. Sessions, 915 P.2d 553 (Wash. App. 1996) where the Washington court applied Texas law (the prior domicile) to characterize a community claim to lottery winnings. 4. Of course, Texas law might be applied even if only one spouse moved to Texas. See Ismail v. Ismail, 702 S.W.2d 216 (Tex. App. -- Houston [1st Dist.] 1985, writ ref'd, n.r.e.). Louisiana has adopted a rule that, in this situation, the court should apply the law that creates the largest divisible estate. So, if the law of the forum (Louisiana) would consider the acquisition community, apply Louisiana law. In contrast, if the law of Louisiana would not consider the acquisition divisible but the law of the prior domicile would, apply the law of the prior domicile. See La. Civ. Code art. 3526; Symneonides, "Louisiana's Draft on Succession and Marital Property," 35 Am. J. Comp. L. 259 (1987). This approach would lead to a very different result than Dawson-Austin, supra. 5. F. Foreign Marriage Contracts. Spouses sometimes enter into an arrangement regarding the marital regime applicable to their marriage (which choice of marital regime is enforceable under the law of the initial marital domicile), and then later move to Texas and divorce. If the spouses chose a separate property regime, what should a Texas court do? Consider: 1. In many countries (such as Austria, Belgium, Denmark, France, Germany, Italy, Japan, the Netherlands, Spain and Sweden), the marital property rights of spouses are determined by the law of the first marital domicile, and are not changed by any later move. Of course, this rule is not accepted in the U.S. A move to the U.S. after marriage can have a huge effect on marital property rights. See Ismail v. Ismail, 702 S.W.2d 216 (Tex. App. -- Houston [1st Dist.] 1985, writ ref'd n.r.e.). If Texas law is applied to determine the rights of spouses who moved, the arrangement spouses made in the initial domicile might not be honored. For example, under many civil regimes the spouses designate on some document in connection with their marriage which marital property regime they wish to select. This may not be in the form of an agreement; it may merely be something equivalent to a marriage license. Of course, Texas law requires a written agreement. 182 2. 3. An important question may be whether Texas law applies to determine the enforceability of this marital regime choice. Under traditional choice of law rules, the law of the place of contracting governs the enforceability of that contract (unless the law violates an important public policy of the forum). See Estate of Santos, 648 So.2d 277 (Fla. App. 1995). If this marital regime choice would be considered a contract, or if for some other reason the law of the initial marital domicile would usually apply, under this approach the law of the initial marital domicile might well apply. Of course, under current Duncan most significant relationship analysis, a Texas court might not look to the law of the initial marital domicile, particularly if the court concluded that the law would harm a Texas domiciliary. See Seth v. Seth, 694 S.W.2d 459 (Tex. App. -- Ft. Worth 1985, no writ); Lewis v. Lewis, 748 P.2d 1362 (Hawaii 1988). If the spouses chose a separate property regime, the enforcement of this election might well be seen as harming a Texas resident. In a California case, the court did enforce an election for a separate property regime by Mexican nationals in Mexico, even though the couple moved to California and divorced. See Fernandez v. Fernandez, 15 Cal. Rptr. 375 (Cal. App. 1961). In contrast, a North Carolina court has applied forum law to determine whether to enforce a Syrian marriage contract. See Atassi v. Atassi, 451 S.E.2d 371 (N.C. App. 1995). 4. 5. G. Torts. 1. Spousal Fraud. a. Damages. Texas law now seems fairly confused about the remedies possible when one spouse brings a claim of fraud against the other spouse in connection with a divorce. It has always been clear that a spouse could, in connection with a constructive fraud claim against the other spouse, obtain a judgment against the spouse for 50% of the community assets dissipated. The current question is whether in addition to a recovery of the value of the objecting spouse's interest in the assets dissipated, the spouse may also recover punitive damages and pain and suffering. Consider: 183 i. In Belz v. Belz, 667 S.W.2d 240 (Tex. App. -- Dallas 1984, writ ref'd n.r.e.) the court held that a fraud claim would not be permitted when the spouse alleged that the other spouse attempted to hide community property. This was merely a factor to be considered when the community estate was divided. (The court distinguished between this type of situation and an attempt to steal separate property.) A few other cases have reiterated the Belz approach regarding fraud claims. In Marriage of Moore, 890 S.W.2d 821 (Tex. App. -- Amarillo 1994, no writ), the court held that a tort remedy was not possible for a fraud on the community claim. Some other courts have disagreed. For example, in Devine v. Devine, 869 S.W.2d 415 (Tex. App. -- Amarillo 1993, writ den.), the trial court awarded $3000 in exemplary damages against a spouse for actual fraud. The appellate court did not consider this issue, because the spouse did not object to this issue being given to the jury at the time of trial. In Mazique v. Mazique, 742 S.W.2d 805 (Tex. App. -Houston [1st Dist.] 1987, no writ) a spouse dissipated community funds on mistresses. In addition to ordering that spouse to reimburse the community for those expenditures, the court awarded $5000 in exemplary damages. A spouse attempted to hide community funds in Schleter v. Schleter, 929 S.W.2d 94 (Tex. App. -- Austin 1996, writ granted). The court affirmed an award of $30,000 in exemplary damages, arguing that Belz was overruled by Price v. Price, 732 S.W.2d 316 (Tex. 1987). A recent Houston case distinguishes between constructive fraud ("fraud on the community") and actual fraud. In Vickery v. Vickery, 1996 WL 698867 (Tex. App. -- Houston [1st Dist.] 1996) the court stated that it would not permit a separate action between spouses for fraud on the community but would permit a separate action for fraud. Here the court found that the husband had committed actual fraud, and permitted a separate action. 184 ii. iii. iv. v. vi. b. What Can Constitute Constructive Fraud? The cases discussed above involved situations where constructive fraud or fraud was found to exist. This can occur, for example, when a spouse makes an unreasonable unilateral gift of community property. See Mazique, supra. Can it occur in other instances? i. It is frequently said that, when managing community property, a spouse has a fiduciary duty to the other. Can the spouse be liable for dumb or negligent investment decisions? Texas courts to date have concluded, in general, that an investment decision made in good faith is not actionable, even if it turns out to be bad. See Andrews v. Andrews, 677 S.W.2d 171 (Tex. App. -- Austin 1984, no writ). The scope of this rule has not totally been tested, however. For example, what if a spouse goes to Las Vegas, goes to a roulette table, and bets $10,000 on black. If it comes up red, is that spouse liable to the community? (Cf. Reaney v. Reaney, 505 S.W.2d 338 (Tex. Civ. App. -- Dallas 1974, no writ) where the husband had to reimburse the community for a portion of gambling losses incurred after the parties were experiencing serious marital discord.) Also, in Massey v. Massey, 807 S.W.2d 391 (Tex. App. -- Houston [1st Dist.] 1991), writ den., 867 S.W.2d 766 (Tex. 1993), the court upheld a jury finding that the husband's investments and expenditures operated as a constructive fraud on the wife. A recent case involved a different type of negligent management claim. In Grossnickle v. Grossnickle, 927 S.W.2d 687 (Tex. App. -- Texarkana 1996), the wife was given the right to live in the community home during the divorce process. During this period, she did not maintain the home and it was seriously damaged (by mildew, leaks, vandalism, etc.). She was held liable for the $80,000 in repairs that were needed. ii. 2. Third Party Tort Claims. The character of third-party claims generally is clear. To the extent the recovery is for pain and suffering and postdivorce lost wages, it is separate. To the extent it is for medical expenses incurred during marriage and lost wages during marriage, it is community. A loss of consortium claim is separate property. Additionally: 185 a. Two types of more complicated characterization problems have arisen. First, what should occur if the spouse (or the spouses) settled the tort claim and did not allocate what portion of the settlement went to which portion of the recovery? In other words, is this a commingled fund? Courts in a number of states have instructed divorce courts to try to determine what portion of the recovery should be allocated to each component of the recovery. See Johnson v. Johnson, 386 S.E.2d 136 (Ga. 1989); Bandow v. Bandow, 794 P.2d 1346 (Alas. 1990); Russell v. Russell, 801 P.2d 93 (N. M. App. 1990). The only Texas case to consider this question held that it was a commingled fund and therefore all community property, unless the party claiming that is was partially separate could establish what portion was separate. See Kyles v. Kyles, 832 S.W.2d 194 (Tex. App. -- Beaumont 1992, no writ). It is unclear what evidence would be sufficient to accomplish this. Another type of community property issue stems from the collateral source rule. Under this rule, the injured party may recover against the tortfeasor for medical expenses even if reimbursed by insurance. Remember, under Graham v. Franco, 488 S.W.2d 390 (Tex. 1972) a tort recovery is community to the extent that it reimbursed the community for medical expenses borne by the community. If the recovery includes medical expenses reimbursed by medical insurance, what should the character of this recovery be? In Russell v. Russell, 740 P.2d 127 (N.M. App. 1987) the injured spouse incurred $80,000 in medical expenses; all but $1400 were reimbursed. What was the community claim? The court held it was $80,000. The community was entitled to this windfall, not the spouse's separate estate. b. c. d. H. Trusts. Before the wedding, may a wealthy spouse before the wedding decrease the size of the community that otherwise might result during marriage by any action other than signing a prenuptial agreement? In Lemke v. Lemke, 929 S.W.2d 662 (Tex. App. -- Ft. Worth 1996) the spouse had created a trust four years before marriage. A third party was the trustee. The spouse had no absolute right to demand payments; the trustee in her discretion determined the 186 appropriate amount for the spouse's support. At divorce, the other spouse argued that the income on the corpus that accumulated during marriage was community, even though not distributed. The court concluded that it was not community. Does this mean that a trust will always work to reduce the amount of income generated during marriage on premarriage savings that would otherwise be community property? The Lemke court did note that there was no allegation that the trust was created to defraud the wife. (The trust was funded by a medical malpractice settlement received by the spouse years before the marriage.) Would there be a different result if a heathy spouse creates a trust one month before a wedding? Cf. Land v. Marshall, 426 S.W.2d 841 (Tex. 1968). I. Reimbursement--The Guaranteed Loan. There are, of course, millions of potential reimbursement questions under Texas law. This article will address one perhaps less obvious one: 1. Assume a spouse owns a separate property corporation. If the corporation borrows money, the debt will be a corporate debt, and the community would have no claim. All items purchased with such a loan will be owned by the corporation. Assume further, however, that the bank will not loan the corporation money without the personal guarantee of the owner. If this occurs, and community property is executed upon to collect the debt, this obviously creates a prima facie reimbursement claim for the community in the amount of the value of the property executed upon. However, what if the corporation pays the debt and the community loses nothing? In Faulkner v. Faulkner, 582 S.W.2d 639 (Tex. Civ. App. -- Dallas 1979, no writ) the court considered a similar issue. The issue was easier, however, because neither spouse had an ownership interest in the corporation when the guarantee was given. (The husband later was given an ownership interest in the family corporation.) The community had no claim. What should happen, though, if the spouse did have an ownership interest in the corporation when the guarantee was given? The community has not lost anything (unless the community, due to the guarantee, could not obtain credit to engage in another potentially profitable transaction), but the spouse's separate estate has benefited. (Presumably the loan could not have been obtained but for the guarantee 2. 3. 187 provided by community credit.) Is there a reimbursement claim for the benefit received? If so, how could this benefit received be quantified? 4. In Thomas v. Thomas, 738 S.W.2d 342, 346 (Tex. App. -- Houston [1st Dist.] 1987, writ den.), Justice Dunn, in a concurring and dissenting opinion, stated: "Neither the parties' research nor ours has revealed a Texas case deciding the question of whether the community has a right to reimbursement for the use of credit to secure a loan to refinance the husband's separate property debts, However, I am not willing to state . . . that this new reimbursement theory is without merit. I would analogize this situation to cases where the separate debts are discharged with community funds. However, there is an important difference . . . when a debt is discharged, the cost to the community is obvious, but when a separate property debt is refinanced with the community acting as a guarantor, the cost to the community is not so readily ascertainable. In the latter situation, expert testimony would be required . . . . In the case before us, there is no testimony concerning the cost to the community resulting from the use of their credit to guarantee the refinancing of the separate property debt. The appellant has, therefore, failed to meet her burden of establishing the community's right of reimbursement for the use of the community credit." J. Commingling. If a spouse has $10,000 in an account before marriage and deposits $1000 of community funds, this does not create an immediate problem. The account contains $10,000 of separate property and $1000 of community. The problem arises when the spouse then withdraws $1000. What is left? 1. This depends whether "strict tracing " is required. Under strict tracing, if the spouse cannot show the withdrawal was used for a family living expense, the withdrawal is presumed to be separate property. (This presumption is intended to encourage the manager to keep good records.) In contrast, under "community out first," the withdrawal is presumed to be community. So, if the manager cannot show what the withdrawal was used for, under the former analysis the account contains $9000 separate and $1000 community; under the latter analysis the account contains $10000 separate. 188 2. There has been substantial confusion about what tracing method to use in a Texas divorce. Recent cases (Welder v. Welder, 794 S.W.2d 420 (Tex. App. -- Corpus Christi 1990, no writ) and some commentators (Kazen, "Characterization, Tracing and Reimbursement," May 1997 University of Houston Family Practice Seminar, at N-6) argue that community out first is now the prevalent view. It might be noted that the Supreme Court has not spoken about this issue. One might also wish to consider Stuart Gagnon's exhaustive reviews of the cases in this area. He has concluded that the community out first cases almost always arise to accomplish rough justice in certain types of cases, such as when the manager mixes community funds with the separate funds of the other spouse (see Sibley v. Sibley, 286 S.W.2d 657 (Tex. Civ. App. -- Dallas 1955, writ dism'd)), commingling in marriages of short duration (see DePuy v. DePuy, 483 S.W.2d 883 (Tex. Civ. App. -- Corpus Christi 1972, no writ)), cases involving spouses who married late in life after being previously married to others (see Peterson v. Peterson, 595 S.W.2d 889 (Tex. Civ. App. -- Austin 1980, writ dism'd)), and cases involving expenditures or deposits made very early in the marriage (see Peterson, supra; DePuy, supra). He is critical of applying this rule in other cases, such as relatively long, "childful" marriages. 3. XI Alimony When obtaining an agreement for contractual alimony, include the following: 1. 2. 3. Cite the length of the marriage. Cite the minor children who are in the care of the creditor spouse. State that the support payments are in recognition of the spouse's need for future support and to maintain the spouse's standard of living equivalent to that which the parties enjoyed during the marriage. Set forth the limited financial resources of the creditor spouse and the greater financial resources of the other spouse. Set forth that the payments are to occur over an extended period as opposed to a lump sum payment. Set forth that the payments are to equalize the disparity in income between the parties. 189 4. 5. 6. 7. Set forth the age, ill health, insufficient work skills and insufficient education of your client. Set forth specifically that it is support or alimony and not property division. Have the payments end when the recipient dies or remarries. Make sure that the payments are deducted by the debtor and included in the creditor's income for tax purposes. Mandate by order that the receiving party reports the money as income and that the paying party deducts the amount for tax purposes. If the payments are to a third party on behalf of the non-debtor spouse, then be sure to include a hold harmless and indemnification provision. These have been frequently withheld to be in the nature of support and not payment of debt and thus not dischargeable. See In re Smith, 114 B.R. 457 (Banr. D S Miss 1990) where a hold harmless provision requiring the debtor to pay the mortgage payments was found to be in the nature of support and not dischargeable, largely in part due to the indemnification and hold harmless provisions. 8. 9. 10. 11. 12. XII Legal Issues A. LEGAL ISSUES: PROPERTY Quick Reference Guide on Legal Issues - Property Issue: Alimony Cases and Point of Law Notes: Alimony was previously prohibited in Texas as against public policy - Francis v. Francis, 412 S.W.2d 29 (Tex. 1967), however it is now specifically authorized under certain circumstances by TEX. FAM. CODE §8.001, et. seq. Alter Ego Rules re theory of alter ego apply to divorce action; corporate fiction will be disregarded if it operates to circumvent a statute, will prejudice rights of third parties, or results in evasion of existing legal obligation - Zisblatt v. Zisblatt, 693 S.W.2d 944 (Tex. App.--Fort Worth 1985, writ dism'd). 190 Court should pierce corporate veil and impose personal liability only under compelling circumstances - Commercial Escrow Co. v. Rockport Rebel, Inc., 778 S.W.2d 532 (Tex. App.--Corpus Christi 1989, writ dism'd). Piercing corporate veil is not separate cause of action but means of imposing individual liability where it would not otherwise exist - Gallagher v. McClure, 740 S.W.2d 118 (Tex. App.--Austin 1987, writ dism'd); Kearn v. Gleason, 840 S.W.2d 730 (Tex. App.--Amarillo 1992, no writ). Bonus Payments Bonus payment received for execution of lease is generally considered to be advance royalty and is thus money paid for sale of minerals "in place"; when made upon oil and gas lease upon separate property, such payments retain separate property character - Lessing v. Russek, 234 S.W.2d 891 (Tex. Civ. App.--Austin 1950, writ ref'd n.r.e); Texas Co. v. Parks, 347 S.W.2d 179 (Tex. Civ. App.--Fort Worth 1952, writ ref'd n.r.e.). Burden of Proof (Character) Burden of proof is on party asserting separate property claim Tarver v. Tarver, 394 S.W.2d 780 (Tex. 1965); and Cockerham v. Cockerham, 527 S.W.2d 162 (Tex. 1975). Burden of Proof (Reimbursement) Party seeking reimbursement has burden of proof - Vallone v. Vallone, 644 S.W.2d 455 (Tex. 1982). Cemetery Plot Plot in which exclusive right of sepulture is conveyed is presumed to be separate property of person named as grantee in instrument of conveyance - Health & Safety Code § 711.039. 191 Commingling When separate property is commingled and cannot be identified, it becomes community property - Carnes v. Meador, 533 S.W.2d 365 (Tex. Civ. App.--Fort Worth 1975, writ ref'd n.r.e.). Community Credit (Improvements to Separate Property) Community credit used to improve separate property does not alter character of property but may give rise to claim for reimbursement - Bradley v. Bradley, 521 S.W.2d 504 (Tex. Civ. App.--Houston [1st Dist.] 1975, no writ). Community Credit (Acquisition) Where an asset is acquired on credit, the property so acquired will take on the character of the credit. Cockerham v. Cockerham, 527 S.W.2d 162 (Tex. 1975) and Broussard v. Tian, 295 S.W.2d 405 (Tex. 1956). If acquired part by separate property and in part with community credit, the character of the asset acquired may be proportionately community and separate. Gleich v. Bongio, 99 S.W.2d 881 (Tex. Comm’n. App. 1937, opinion adopted). Community Out First (Tracing) “Community out first" rule is appropriate method of tracing funds -Sibley v. Sibley, 286 S.W.2d 657 (Tex. 1955); Welder v. Welder, 794 S.W.2d 420 (Tex. App.--Corpus Christi 1990, no writ). Factors to be considered in claim of constructive fraud against community property: 1. 2. 3. Size of gift in relation to total size of community estate; Adequacy of estate remaining; Relationship of donor to donee. Horlock v. Horlock, 533 S.W.2d 52 (Tex. Civ. App.--Houston [14th Dist.] 1975, writ dism'd); 192 Constructive Fraud Massey v. Massey, 807 S.W.2d 391 (Tex. App.-Houston [1st Dist.] 1991, writ denied); Mazique v. Mazique, 742 S.W.2d 805 (Tex. App.-Houston [1st Dist.] 1987, no writ). Corporations Corporation organized during marriage although operated as sole proprietorship before marriage; no showing initial capitalization was from Wife's separate estate; inception of title doctrine can only be applied to corporation as of date of incorporation - Allen v. Allen, 704 S.W.2d 600 (Tex. App.-Fort Worth, 1986, no writ). Crops Crops grown or produced by annual cultivation on separate property lands are distinct from underlying property and are community property; it makes no difference whether crop is growing or is matured and harvested at time of the divorce. McGanaugh v. McGanaugh, 177 S.W.2d 296 (Tex. Civ. App.-Amarillo 1943, writ dism'd); Cleveland v. Cole, 65 Tex. 402 (1886); Coggin v. Coggin, 204 S.W. 2d 47 (Tex. Civ. App.-Amarillo 1947, no writ). Separate estate allowed reimbursement for payment of community obligations - Hilton v. Hilton, 678 S.W.2d 645 (Tex. App.--Houston [14th Dist.] 1984, no writ). Delay rentals paid on separate property oil and gas leases are considered to be rents received on separate property rather than payments for lease or minerals in place; as rents from separate property, they are community property - McGanaugh v. McGanaugh, 177 S.W.2d 296 (Tex. Civ. App.--Amarillo 1943, writ dism'd). If a disability policy is purchased with community property, the benefits are characterized as community property. Anderle v. Anderle, 751 S.W.2d 955 (Tex. App.--Eastland 1988, writ dism’d). Dividends paid in cash on separately owned stock are part of community estate - Amarillo National Bank v. Liston, 464 S.W.2d 395 (Tex. Civ. App.-- Amarillo 1970, writ ref'd n.r.e.); Debt Delay Rentals Disability Insurance Dividends - Cash 193 Fain v. Fain, 93 S.W.2d 1226 (Tex. Civ. App.--Fort Worth 1936, writ dism'd). Dividends - Stock Stock dividends and stock splits retain character of underlying stock upon which they are paid or issued; if underlying stocks are separate property, stock dividends or splits are separate property; likewise, if underlying stock is community, stock dividends or splits are community - Tirado v. Tirado, 357 S.W.2d 468 (Tex. Civ. App.--Texarkana 1962, writ dism'd). Earned Acreage and Farmouts Interests in oil and gas acquired through talent, skill and toil of a spouse are community property - Tarver v. Tarver, 394 S.W.2d 780 (Tex. 1965). Earnings of unemancipated minor are part of the community property of parent spouse - TEX. FAM. CODE §3.103; Insurance Company of Texas v. Stratton, 287 S.W.2d 320 (Tex. Civ. App.--Waco 1956, writ ref'd n.r.e.). Earnings of Minor Earnings of Spouse Personal earnings of each spouse accrued during marriage are community property - Moss v. Gibb, 370 S.W.2d 452 (Tex. 1963). Such earnings include result of all labor and effort during the marriage - Graham v. Franco, 488 S.W.2d 676 (Tex. 1972). Earnings for labor or services rendered prior to marriage but received during marriage are separate property - Moore v. Moore, 192 S.W.2d 929 (Tex. Civ. App.--Fort Worth 1946, no writ); Dessommes v. Dessommes, 543 S.W.2d 165 (Tex. Civ. App.--Texarkana 1976, writ ref'd n.r.e.). Earnings for labor or services rendered during marriage but received after divorce are community property - Busby v. Busby, 457 S.W.2d 551 (Tex. 1970); Cearley v. Cearley, 544 S.W.2d 661 (Tex. 1976). 194 Earnings attributable to a time subsequent to divorce are not community property - McBride v. McBride, 256 S.W.2d 250 (Tex. Civ. App.--Austin 1953, no writ). See also: Echols v. Austron, Inc., 529 S.W.2d 840 (Tex. App.-Austin 1975, writ ref'd n.r.e.), where corporate officer received bonus compensation after rendition of judgment for divorce, but before entry of that judgment, and such earnings were held not to be community property. Employee Benefits Employee benefits acquired by employee spouse during marriage are community property - Herring v. Blakely, 385 S.W.2d 843 (Tex. 1965). Retirement benefits earned during marriage are community property, but benefits earned before and after marriage are separate property of the employee spouse. Cearley v. Cearley, 544 S.W.2d 661 (Tex. 1976) and Berry v. Berry, 674 S.W.2d 945 (Tex. 1983). Enhancement Value Reimbursement for improvements to real estate is enhancement in value less any benefit received - Anderson v. Gilliland, 684 S.W.2d 673 (Tex. 1985). Fortuitousness and Resulting Appreciation of Separate Property Increase in spouse's separate property resulting from fortuitous causes such as natural growth or market fluctuation remains a part of separate property - Dillingham v. Dillingham, 434 S.W.2d 459 (Tex. Civ. App.--Fort Worth 1968, writ dism'd). In action for conspiracy to defraud community estate, there must be finding of damages resulting from conspiracy to recover judgment - Belz v. Belz, 667 S.W.2d 240 (Tex. Civ. App.--Dallas 1984, writ ref'd n.r.e.). Fraud General Economic Condition Increases in value of separate property as result of general economic conditions as distinguished from labor and effort 195 remain separate property - Smoot v. Smoot, 568 S.W.2d 177 (Tex. Civ. App.--Dallas 1978, no writ). Goodwill (Professional Practice) To determine if goodwill attaches to a professional practice and is subject to division: 1. 2. Goodwill must exist independently of personal ability; If goodwill exists it must be determined whether it has commercial value. Finn v. Finn, 658 S.W.2d 735 (Tex. App.-Dallas 1983, writ ref'd n.r.e.) Goodwill (Professional) Professional goodwill is that which attaches to person as result of clients' confidence in professional skill or ability; does not possess value separate from professional; and is extinguished at death, retirement or disability - Rathmell v. Morrison, 732 S.W.2d 6 (Tex. App.--Houston [14th Dist.] 1987, no writ). Professional goodwill is not property subject to division in divorce - Guzman v. Guzman, 827 S.W.2d 445 (Tex. App.-Corpus Christi 1992, order granting writ withdrawn 843 S.W.2d 486 [Tex. 1993]); Nail v. Nail, 486 S.W.2d 761 (Tex. 1972). Inception of Title Property characterized as "separate" or "community" at time of inception of title - Saldana v. Saldana, 791 S.W.2d 316 (Tex. App.--Corpus Christi 1990, no writ). Claim to separate property arises when right to claim property is established prior to marriage - Welder v. Lambert, 44 S.W. 281 (Tex. 1898). Under inception of title doctrine, character of property is fixed at time of acquisition - Colden v. Alexander, 171 S.W.2d 328 (Tex. 1943). Interest Income Interest which accrues during marriage on notes or funds belonging to the community estate or to the separate estate of one or both spouses belongs to and becomes part of the 196 community estate. Martenson v. Trammell, 604 S.W.2d 269 (Tex. Civ. App.--Corpus Christi 1980, writ ref'd n.r.e.). Leasehold Interests (Minerals) Income from production or sale of separate leasehold interests retain separate property character; community funds expended on development, equipment, or operation, or for drilling wells, give rise to right of reimbursement only and do not change character of property - Cone v. Cone, 266 S.W.2d 480 (Tex. Civ. App.--Amarillo 1953, writ dism'd). Life Insurance (Cash Surrender Value) Increase in cash surrender value of a life insurance policy is community property - Grost v. Grost, 561 S.W.2d 223 (Tex. Civ. App.--Tyler, 1977, writ dism'd w.o.j.). Life Insurance (Premiums) Community estate entitled to reimbursement for premiums paid on husband's separate property life insurance policy McCurdy v. McCurdy, 372 S.W.2d 381 (Tex. Civ. App.--Waco 1963, writ ref'd). Dividends of cash or property received upon liquidation of corporation retain character of estate or original stock - Wells v. Hiskett, 288 S.W.2d 257 (Tex. Civ. App.--Texarkana 1956, writ ref'd n.r.e.). Liquidating Dividends Livestock Livestock bred and raised during marriage becomes community property, whether or not underlying breeding herd is community or separate - Amarillo National Bank v. Liston, 464 S.W.2d 395 (Tex. Civ. App.--Amarillo 1970, writ ref'd n.r.e.); Blum v. Light, 16 S.W. 1090 (Tex. 1891). Other products of separate property animals such as milk and wool are community. However, enhancement in value of separate property animals due to augmentation of size and weight remain separate property despite community funds 197 being used for care and food - Stringfellow v. Sorrells, 18 S.W. 689 (Tex. 1891). Loss of Consortium Recovery for loss of consortium is separate property of deprived spouse - Whittlesey v. Miller, 572 S.W.2d 665 (Tex. 1978). Lottery Prizes and Gambling Winnings Prize drawn on lottery ticket purchased during marriage with separate funds is community property - Dixon v. Sanderson, 10 S.W. 535 (Tex. 1888). Profits earned by spouse from operation of mercantile business are part of community estate, even though business owned by spouse as separate property - In the Matter of the Marriage of York, 613 S.W.2d 764 (Tex. Civ. App.--Amarillo 1981, no writ); Schecter v. Schecter, 579 S.W.2d 502 (Tex. Civ. App.--Dallas 1978, no writ). Stock interests acquired through merger represent mutation of original stock interest, and as such retain same character as original ownership interest - Horlock v. Horlock, 533 S.W.2d 52 (Tex. Civ. App.--Houston [14th Dist.] 1975, writ dism'd w.o.j.). Mutation of separate property does not alter character of property if it can be traced - Horlock v. Horlock, 533 S.W.2d 52 (Tex. Civ. App.--Houston [14th Dist.] 1975, writ dism'd w.o.j.). Cash dividends received on mutual fund shares are community, even if paid on separate property interests; profits or gains realized upon distribution or sale of mutual fund capital assets retain character of ownership of mutual fund shares - Bakken v. Bakken, 503 S.W.2d 315 (Tex. Civ. App.-Dallas 1973, no writ). Mercantile Business Merger Transactions Mutation Mutual Funds Oil and Gas Operating Income Oil and gas in place when produced from separate property remain separate property and part of corpus, rather than community property; however, where community labor, talent and funds are expended in production and sale of gas 198 produced from separate estate, gas is community property Norris v. Vaughan, 260 S.W.2d 676 (Tex. 1953). Partnership Rights of divorcing spouse can only attach to other spouse's interest in partnership but not specific partnership property McKnight v. McKnight, 543 S.W.2d 863 (Tex. 1976). Rights of husband partner in partnership remained same (separate property) even though second partnership agreement executed during marriage; no evidence to show husband acquired additional partnership interest during marriage - Harris v. Harris, 765 S.W.2d 798 (Tex. App.-Houston [14th Dist.] 1989, writ denied). Parties to contingent fee contract were Hughes heirs and Andrews and Kurth partnership; no evidence contract was owned by partners individually; under entity theory of partnership, undivided interest owned by partners in specific partnership property is not community propriety; only partner's interest in partnership may be characterized as community property (or separate property) - Harris v. Harris, 765 S.W.2d 798 (Tex. App.--Houston [14th Dist.] 1989, writ denied). Partnership (Profits Distributed) Distributions of partner's share of profits and income during marriage are community even if partner's interest is separate property - Marshall v. Marshall, 735 S.W.2d 587 (Tex. App.-Dallas 1987, writ ref'd n.r.e.). Partnership (Profits Undistributed) Profits earned but retained for reasonable needs of business remain part of "partnership property" - Jones v. Jones, 699 S.W.2d 583 (Tex. App. -- Texarkana 1985, no writ). Presumption (Joint Title) Property titled in joint names is prima facie community property -- Duke v. Duke, 605 S.W.2d 408 (Tex. Civ. App. -El Paso 1980, dism'd w.o.j.). Presumption 199 (Community Property) Statutory presumption that property possessed by other spouse during or on dissolution of marriage presumed to be community property - TEX. FAM. CODE §3.003; Contreras v. Contreras, 590 S.W.2d 218 (Tex. Civ. App. --Tyler 1979, no writ). Presumption (Burden of Proof) Burden of proof on person opposing presumption Combined Am. Ins. Co. v. Branton, 353 S.W.2d 847 (Tex.1962). Presumption (Rebuttable) Generally presumption is not evidence and is rebuttable - City of Amarillo v. Attebury, 303 S.W.2d 804 (Tex.Civ.App.--Amarillo 1957, no writ). Presumption (Irrebuttable/Real Est.) If instrument of acquisition contains significant recital that real estate is separate property or that consideration is from separate property, there is presumption of separate property; when offered by party to transaction, parole evidence not admissible to rebut presumption - Messer v. Johnson, 422 S.W.2d 908 (Tex. 1968); Lindsey v. Clayman, 254 S.W.2d 277 (Tex. 1952); Hodge v. Ellis, 277 S.W.2d 900 (Tex. 1955); Henry S. Miller Co. v. Evans, 452 S.W.2d 426 (Tex. 1970). Spouse's mere presence when transaction takes place will preclude parole evidence - Long v. Knox, 291 S.W.2d 292 (Tex. 1956). Presumption (Gift/Participation) Although non-acquiring spouse is not party to transaction, gift to acquiring spouse is presumed where non-acquiring spouse participates and conveyance contains significant recital - Little v. Linder, 61 S.W.2d 895 (Tex. App.--Tyler 1983, writ ref'd n.r.e.). Presumption 200 (Gift to Spouse) Conveyance from one spouse to other creates presumption that grantor spouse intended gift to grantee spouse - Babb v. McGee, 507 S.W.2d 821 (Tex. App.--Dallas 1974, ref'd n.r.e.). Presumption (Gift/Spouse/Income) If one spouse makes gift of property to other, gift is presumed to include all income and property which may arise from that property - TEX. FAM. CODE §3.005 and TEX. CONST. art. XVI, §15. Presumption (Constructive Fraud) Presumption of constructive fraud arises when one spouse disposes of other spouse's ½ interest in community property without knowledge or consent of other spouse. The burden of proof is then on the disposing spouse to prove the fairness of the disposition. Jackson v. Smith, 703 S.W.2d 791 (Tex. Civ. App.--Dallas 1985, no writ). But see TEX. FAM. CODE §3.102, which states that a spouse has sole management, control and disposition of community property that he or she would have owned if single. It is not necessary that one spouse approve or agree with other spouse's disposition of his or her special community property Horlock v.Horlock, 533 S.W.2d 52 (Tex. Civ. App.--Houston [14th Dist.] 1976, writ dism'd). Relationship of trust and confidence exists between spouses which requires spouse's disposition of his special community property be fair to other spouse; managing spouse has burden to show disposition of community property was fair - Massey v. Massey, 807 S.W.2d 391 (Tex. App.--Houston [1st Dist.] 1991, denied). Rebutting the Community Presumption To overcome the community presumption the party asserting separate property ownership must clearly trace the separate property - Cockerham v. Cockerham, 527 S.W.2d 162 (Tex. 1975). Reimbursement 201 (General) If one marital estate benefits or enhances another marital estate, a prima facie claim for reimbursement is established. Dakan v. Dakan, 83 S.W.2d 620 (Tex. Sup. 1935). A claim for reimbursement is not a right, but is a claim for money in equity. Burton v. Bell. 380 S.W. 2d 561 (Tex. 1964) Reimbursement (Improvements) Claims for reimbursement for funds expended by an estate are to be measured by enhanced value to the benefitted estate Anderson v. Gilliland, 684 S.W.2d 673 (Tex.1985). Reimbursement (Living Expenses) Spouse is obligated to furnish support for community living and if no community funds are available spouse should use separate funds; separate funds spent for community living should be deemed gift to community; allowing reimbursements at later date would be inconsistent with fundamental concept that (spouse) should provide for home and community - Norris v. Vaughan, 260 S.W.2d 676 (Tex. 1953). But see Hilton v. Hilton, 678 S.W.2d 645 (Tex. App.--Houston [14th Dist.] 1984, no writ) in which court held that separate funds spent to pay off loan to community, proceeds of which were used for living expenses, are reimbursable. Reimbursement Factors to be considered in computing reimbursement to community for increase in value of separate corporation: increase in value attributable to community effort and (under or adequate) compensation of community for that effort Trawick v. Trawick, 671 S.W.2d 105 (Tex. App.--El Paso 1984, no writ). Difficult to use single formula that will balance equities in every case, thus trial court must have broad discretion in determining value of reimbursement claim; in determining amount of reimbursement, courts may consider benefits received and offset them against amount claimed or may not make any award at all, depending on equities - Penick v. Penick, 783 S.W.2d 194 (Tex. 1988). Reimbursement 202 (Time, Toil, Talent) Community will be reimbursed for value of time, toil and talent of either spouse to enhance separate property stock other than that reasonably necessary to manage and preserve separate property, less remuneration received for time, toil and talent - Jensen v. Jensen, 665 S.W.2d 107 (Tex. 1984). Reimbursement (Cannot Trace) Absent fraud, equity is well served by reimbursing separate estate for initial investment that served as foundation for building community estate, although tracing of separate property was impossible - Horlock v. Horlock, 533 S.W.2d 52 (Tex. Civ. App.--Houston [14th Dist.] 1976, dism'd). Rents from Separate Property Rents, revenues, and income from separate property are community property - Arnold v. Leonard, 272 S.W. 799 (Tex. 1925); Coggin v. Coggin, 204 S.W.2d 47 (Tex. Civ. App.-Amarillo 1947, no writ); Moss v. Gibb, 370 S.W.2d 452 (Tex. 1963); Uranga v. Uranga, 527 S.W.2d 761 (Tex. Civ. App.-San Antonio 1974, writ dism'd); Dobrowolski v. Wyman, 397 S.W.2d 930 (Tex. Civ. App.--San Antonio 1966, no writ). Retained earnings of Sub S Corporation, stock of which is separate property, were not community property subject to division in divorce even though community paid taxes on retained earnings during marriage Thomas v. Thomas, 738 S.W.2d 342 (Tex. App.-Houston [1st Dist.] 1987, denied). Royalty interests reserved on or carved out of separate property real estate or mineral interests, and royalties paid on such interests for oil and gas production from separate property retain separate property character; royalty represents payment for extraction, production, and sale of minerals "in place" which are considered an interest in real estate - Norris v. Vaughan, 260 S.W.2d 676 (Tex. 1953). TEX. CONST. art. XVI,§15 and TEX. FAM. CODE §3.001. Retained Earnings Royalty Interests Separate Property (Defined) Separate Property 203 (Personalty) Community property only property subject to divestment upon divorce - Cameron v. Cameron, 641 S.W.2d 210 (Tex. 1982). Separate Property (Realty) Community property only property subject to divestment upon divorce - Eggemeyer v. Eggemeyer, 554 S.W.2d 137 (Tex. 1977). Social Security Benefits Social security benefits are not community property for purposes of division upon divorce - Richard v. Richard, 659 S.W.2d 746 (Tex. App.--Tyler 1983, no writ). Stock Increase in Value Capital gains or increase in value of stock retains same character as underlying property; increase in value does not change underlying character of property - Johnson v. First National Bank of Fort Worth, 306 S.W.2d 927 (Tex. Civ. App.--Fort Worth, no writ); Dillingham v. Dillingham, 434 S.W.2d 459 (Tex. Civ. App.--Fort Worth 1968, writ dism'd); Scofield v. Weiss, 131 F.2d 631 (5th Cir. 1942). Community reimbursement not allowed where community enjoyed benefits from tax deduction from separate property Shnider v. Shnider, 613 S.W.2d 8 (Tex. Civ. App.--Dallas 1981, no writ). Reimbursement for debts, taxes, interest or insurance is measured by amount paid less any benefit received - Penick v. Penick, 783 S.W.2d 194 (Tex. 1988). Tax Benefits Tax Liability Under circumstances presented, court's refusal to make determination of parties' income tax liability was reversible error - McCartney v. McCartney, 548 S.W.2d 435 (Tex. Civ. App.--Houston [1st Dist.] 1977, no writ); Cole v. Cole, 532 S.W.2d 102 (Tex. Civ. App.--Dallas 1975, no writ). Tax Consequences 204 (Future) Trial court erred in allowing Husband offset for hypothetical tax consequences associated with property he received in divorce - Harris v. Holland, 867 S.W.2d 86 (Tex. App.--Texarkana 1993, no writ). Trial court erred in reducing face value of deferred compensation plans by plans' hypothetical present tax liability because trial court assumed present liquidation of plans and used husband's current income tax rate; absent proof of reasonable deduction for future tax liability, plans had prima facie value equal to face value - Simpson v. Simpson, 679 S.W.2d 39 (Tex. App.--Dallas 1984, no writ). Timber and Mineral Interests Spontaneously growing timber, minerals, soil, gravel, rock, sand, etc. growing on or located on separate lands are also separate property but may be impressed with community character if community labor, talents, and funds (in excess of a "reasonable" amount of time, talent, effort, control, and management) are used to develop and "harvest" them (e.g. brick made from clay from separate property mines and sawed lumber from separate property timber interests) Norris v. Vaughan, 260 S.W.2d 676 (Tex. 1953). To discharge the burden of the community property presumption, a spouse must trace and clearly identify property claimed as separate property - Tarver v. Tarver, 394 S.W.2d 780 (Tex. 1965) and McKinley v. McKinley, 496 S.W.2d 540 (Tex. 1973). As long as separate property can be traced and identified, it remains separate regardless of fact that it may undergo mutations and changes - Welder v. Welder, 794 S.W.2d 420 (Tex. App.--Corpus Christi 1990, no writ). Tracing Tracing (Loan Proceeds) Lender must have agreed to look solely to separate property of borrower for repayment of loan for asset purchased with loan proceeds to be separate property - Gleich v. Bongio, 99 S.W.2d 881 (Tex. Com. App. 1937, op. adopted); Broussard v. Tian, 295 S.W.2d 405 (Tex. 1956); Mortenson v. Trammell, 604 S.W.2d 269 (Tex. Civ. App.--Corpus Christi 1980, ref'd n.r.e.). 205 Intention of one spouse alone to repay loan from separate funds and hold property purchased with loan proceeds as separate property has never been controlling - Welder v. Welder, 794 S.W.2d 420 (Tex. App.--Corpus Christi 1990, no writ). Tracing (Expert Testimony) Parameters of expert's testimony regarding tracing of funds, including characterization - Welder v. Welder, 794 S.W.2d 420 (Tex. App.--Corpus Christi 1990, no writ). Exhibit providing daily tracing of deposits, expenditures and purchases of assets based on review of ledgers, cash disbursements and receipts journals, deposit slips etc. admitted into evidence as summary by expert accountant; predicate (demonstrating that underlying records were voluminous, were made available to opposing party and were admissible under Tex. Bus. Records Act) laid to bring summary within Rule 1006, Tex. R. Civ. Evid., Welder v. Welder, 794 S.W.2d 420 (Tex. App.--Corpus Christi 1990, no writ). Though characterizations made by experts are included within summary, they do not make summary inadmissible; even if summaries and records were inadmissible hearsay, expert's testimony was still admissible under Rule 703, Tex. R. Civ. Evid. which provides that facts or data upon which expert relies need not be admissible if they are "of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject" - Welder v. Welder, 794 S.W.2d 420 (Tex. App.--Corpus Christi 1990, no writ). Expert should testify that records and summaries thereof are of type generally relied upon by experts in the field - Welder v. Welder, 794 S.W.2d 420 (Tex. App.--Corpus Christi 1990, no writ). Trust Income Neither legislature nor spouses can expand constitutional definition of separate property - Arnold v. Leonard, 272 S.W. 799 (Tex. 1925) - After Arnold it has been argued that income from separate property trust must be community property. 206 Undistributed trust income is community property from date of beneficiary's marriage - Mercantile National Bank at Dallas v. Wilson, 279 S.W.2d 650 (Tex. Civ. App.--Dallas 1955, ref'd n.r.e.). Undistributed trust income is not community property in case where trust income was added to corpus and all distributions were made according to trustee's "uncontrolled discretion" Currie v. Currie, 518 S.W.2d 386 (Tex. Civ. App.--San Antonio 1974, writ dism'd); andIn Re Marriage of Long, 542 S.W.2d 714 (Tex. Civ. App.--Texarkana 1976, no writ). Whether trust income is separate or community is unsettled See Don Smith article "Characterization of Marital Property," 1991 Family Law Advanced Course, pp. 142 et seq. for lengthy discussion. Waiving "the Rule" Expert witnesses are generally exempt from "the Rule" (Rule 614, Tex. R. Civ. Evid.) - Triton Oil and Gas Corp. v. Moran Drilling Co., 509 S.W.2d 678, Tex. Civ. App.--Fort Worth 1974, ref'd n.r.e.); Elbar, Inc. v. Claussen, 774 S.W.2d 45 (Tex. App.-Dallas 1989, writ dism'd). Workers’ Compensation Benefits Compensation for disability for a period after divorce is not community property even though the injury occurred during the marriage. Hicks v. Hicks, 546 S.W.2d 71 (Tex. Civ. App.-Dallas 1977, no writ). Working Interests Income from working interest properties is generally determined according to rules of time and circumstances of acquisition in accordance with usual characterization rules; there is some authority in Norris v. Vaughan, supra, that nonoperating working interest is characterized as described above and that an operating working interest is a business interest whose net profit is community income; See also Tarver v. Tarver, 394 S.W.2d 780 (Tex. 1965). Damages from wrongful death claim held to be separate property - Johnson v. Holly Farms of Texas, Inc., 731 S.W.2d 641 (Tex. App.--Amarillo, 1987, no writ). Wrongful Death 207 B. LEGAL ISSUES: DIVISION FACTORS Quick Reference Guide on Legal Issues - Division Factors Issue: Fault of Parties Case & Point of Law Notes: Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Young v. Young, 609 S.W.2d 758 (Tex. 1980) Smith v. Smith, 836 S.W.2d 688 (Tex. App. - Houston [1st Dist.] 1992, no writ) Massey v. Massey, 807 S.W.2d 391 (Tex. App. Houston [1st Dist.] 1991, denied) Velasco v. Haberman, 700 S.W.2d 729 (Tex. App. - San Antonio 1985, no writ) Hausler v. Hausler, 636 S.W.2d 874 (Tex. App. - Waco 1982, no writ) Hourigan v. Hourigan, 635 S.W.2d 556 (Tex. App. - El Paso, 1981, no writ) Stephens v. Stephens, 625 S.W.2d 428 (Tex. Civ. App. Fort Worth 1981, no writ) Bray v. Bray, 618 S.W.2d 93 (Tex. Civ. App. - Corpus Christi 1981, dism’d) Hooper v. Hooper, 403 S.W.2d 215 (Tex. Civ. App. Amarillo 1996, dism’d) Needs of Children of the Marriage (including adults) Young v. Young, 609 S.W.2d 758 (Tex. 1980) Eggemeyer v. Eggemeyer, 554 S.W.2d 137 1977) Rice v. Rice, 21 Tex. 58 (1858) 208 (Tex. Fitts v. Fitts, 14 Tex. 443 (1855) WK v. MHK, 719 S.W.2d 232 (Tex. App. -Houston [14th Dist.] 1986, ref’d n.r.e.) Hourigan v. Hourigan, 635 S.W.2d 556 (Tex. App - El Paso, 1981, no writ) Treadway v. Treadway, 576 S.W.2d 121 (Tex. Civ. App. Texarkana 1978, no writ) In re Long, 542 S.W.2d 712 (Tex. Civ. App. - Texarkana 1976, no writ) Boriack v. Boriack, 541 S.W.2d 237 (Tex. Civ. App. Corpus Christi 1976, dism’d) McKnight v. McKnight, 535 S.W.2d 658 (Tex. Civ. App. El Paso, 1976, reversed on other grounds 543 S.W.2d 863 [Tex. 1976]) Horlock v. Horlock, 533 S.W.2d 52 (Tex. Civ. App. Houston [14th Dist.] 1975, dism’d) Liddell v. Liddell, 29 S.W.2d 868 (Tex. Civ. App. - San Antonio 1930, no writ) Spouse to Whom Custody is Granted Boriack v. Boriack, 541 S.W.2d 237 (Tex. Civ. App. Corpus Christi 1976, dism’d) Thomas v. Thomas, 525 S.W.2d 200 (Tex. Civ. App. Houston [1st Dist.] 1975, no writ Amount of Child Support Paid Abrams v. Abrams, 713 S.W.2d 195 (Tex. App. -Corpus Christi 1986, no writ) 209 Need for Future Support Smith v. Smith , 836 S.W.2d 688 (Tex. App. - Houston [1st Dist.] 1992, no writ) Roever v. Roever, 824 S.W.2d 674 (Tex. App. - Dallas 1992, no writ) Goren v. Goren, 531 S.W.2d 897 (Tex. Civ. App. Houston [1st Dist.] 1975, dism’d) Pickett v. Pickett, 401 S.W.2d 846 (Tex. Civ. App. - Tyler 1966, no writ) Needs of Spouses in Future and Disparity of Earning Power Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Nail v. Nail, 486 S.W.2d 761 (Tex. 1972) Smith v. Smith, 836 S.W.2d 688 (Tex. App. - Houston [1 st Dist.] 1992, no writ) Roever v. Roever, 824 S.W.2d 674 (Tex. App. - Dallas 1992, no writ) Magill v. Magill, 816 S.W.2d 530 (Tex. App. Houston [1st Dist.] 1991, denied) Hahne v. Hahne, 663 S.W.2d 77 (Tex. App. Houston [14th Dist.] 1984, no writ) Frausto v. Frausto, 611 S.W.2d 656 (Tex. Civ. App. - San Antonio, 1981, dism’d) Wisdom v. Wisdom, 575 S.W.2d 124 (Tex. Civ. App. Fort Worth 1979, dism’d) Bokhoven v. Bokhoven, 559 S.W.2d 142 (Tex. Civ. App. - Tyler 1977, no writ) Cray v. Cray, 550 S.W.2d 730 (Tex. Civ. App. Houston [1st Dist.] 1977, no writ) 210 Smallwood v. Smallwood, 548 S.W.2d 796 Civ. App. - Waco 1977, no writ) (Tex. Roberts v. Roberts, 535 S.W.2d 373 (Tex. Civ. App. Tyler 1976, no writ) Cravens v. Cravens, 533 S.W.2d 372 (Tex. Civ. App. - El Paso 1975, no writ) Business Opportunities Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Roever v. Roever, 824 S.W.2d 674 (Tex. App. - Dallas 1992, no writ) In Re Marriage of McCurdy, 489 S.W.2d 712 (Tex. Civ. App. - Amarillo 1973, dism’d) Spouses Capacities and Abilities Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Magill v. Magill, 816 S.W.2d 530 (Tex. App. Houston [1st Dist.] 1991, denied) Relative Financial Condition and Obligations Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Magill v. Magill, 816 S.W.2d 530 (Tex. App. Houston [1st Dist.] 1991, denied) Education and Future Employability Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Smith v. Smith, 836 S.W.2d 688 (Tex. App. Houston [1st Dist.] 1992, no writ) Wisdom v. Wisdom, 575 S.W.2d 124 (Tex. Civ. App. Fort Worth 1979, dism’d) 211 McCartney v. McCartney, 548 S.W.2d 435 (Tex. Civ. App. - Houston [1st Dist.] 1976, no writ) Cooper v. Cooper, 513 S.W.2d 229 (Tex. Civ. App. Houston [1st Dist.] 1974, no writ) Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Smith v. Smith, 836 S.W.2d 688 (Tex. App. Houston [1st Dist.] 1992, no writ) Roberts v. Roberts, 535 S.W.2d 373 (Tex. Civ. App. Tyler 1976, no writ) Health of Spouses Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Smith v. Smith, 836 S.W.2d 688 (Tex. App. Houston [1st Dist.] 1992, no writ) Magill v. Magill, 816 S.W.2d 530 (Tex. App. Houston [1st Dist.] 1991, denied) Hahne v. Hahne, 663 S.W.2d 77 (Tex. App. - Houston [14th Dist,] 1984, no writ) Cravens v. Cravens, 533 S.W.2d 372 (Tex. Civ. App. - El Paso 1975, no writ) Benefits Innocent Spouses Would Receive from Continuation of Marriage Ages of Spouses Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Hedtke v. Hedtke, 112 Tex. 404, 248 S.W. 21 (1921) Smith v. Smith, 836 S.W.2d 688 (Tex. App. - Houston [1st Dist.] 1992, no writ) Hopkins v. Hopkins, 540 S.W.2d 783 (Tex. Civ. App. Corpus Christi 1976, no writ) 212 Hooper v. Hooper, 403 S.W.2d 215 (Tex. Civ. App. Amarillo 1966, dism’d) Wasting of Community Assets Mazique v. Mazique, 742 S.W.2d 805 (Tex. App. Houston [1st Dist.] 1987, no writ) Morrison v. Morrison, 713 S.W.2d 377 (Tex. App -Dallas 1986, dism’d) Rafidi v. Rafidi, 718 S.W.2d 43 (Tex. App. - Dallas, 1986, no writ) Simpson v. Simpson, 679 S.W.2d 39 (Tex. App. - Dallas 1984, no writ) Andrews v. Andrews, 677 S.W.2d 171 (Tex. App. - Austin 1984, no writ) Leal v. Leal, 628 S.W.2d 168 (Tex. App. - San Antonio 1982, no writ) Arrington v. Arrington, 613 S.W.2d 565 (Tex. Civ. App. Fort Worth 1981, no writ) Grothe v. Grothe, 590 S.W.2d 238 (Tex. Civ. App. - Austin 1979, no writ) Reaney v. Reaney, 505 S.W.2d 338 (Tex. Civ. App. - Dallas 1974, no writ) Hartman v. Crain, 398 S.W.2d 387 (Tex. Civ. App. - Houston 1966, no writ) Swisher v. Swisher, 190 S.W.2d 382 (Tex. Civ. App. - Galveston 1945, no writ) Credit for Temporary Alimony Paid Schecter v. Schecter, 579 S.W.2d 582 (Tex. App. - Dallas 1978, no writ) C i v . 213 Edsall v. Edsall, 240 S.W.2d 424 (Tex. Civ. Eastland 1951, no writ) Size of the Estate App. - Padon v. Padon, 670 S.W.2d 354 (Tex. App. - S a n Antonio 1984, no writ) Madrid v. Madrid, 643 S.W.2d 186 (Tex. App.El Paso 1982, no writ) Janik v. Janik, 634 S.W.2d 323 (Tex. App. Houston [14th Dist.] 1982, no writ) Currie v. Currie, 518 S.W.2d 386 (Tex. Civ. San Antonio 1974, dism’d) Wilkerson v. Wilkerson, 515 S.W.2d 52 (Tex. Civ. App. - Tyler 1974, no writ) App. - Size of Spouses Separate Estates Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Smith v. Smith, 836 S.W.2d 688 (Tex. App. Houston [1st Dist.] 1992, no writ) Beaupre v. Beaupre, 700 S.W.2d 353 (Tex. App. - Fort Worth 1985, dism’d) Community Indebtedness and Liabilities McKnight v. McKnight, 535 S.W.2d 658 (Tex. Civ. App. - El Paso, 1976, reversed on other grounds 543 S.W.2d 863 (Tex. 1976) Benedict v. Benedict, 542 S.W.2d 692 (Tex. Civ. App. - Fort Worth 1976, dism’d) Horlock v. Horlock, 533 S.W.2d 52 (Tex. Civ. App. - Houston [14th Dist.] 1975, dism’d Cole v. Cole, 532 S.W.2d 102 (Tex. Civ. App. - Dallas 1975, no writ) 214 Gaulding v. Gaulding, 256 S.W.2d 684 (Tex. Civ. App. - Dallas 1953, no writ) Tax Consequences Able v. Able, 725 S.W.2d 778 (Tex. App. - Houston [14th Dist.] 1987, no writ) Robbins v. Robbins, 601 S.W.2d 90 (Tex. Civ. App. - Houston [1st Dist.] 1980, no writ) McCartney v. McCartney, 548 S.W.2d 435 (Tex. Civ. App. - Houston [1st Dist.] 1976, no writ) Benedict v. Benedict, 542 S.W.2d 692 (Tex. Civ. App. - Fort Worth 1976, dism’d) Cole v. Cole, 532 S.W.2d 102 (Tex. Civ. App. - Dallas 1975, no writ) Gaulding v. Gaulding, 256 S.W.2d 684 (Tex. Civ. App. - Dallas 1953, no writ) Community Funds Used to Purchase Out-of-State Property Hailey v. Hailey, 331 S.W.2d 299 (1960) Ismail v. Ismail, 702 S.W.2d 216 (Tex. App. Houston [1st Dist.] 1985 ref’d n.r.e.) Risch v. Risch, 395 S.W.2d 709 (Tex. Civ. App. Houston 1965, dism’d, cert. denied 386 U.S. 10 [1965] Turner v. Turner, 289 S.W.2d 836 (Tex. Civ. App. Dallas 1956, no writ) Walker v. Walker, 231 S.W.2d 905 (Tex. Civ. App. - Texarkana 1950, no writ) Gifts to Spouse During Marriage Dorfman v. Dorfman, 457 S.W.2d 417 (Tex. Civ. App. Texarkana 1970, no writ) 215 In re Marriage of McCurdy, 489 S.W.2d 712 Excessive Gifts to Children (Tex. Civ. App. - Amarillo 1973, dism’d) Expected Inheritance Whittenberg v. Whittenberg, 523 S.W.2d 797 Civ. App. - Austin 1975, no writ) Carle v. Carle, 234 S.W.2d 1002 (1950) Roever v. Roever, 824 S.W.2d 674 (Tex. App. - Dallas 1992, no writ) Rodriguez v. Rodriguez, 616 S.W.2d 383 (Tex. Civ. App. - Houston [1st Dist.] 1981, no writ) Haggard v. Haggard, 550 S.W.2d 374 (Tex. Civ. App. Dallas 1977, no writ) Fortenberry v. Fortenberry, 545 S.W.2d 40 (Tex. Civ. App. - Waco 1976, no writ) Thomas v. Thomas, 525 S.W.2d 200 (Tex. Civ. App. Houston [1st Dist.] 1975, no writ) (Tex. Attorneys’ Fees Reimbursement Between Marital Estates and Increase in Value of Separate Property by Community Effort Jensen v. Jensen, 665 S.W.2d 107 (Tex. 1983) Vallone v. Vallone, 644 S.W.2d 455 (Tex. 1982) Torregross v. Szelc, 603 S.W.2d 803 (Tex. 1980) Morrison v. Morrison, 713 S.W.2d 377 (Tex. App. Dallas 1986, dism’d) 216 Jones v. Jones, 699 S.W.2d 583 (Tex. App. Texarkana 1985, no writ) Duke v. Duke, 605 S.W.2d 408 (Tex. Civ. App. El Paso 1980, dism’d) Hale v. Hale, 557 S.W.2d 614 (Tex. Civ. App. Texarkana 1977, no writ) Nature of Property Murff v. Murff, 615 S.W.2d 696 (Tex. 1981) Nail v. Nail, 486 S.W.2d 761 (Tex. 1972) Smith v. Smith, 836 S.W.2d 688 (Tex. App. Houston [1st Dist.] 1992, no writ) Magill v. Magill, 816 S.W.2d 530 (Tex. App. Houston [1st Dist.] 1991, denied) Eikenhorst v. Eikenhorst, 746 S.W.2d 882 (Tex. App. Houston [1st Dist.] 1988, no writ) Jones v. Jones, 699 S.W.2d 583 (Tex. App. Texarkana 1985, no writ) McKnight v. McKnight, 535 S.W.2d 658 (Tex. Civ.App. El Paso, 1976, reversed on other grounds 543 S.W.2d 863 [Tex. 1976]) Thomas v. Thomas, 535 S.W.2d 200 (Tex. Civ. App. - Houston [1st Dist.] 1975, no writ) Waggener v. Waggener, 460 S.W.2d 251 (Tex. Civ. App. - Dallas 1970, no writ) Alcoholism Wisdom v. Wisdom, 575 S.W.2d 124 (Tex. App. - Fort Worth 1978, dism’d) ENFORCING PROPERTY DIVISION 1. a. LAW Statutes [TFC - Texas Family Code] 217 C i v . C. TFC § 9.001 Provides for enforcement of property division by filing suit to enforce governed by TRCP, requiring notice by citation. TFC § 9.002 The court rendering divorce/annulment decree retains jurisdiction to enforce property division. TFC § 9.003 For property in existence at time of decree, subsection (a) sets forth filing deadline of two years from date of decree or date of finality after appeal, whichever occurs later. For future property not in existence at time of decree, subsection (b) sets forth filing deadline of two years from date property right matures or accrues or the decree becomes final, whichever is later. TFC § 9.004 Does not apply to existing property not divided in divorce. TFC § 9.005 Party may not demand a jury trial if enforcement procedures of Subchapter 9 are invoked. TFC § 9.006 The Court has power to make further orders to enforce the decree to assist in implementation or clarification of the decree, without affecting substantive division of property. TFC § 9.007 The Court cannot modify the division of property, and any such order modifying division is unenforceable, and the court’s power to implement and/or clarify is abated during appeal. TFC § 9.008 Party may request and court may order clarification order before contempt is heard, with contempt, or after contempt is denied. Such clarification order may set forth specific terms to enforce compliance with original property division, but may not give retroactive relief, and shall provide for reasonable time for compliance before future enforcement. TFC § 9.009 For enforcement purposes, the Court may make orders for delivery of property (including cash or its equivalent), regardless of special value. TFC § 9.010 If delivery of property is no longer an adequate remedy, court may render money judgment for damages for failure to comply. If party did not receive cash payments as awarded, court may render judgment for amount of unpaid payments. Reduction to money judgment is in addition to other available legal remedies and may be enforced by any legal means available. 218 TFC § 9.011 The court may enforce award of installment or lump sum payments due to maturation of vested or non-vested future right (pension and annuity benefits). Receipt of the same by non-owning party creates fiduciary duty and constructive trust. TFC § 9.012 Order requiring delivery of specific property or a right to future property is enforceable by contempt, but order for installment or lump sum payments is in the nature of a debt, and therefore is not enforceable by contempt, unless the sum of money existed at the time of the decree or is a mature right to future payments as provided in TFC § 9.011. TFC § 9.013 Court may award costs. TFC § 9.014 Court may award reasonable attorney’s fees. b. Cases i. McLaurin v. McLaurin, 968 S.W.2d 947 (Tex. App. – Texarkana 1998). An order which altered the agreed mode of payment without changing the liabilities of the parties (instead clarifying the means of payment to extinguish those liabilities) was consistent with the prior judgment and “merely prescribed the method of execution.” Pate v. Pate, 874 S.W.2d 186 (Tex. App. – Houston [14th Dist.] 1994, writ denied). Trial court improperly changed final decree to alter the division of retirement benefits. Whittingham v. Whittingham, 853 S.W.2d 193 (Tex. App. – Beaumont 1993, no writ). Trial court had duty to require ex-husband to sign note. Pierce v. Pierce, 850 S.W.2d 675 (Tex. App. – El Paso 1993, writ denied). When divorce decree is unambiguous, trial court cannot alter or modify original property division. Sharman v. Schuble, 846 S.W.2d 574 (Tex. App. – Houston [14th Dist.] 1993, no writ). House ordered sold and proceeds divided 50-50; trial court cannot amend that provision to redress noncompliance with other aspects of final order. Elliott v. Elliott, 797 S.W.2d 388 (Tex. App. – Austin 1990, no writ). Trial court could not adjust division of retirement pay to deduct disability benefits. ii. iii. iv. v. vi. 219 vii. Haworth v. Haworth, 795 S.W.2d 296 (Tex. App. – Houston [14th Dist.] 1990, no writ). Trial court acted improperly in attempting to modify division of pension benefits to give ex-spouse a share of post-divorce adjustments. Reiter v. Reiter, 788 S.W.2d 201 (Tex. App. – Fort Worth 1990, writ denied). Order requiring ex-spouse to sign note and impressing lien on real estate was permissible clarification of earlier order. Spradley v. Hutchison, 787 S.W.2d 214 (Tex. App. – Fort Worth 1990, writ denied). Trial court’s allowance of offset on monetary judgment not an impermissible modification of original order. Cain v. Cain, 746 S.W.2d. 861 (Tex. App. – El Paso 1988, writ denied). Turnover order is not an impermissible modification of decree. Able v. Able, 725 S.W.2d 778 (Tex. App. – Houston [14th Dist.] 1987, writ ref’d n.r.e.). Court acted properly in requiring husband to reimburse wife for taxes in year of divorce. McDowell v. McDowell, 705 S.W.2d 345 (Tex. App. – Dallas 1986, no writ). Appointment of receiver to sell property impermissibly modified terms of decree. Griffith v. Griffith, 698 S.W.2d 729 (Tex. App. – El Paso 1985, no writ). Trial court acted properly in requiring ex-husband to designate ex-wife for military survivors benefit plan. Lundy v. Lundy, 973 S.W.2d 687 (Tex. App. – Tyler 1998). Alleged clarifying order in fact was impermissible substantive change of unambiguous child support order. Pearcy v. Pearcy, 884 S.W.2d 512 (Tex. App. – San Antonio 1994, no writ). Clarification order proper where original property division is ambiguous or not specific enough to enforce. Traylor v. Traylor, 789 S.W.2d 701 (Tex. App. – Texarkana 1990, no writ). This section does not authorize clarification of provisions in settlement agreement which the court could not have originally rendered. Tyler v. Tyler, 742 S.W.2d 740 (Tex. App. – Houston [1st Dist.] 1987, writ denied). Trial court’s attempt to make husband reimburse wife for 220 viii. ix. x. xi. xii. xiii. xiv. xv. xvi. xvii. payments following divorce was an impermissible modification of final property division. xviii. xix. Mullins v. Mullins, 785 S.W.2d 5 (Tex. App. – Fort Worth 1990, no writ). $3,500.00 awarded as attorney’s fees for enforcement of court order. McEntire v. McEntire, 706 S.W.2d 347 (Tex. App. – San Antonio 1986, writ dism’d w.o.j.). Attorney’s fees awarded to enforce and clarify agreed decree of divorce. 221