Marital Property Outline

Professor George

I) TEXAS CONSTITUTIONAL PROVISIONS A) Separate Property Defined 1) Separate Property Property that is owned or claimed before marriage or that is acquired after marriage by gift, devise or descent. The legislature has the power to more clearly define these rights (IE management and liability). (a) Note that special community property (community property under separate management) was statutorily created under the separate property/management and liability rights of the legislature. (i) Special community property wont retain its special status if you cant trace it. 2) Personal Injury Personal injury recoveries sustained by a spouse are separate property except for recover for lost earning capacity. This represents the idea that the spouses body is property brought into the marriage. (a) Note that all recoveries for personal injuries are either special community or separate and thus, the injured spouse need never add the other spouse as a party to such a suit. (b) Contributory Negligence to the extent that personal injury recovery is separate property (not community), the other spouses contributory negligence should not be considered. (c) Medical Expenses recompense via suit for medical expenses incurred by the community is community. (d) Workers Comp compensates for lost wages and is thus community. (e) Future Lost Earnings if you are divorced and have already collected for lost personal earning capacity up to the present and in the future, you should argue for a larger percentage of the recovery under a just and right division (though there appears to be some push to make this a pro rata division IE if you are injured and lose 20 years of potential employment, then the community should get the recompense for the years you were married only)). 3) Increase of the Land Increase of the value of separate property remains separate property, but distinguish this from income derived from and produce created from or on separate property. Produce from separate property is conclusively presumed to be from the efforts of the community and thus community. (a) Crops - Note that a crop which takes a long time to create (IE timber) may potentially be taken as separate property (cases are split). (b) Rule of Increase the offspring of separate livestock is community. (c) Oil & Gas oil and gas is considered part of the land, and thus when sold is presumptively separate (subject to the doctrine of onerous title). (d) Mutual Funds retained growth in the value of a mutual fund is considered to be an increase in the value of the separate estate (not income from separate property).

Schuster Marital Property Outline Fall 2006 Professor George

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4) Income from Separate Property Dividends, interest, rents, etc from a spouses separate property is taken as community property. Partition and Exchange 1) Partition and Exchange Defined - Both spouses and future spouses can partition or exchange in writing their community property held presently or to be gained in the future into separate property. (a) Partition an agreement to create separate estates within a single community asset by either dividing the property in 2 distinct portions and giving one portion to each separate estate or just saying that the asset is held 50/50 and a joint tenancy. (b) Exchange both spouses take a piece of community property and hold it as separate (they pretty much both take a piece of community). (i) Exchanges can be used for future or current property. For future property, you can just exchange your future income for mine. (c) Agreements - A mere agreement to partition and exchange in the future will not pass constitutional scrutiny to transform community to separate property. Further, a contractual clause stating everything is separate even if we dont partition/exchange is still insufficient. (d) Inequality OK - Note that property exchange/partitioning need not give equal property interests to both spouses. (e) Specificity if you dont specifically state property that will be included in a future partitions/exchanges, then they will not be included. 2) Fraud partition and exchange cannot be used to defraud a pre-existing creditor. (a) Note that old law held that you couldnt use partition/exchange to prejudice a pre-existing creditor (note that the current bar will let you prejudice a pre-existing creditor, so long as you dont defraud them). Income Producing Separate Property 1) Spouses (not future spouses) can agree in writing to partition or exchange income from separate property (current or future) will be taken as separate property. 2) Salaries cannot be taken as separate property under this clause, because salaries do not arise from separate property (spouse labor is community property). 3) Note that this provision allows current spouses to take income from separate property as separate property, but any legislative attempt to make all income from separate estates into separate property would be unconstitutional. 4) Un-married people cannot agree that income from their separate property will be taken as separate property this is exclusive to married people 5) Specificity if you dont specifically state income from separate assets that will be characterized as separate, then that will not be included in the agreement. Income Follows a Gift Between Spouses (the Wyly Amendment) 1) Gifts between current spouses are presumed to include any income which is produced from that gift. (a) This is limited to current spouses because only current spouses can agree to take income from separate property as separate property. Right of Survivorship in Community Property

Schuster Marital Property Outline Fall 2006 Professor George

1) Spouses can agree in writing that property held as community property or as a joint tenancy will be held with a right of survivorship. Absent an explicit written statement, a right of survivorship is never presumed. F) Converting Separate Property to Community 1) Spouses can agree in writing to make all or part of their separate property into community property. 2) Such agreements must be in writing, set forth the nature of the recharacterization, and clearly describe the property involved. (a) Merely adding the other spouses name to title will not make community property it will just trigger presumptions of a gift. 3) A separate to community agreement is only valid if (conjunctive): (a) Voluntary transfer of property, and (b) The party received a fair and reasonable disclosure of the effect of such a transfer. (c) Note: there is a statutory statement that if included in such a written agreement creates a rebuttable presumption of necessary disclosure (it describes ownership, creditor exposure, management rights, etc). G) Constitutional Minutia 1) Doctrine of Implied Exclusion if a constitutional right is given under a set group of standards, there is an implied exclusion of any right that the legislature might have to make rules expanding or restricting these standards. (a) Application: the constitution states exactly what separate property is no law can amend or abridge such a definition. Therefore, any property that doesnt fall exactly into the definition of separate property is community. 2) Probate Homestead a surviving spouse has a constitutional right to life in the community home until her death or until she moves out. This provision can be waived by consenting adults. (a) Note that if spouses agree to a prenuptial agreement which states that both parties would give up all property rights that arise from the marriage, then a wife may have given up her right to a probate homestead. 3) Gifts to the community It is impossible to make a gift to a community estate. Gifts are either to a single spouse or both spouses are tenants in common. (a) Note that gifts to the marriage will yield separate property, but the income from such gifts is community (absent a spouse to spouse gift). 4) Pre/Post-Marital Agreements (a) Any marital property agreement (other than a separate to community agreement) can be set aside if you can show: (i) The agreement was not voluntarily entered into, or Note that you cannot argue involuntariness if the other party threatened to do or did something that he had a legal right to do. Common Law Defenses you dont have to prove a common law defense to formation to show involuntariness, but such a showing cant hurt. Just because you didnt expect someone to leave you after you signed a postnuptial agreement isnt grounds for a finding of involuntariness.

Schuster Marital Property Outline Fall 2006 Professor George

(ii) The agreement was unconscionable at signing because One party wasnt given a reasonable disclosure of the other partys property/financial obligations That party didnt waive in writing such a disclosure, and That party didnt have our couldnt have such a disclosure already. Intentionally not knowing will not be grounds for a finding of unconscionability. (b) Note that this is the exclusive manner to set aside marital property agreements, however, you may be able to argue common law issues such as duress, fraud, etc when you argue that the agreement was voluntarily entered into. (c) Marital property agreements must be signed and in writing (d) A marital property agreement can apply to about anything, but it cant affect child support. 5) Separation Agreements TX doesnt recognize legal separation, but upon filing for divorce, a court may issue orders controlling all aspects of the separation until divorce. 6) Income from Corporations Any income paid from a separate entity (IE salaries, pensions, dividends, etc) will be taken as community property. 7) Implied Validation Doctrine under this doctrine, an unconstitutional law which will become constitutional under a new constitutional amendment will be held valid as of the statutes original date of inception (not just from the date of the new constitutional amendment). II) CHARACTERIZATION OF MARITAL PROPERTY A) The Community Property Presumption and Its Rebuttal (103) 1) Community Property Presumption Property possessed by either spouse during or on dissolution of marriage is presumed to be community property. (a) This presumption applies to all property possessed, not just property acquired after marriage. (b) Payments if one estate paid entirely for X, then X belongs to that estate. However, merely making payments on X just entitles that estate to reimbursement for those payments (but not characterization). (c) Reacquisition if you sell separate property and then reacquire it during marriage using community assets, it is community property (d) Mutations so long as separate property can be properly be traced through its various forms, mere changes in form do not destroy its separate nature (IE purchases with separate funds, stock transactions, etc). 2) Rebuttal of the Community Property Presumption The community property presumption can only be rebutted by clear and convincing evidence. (a) Parole Evidence parole evidence can be used to rebut the community property presumption. (b) Separate Purchase if a party purchases property using solely separate property during marriage, the property is separate.

Schuster Marital Property Outline Fall 2006 Professor George

(i) Note that, if during marriage, property is acquired using separate and community property, then the separate and community estates take as tenants in common. (c) The Evidentiary Standard (i) Corroboration Most courts will hold that mere testimony is usually insufficient to rebut the community property presumption. Further, you always need evidentiary corroboration of an interested witnesss testimony to reach the clear and convincing standard. (ii) Uncontroverted Evidence where evidence is uncontroverted, the presumption is usually rebutted. (iii) Tracing Funds when tracing separate property, it is insufficient to show that separate funds could have been the source of the funds asserted to be separate. (iv)Impossibility if funds have become so incredibly commingled that tracing is impossible, no court will find the community property presumption rebutted. 3) Theories on Community Property (a) Doctrine of Onerous Title whatever property is acquired by the joint efforts of the husband and wife is community property (b) Implied Exclusion anything that the constitution didnt say was specifically separate property is community property. B) The Doctrine of Inception of Title (112) 1) Inception of Title If a party can show that property was owned or claimed prior to marriage, then title incepted prior to marriage and the property is separate. 2) Timing characterization occurs under the doctrine of inception of title at the point in which, if you fulfill your contract obligations, no other person on earth has the potential to take title to this property. (a) IE if you put earnest money down on a house, get married, and then close on the house the house is separate because after you put earnest money down, no one else on Earth had a legitimate claim to that house if you fulfilled your duties. (b) Checks if you write a check to purchase property, the date of the clearing of the check (not date on the check) is the date that the transaction occurred. (c) Hypo: If during marriage, the community buys land with a 5% down payment from the community and a 5% down payment from husbands separate, we see a TIC is formed. The point of inception sees 5% paid from husbands separate, and thus he will take a 5% interest in the land. Wife will argue that he meant to gift half of that 5% to her separate and he will introduce parole evidence to rebut. Note that if title incepted, and then later, the husband paid 5%, then he would just get economic contribution (because characterization has already occurred). 3) Adverse Possession title by adverse possession incepts at the running of the SOL for a naked claimant with no legitimate claim, but if you are on the

Schuster Marital Property Outline Fall 2006 Professor George

property under a valid title (that may need reforming) then your title incepts at purchase, though you may later take title via adverse possession. 4) Life Insurance Inception of title applies to life insurance. Proceeds from life insurance policies where title incepted prior to marriage are separate funds, though the community may be owed reimbursement for payments made after marriage. (a) Community policies can become separate if one party makes an affirmative act (beyond merely putting someones name on the policy) clearly showing his intent to divest himself of his community interest in the policy. IE making an absolute assignment of benefits. C) Tracing (139) to rebut the community property presumption by clear and convincing evidence, you may trace the origins of money used to purchase property back to separate origins. There are 4 main tracing aids (not rules): 1) Dollar for Dollar Here you must show that the specific dollars spent (think serial numbers) were either separate or community. You either need distinct community and separate accounts, or you need to keep serial numbers. 2) One Dollar has the Same Value as Another Dollar 3) Community Depletion Community funds in a joint/community account are assumed to be spent first. Recall separate funds sink to the bottom. (a) IE if you have a separate bank account that the community starts to use, then the amount of funds available at the lowest level the account ever reached during community use is guaranteed to be separate. (b) Community Depletion of Possible Community Funds If you show that community expenses from an account exceed all community deposits, then by definition, all monies left must be separate. SHOULD THIS BE HERE OR UNDER THE CLEARING-HOUSE METHOD? 4) Intent/Clearing-House Method We look to the intent (characterization) of each individual debit or credit and add/subtract that much from the separate or community portion of an account. (a) Forensic CPAs are used to make these terribly complicated accountings. D) Presumptions Arising from Conveyance Through Which Title is Acquired (163) 1) Resulting Trusts (a) Rule when a conveyance is made to X, with distinct party Y paying for it, X presumptively holds the property in trust for Y. X is the legal title holder and Y is the beneficial owner. (i) IE if Community pays for Blackacre and title is put in Spouse 1s name, then spouse 1 presumptively takes legal title with Community being the beneficial owner. (b) Exception If the party taking legal title to the property is a natural object of the payors bounty, then the property is presumed to be a gift with no resulting trust being created. (IE if wife spent separate fund to buy Blackacre during marriage and put both spouses names on the deed, there is a presumption of a 50% gift to husbands separate estate) (c) Rebuttal presentation of clear and convincing evidence can rebut the presumptions of gift or trust.

Schuster Marital Property Outline Fall 2006 Professor George

(i) A statement of intent to create or not to create such a trust is sufficient to overcome this presumption. (d) Timing if a resulting trust is to be created, it must be created at purchase. (i) IE if X buys land by putting 50% down and then Y takes pays off the other 50%, no resulting trust is created in Y because Y had nothing to do with the property at the time of purchase. (e) Transfers During Marriage if a spouse owns property during marriage and then deeds it to the other spouse, then there is a conclusive presumption of a gift. Parole evidence wont be admitted. (i) This presumption is present because there was absolutely no need to make such a transfer absent intent to gift. (f) Example: Husband and wife intend to buy Blackacre for 10K. Husband pays 9K out of his separate account and wife pays 1K out of her separate account. Title is placed in Husbands name. There is a presumption that wife gifted her 1K to husbands separate estate and he took Blackacre as separate property. (i) Note: In this hypo, note that no party could ever argue this to be community property because it was paid for exclusively out of separate accounts. Separate property can only become community through an express writing. (ii) Parole Evidence parole evidence could be proffered to rebut the presumption that wife intended the 1K as a gift. (iii) Significant Recital if the title to Blackacre stated that this was husbands separate property, then there is a conclusive presumption that this is husbands separate property (no parole evidence). (iv)Note: if it had been Fred (Husbands Boss) who paid the 1K, then a 10% beneficial ownership of Blackacre would be found for Fred. 2) Gifts A conveyance between spouses is presumed to be a gift. (a) Parole evidence - This presumption can usually be rebutted by parole evidence. 3) Significant Recitals A significant recital is a statement in a deed that property is taken as community or separate property or that community or separate funds were used to pay for the property. If both parties were privy to the contract, then a significant recital is conclusive absent fraud. (a) Parole evidence in the presence of a significant recital, absent fraud or mistake, parole evidence will not be used to rebut the presumption of a gift. (b) Privity if a non-grantee spouse isnt privy to a contract including a significant recital, then he can proffer parole evidence. E) Credit Transactions (193) 1) Separate Credit if a bank unequivocally agrees only to look to separate credit/assets as security for a loan, then the loaned funds taken are separate, and anything purchased with such funds is separate. (a) Merely stating that you intend to pay a loan back with separate property is insufficient.

Schuster Marital Property Outline Fall 2006 Professor George

(b) The bank needs to explicitly state, I will only look to your separate property for recompense. 2) Ray Debt A debt in which the bank agrees solely to look to separate assets as security, and thus, the loaned funds are taken as separate property. F) Personal Injury Recoveries which Presumption or Rule Controls (209) 1) Community vs. Separate In a person injury case, recompense for lost wages, reimbursement for community funds expended on medical costs, etc. are community, while recompense for personal injuries, loss of consortium, etc. are taken as separate. However, it is common for personal injury recoveries not to be delineated between separate and community this leads to 2 potential presumptions of what the characterization of the property is: (a) Community Property Presumption property acquired during marriage is presumed community and thus, what % of the recovery is separate must be proven. (i) Pro-Community Argument - you could argue that in the recovery, you agreed that this was released you from all claims of personal injury, lost wages, etc. and thus the recovery was commingled community/separate. (ii) Pro-Separate Argument you could argue that $X is the most I could have possibly made in the future, and $Y is how much money the community paid for medical bills from community funds therefore, anything in excess of $X + $Y must be separate. (b) Statutory Presumption Statute states that recovery for personal injury (less recompense for lost wages) is separate, and thus, we should presume recovery for personal injury to be separate. (c) Solution Get a valid allotment of the recovery to each potential ground of recovery (dont try and have .01% allocated to lost wages) and that would settle it. (i) Pro-Separate Argument If you lose on the characterization, then argue just and right division (you were the one hurt). 2) Inception of Title The characterization of personal injury recovery depends on when the injury occurred. If it occurred during marriage, then it will be community (to the extent possible), but if it occurred outside marriage, then it will be separate. G) Separate v Community Property Minutia 1) Oil and Gas Sales - Oil and gas reserves on separate land are part of the land and thus, are separate property. (a) Reasonable Time - The owner of the property is only allowed to invest reasonable efforts (of community time and toil) to preserve the separate estate and put it to productive use. (i) Efforts beyond this reasonable level may lead to eventual toil reimbursement. (b) Corporations/Partnerships Note that if you are selling your oil/gas through a 3rd party corporation, then any payouts from the corporation is taken as community property (as it is essentially a salary or income from separate property).

Schuster Marital Property Outline Fall 2006 Professor George

(i) Entity Theory under the entity theory of partnerships (as opposed to the aggregate theory), a partnership has its own distinct property from the personal assets of the spouses. (c) Delay Rentals If a party pays you not to drill on separate property for a time, this is treated as rental income and thus will be community. III) CLAIMS FOR ECONOMIC CONTRIBUTION AND REIMBURSEMENT A) Reimbursement & Economic Contribution 1) Reimbursement an equitable remedy which arises when the assets of one estate are used to benefit another estate without itself receiving some benefit. (a) Reimbursement to a community estate is improper for: (i) Child support, alimony, or spousal maintenance (ii) Living expenses of a spouse or child of a spouse, (iii) Contributions of property of nominal value, (iv)The payment of a nominal liability, or (v) Student Loans owed by the spouse (b) Reimbursement may specifically include: (i) Payment of an unsecured liability of another, or (ii) Inadequate remuneration to the community for community time, toil and effort expended to benefit a separate estate, or (iii) Use of funds (not secured debts) to increase the value or upkeep separate property, or (iv)Other equitable instances where one marital estate uses its assets to benefit another estate. IE 50% of excessive and capricious gifts given to 3rd parties to the marriage. (c) Use and Enjoyment A claim for reimbursement may be offset by the value of use and enjoyment taken by the community estate. (i) Such use and enjoyment may include living in a house, use of a car, (potentially, though unlikely) tax benefits claimed by the community arising from separate property, etc. (d) Valuation reimbursement claims should be valued by the increase in value to the receiving estate, not the cost to the donating estate. (e) Reimbursement will be reflected in the just and right division of community property at dissolution of marriage. 2) Economic Contribution a martial estate that makes an economic contribution to property owned or debt owed by another marital property estate has a claim for economic contribution from the benefited estate. (a) Ownership Interest? A claim for economic contribution doesnt create an ownership interest in the property of another estate; it merely creates a claim against the other estates property that matures upon dissolution of the marriage. (b) Economic contribution is appropriate for (TX Fam. Code 3.402): (i) Reduction of principle on loans secured by separate property, (including pre-martial, gifted, and Ray debt separate property), (ii) Refinancing of abovementioned debts to the extent that the refinancing reduced the principle on the above loans,

Schuster Marital Property Outline Fall 2006 Professor George

(iii) Reduction of principle on secured debts incurred for the improvement of property, or (iv)Capital improvements on property. (c) Economic contribution is not appropriate for: (i) Expenses on ordinary upkeep, taxes, insurance or interest (ii) Time, toil, talent or effort expended by a spouse (d) Timing Economic contribution is only appropriate after the purchase of property (always on the reduction of the principle of secured debts). (i) Thus, if a wife contributed separate property to the communitys down payment on a house, economic contribution would not be applicable, though reimbursement might be. Further, the wife could have just rebutted the presumption of gift to the husband and argued a resulting trust. (e) Mandatory economic contribution seems to be a mandatory rule that courts must consider and allocate (as opposed to reimbursement, which is equitable relief to be given in the courts discretion). (f) Use and Enjoyment A claim for economic contribution may not be offset by the value of use and enjoyment taken by the community estate. (i) Hypo: if you move into a house gifted to you as separate property and the community pays the mortgage, then the community will be due economic contribution and you cant get use and enjoyment offsets. (g) Title note that one estate must have title and another estate put money into it for statutory economic contribution to be proper. (h) Economic Contribution = Equity @ Divorce x Money put in by separate / (Community Equity @ 1st Contribution + Further Community Contribution) 3) Reimbursement & Economic Contribution (a) Conflicts if there is a potential claim for economic contribution and reimbursement, then the proper claim is for economic contribution. (b) Burdens the party asserting reimbursement or economic contribution has the burden of pleading and the burden of proof. (i) If a separate estate is asserting a claim of economic contribution or reimbursement against the community he must prove by clear and convincing evidence, but the community can get such recompense via a preponderance of the evidence. (c) Imposition of a Lien In order to effect the payment of a claim for economic contribution or equitable reimbursement from a non-liquid marital estate, the court needs to go through 2 steps: (1) impose a lien, and (2) foreclose on that property. (i) Why is this necessary? A court cannot, upon dissolution of a marriage, divest a party of their separate property. As such, a party is owed a foreclosure hearing prior to divestiture (due process). B) Reimbursement for Time, Toil, Talent and Effort (226) 1) Reimbursement for time, toil, talent, and effort expended by the community estate to benefit a separate estate may be proper to the extent that the

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community expended efforts in excess of the labor necessary to upkeep and preserve the separate estate. 2) Reimbursement = Value of effort expended Value of reasonable efforts Value of remuneration received (a) Remuneration should include every benefit that arose due to the expended efforts of the community in excess of reasonable upkeep. IE life insurance, death benefits, etc. (i) Remuneration shouldnt include income that could have been had outside of the use of community efforts (IE rental income). (b) Value of effort expended is evaluated by an expert. 3) Stock Value Increases of separate stock value (in a closely held corporation) due to community efforts is still separate property. (a) Enhancement A threshold issue to get toil reimbursement. There needs to be enhancement to the separate estate (usually in stock value increase) in order for there to be anything worth attempting to get in reimbursement. (i) There is still a question of law regarding if toil reimbursement should be limited to enhancement. (ii) Argue that a portion of the enhancement was due to the reasonable upkeep of the separate estate (and thus not reimbursable). 4) Pleading Make sure that you plead toil reimbursement, because courts have poured people out on toil reimbursement for only pleading reimbursement for funds spent by the separate. C) Beginning Balance Reimbursement (251) 1) Beginning Balance Reimbursement where a spouses separate funds are used as a basis to create community wealth and all separate/community funds have become incredibly commingled, then a separate estate may be reimbursed for those separate funds used as the foundation of the community wealth. 2) Business Stock if a business is owned pre-marriage, tracing of the stock at the time of marriage is probably impossibly difficult, but you may be able to claim reimbursement for the value of that stock. D) Reimbursement for Retained Earnings, Reimbursement for Use of Community Credit (266) 1) Retained Earnings if spouse owns a separate Subchapter S corporation which the community pays income tax on all corporate income both retained and distributed, the community has no claim of right to the retained income (called previously taxed income). (a) Note that reimbursement may be proper for the taxes owed by the corporation on the retained earning that the community paid. (b) This goes along with the entity theory of corporations anything held by a corporation is not community or separate it is corporate property. 2) Community Credit it is possible that use of community credit for the benefit of the separate estate may lead to reimbursement liability to the community estate. IV) MANAGEMENT AND LIABILITY OF PROPERTY DURING THE MARRIAGE A) Management (308) 1) Sole Management

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(a) Separate Property - Each spouse has the sole management, control and disposition of their separate property. (b) Special Community Property Each spouse has sole management, control and disposition of special community property (exclusively including personnel earnings, revenue from separate property, personal injury recoveries and increase/mutations of special community property). (i) Note that spouses can agree (orally or written) to make community property special community. (ii) Thus, under the doctrine of implied exclusion, dont try to argue that other stuff is special separate property. (iii) The management right of special property includes the exclusive right to contract for resolution of personal injury claims. (c) Presumption property is presumed to be under the sole management of a spouse if title is in his name or if he is in possession of it. 2) Joint Management Regular community property or joint tenancies of special community property are subject to community control. 3) Protection of 3rd Parties A 3rd party dealing with a spouse is a BFP if the spouse he is dealing with is presumed to have management over the property in question and the 3rd party isnt involved in defrauding the other spouse and doesnt have actual or constructive notice of this spouses lack of authority. 4) Property converted from separate to community (a) Title if the propertys title is held by one spouse, then he is the manager and if it is held by both spouses, then the property is joint-management. (b) No-Title if the property isnt subject to title, the property is subject to management by the donating spouse or subject to joint-management if both spouses previously owned a share of the property. B) Liability (297) 1) Separate Property a spouses separate property isnt liable to debts of the other spouse, unless both spouses are jointly liable. (a) In a Ray-debt situation, only your separate property is liable. 2) Special Community Property Special community property isnt liable for debts incurred by the other spouse (1) prior to marriage, or (2) by any nontortious means during marriage. (a) Your special community property is subject to all of your personal debts. 3) Tortious Liabilities all community property is subject to tortious liabilities of either spouse. 4) Pre-Marital Debts a spouses pre-marriage creditors can access that spouses special community and separate property, as well as the joint-management community property. 5) Joint Liabilities all five marital estates are liable (2 x separate, 2 x special, 1 x joint-management community) for debts incurred by the community. (a) A spouse can only be personally liable by the actions of his spouse if the dealing spouse was (1) an agent of the other spouse, or (2) incurring a debt for necessaries. (i) A spouse is not the other spouses agent simply because of marriage.

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(ii) Only under if a spouse is personally liable can creditors get to his separate community assets for non-tortious debts. (iii) Note that a spouses contract cannot create liability for the other spouse (outside of the above exceptions agent or necessaries). One spouses contract only creates liability for her portion of the community. (b) A joint liability can be created if a spouse ratifies the community debt created by the other spouse. (i) Ratification requires: Approval by act, word, or conduct; with full knowledge of the facts of the earlier act; and with the intention of giving validity to the earlier act. (ii) Ratification can be found by acceptance of the benefits of a debt after finding out about the debt associated. (iii) Ratification is a largely a question of intent. C) Fraudulent Conveyances (326) Fraud on the community will be reflected in the just and right division at dissolution. 1) Constructive Fraud (a) Constructive Fraud - A gift from the community assets may be considered a constructive fraud on the community if the gift is excessive or capricious upon a consideration of: (i) Size the size of the gift If a spouse brought a great deal more separate property into the community than the gift donated, the gift is unlikely fraudulent. (ii) Relationship the relationship of the donee to the donor (iii) Left Over the amount of money left in the community estate after the gift. Q: Is there still sufficient funds to provide for the non-donor spouse? (b) Rebuttal If a conveyance is found to be constructive fraud, rebuttal is put on the donee. The court may find justifiable instances where a finding of constructive fraud can be rebutted (IE leaving life insurance to a business partner). (c) Consent If a community knows of and consents to 3rd party gifts (a conjunctive test), then constructive fraud is inappropriate. (d) Remedies a defrauded spouse may, at dissolution, receive recompense for what they have lost (50% of the wrongly given away property). (i) Punitive damages are not proper in suits between spouses. (ii) As the remedy should represent what was lost, it shouldnt exceed the worth of the estate. 2) Actual Fraud defrauding the community estate with the intent to deceive. (a) Note that there is no actual tort of fraud on the community. (b) Note that though punitive damages between spouses are inappropriate, actual fraud can be considered in making a disproportionate just and right division.

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(c) Note that if a party helps a spouse commit actual fraud, then that party may be held liable for damages (and punitives if fraud or malice is proven by clear and convincing evidence). 3) Insurance Policies Community owned insurance policy payouts are owned 50/50 by the spouses. Thus, if a husband designates 100% of an insurance policy outside the marriage, then 50% of it will be a gift. Look and see constructive fraud or actual fraud is present. D) Liability of Marital Property (356) 1) Federal Income Taxes (a) State law defines that a spouse has a property interest in all community assets (all 3 estates). (b) Under federal law, if a state gives a person any property interest in something, then the IRS can attach that property to pay taxes. (c) Thus, a pre-marital debt of one spouse (which would normally only attach to their separate, special community, and joint-management community property) will also attach to their spouses special community property. 2) Security Interests if a security interest on a loan is separate property, and the security is necessarily sufficient to cover the amount of the loan (IE putting up Treasury Bonds worth more than the loan), then the money taken from the loan is separate property. 3) Life Insurance Proceeds Life insurance proceeds from a spouses policy are taken as separate property (as it is a bequest see definition of separate property). Thus, creditors of the community who cant reach surviving spouses separate estate are out of luck. (a) Note that under TX law, you cant make gifts that would put your total assets below the level of indebtedness you currently are at. Thus, any such gift would be set aside. Thus, an assignment of a life insurance policy may be voided to cover debts existing at the time of the insurance assignment (if the reduction of the worth of the assignor by the then current value of the insurance policy would put the worth of the assignor at a level less than his indebtedness. 4) Creditor Interests If a creditor could attach certain properties during marriage, that creditor can attach the same properties no matter how they were distributed in a divorce decree. (a) Assignment of Liability even if a liability for a community debt to a creditor is assigned to a party on divorce, that creditor can still seek satisfaction of that debt from either spouse because it was their debt during marriage and a divorce cant prejudice creditors claims. (b) IE if a wife ended up with some of the husbands special community property or joint management community property after divorce, then the husbands creditors during marriage can still sue her and attach those properties. 5) Creditor Claims Against Special Community Property Note that a non-tortious community debt incurred by a single spouse who the other spouse is not liable for will not touch the non-debtor spouses special community. Thus, if the parties have orally agreed to control agreed upon portions of the community

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estate (IE at break up, pre-divorce), then the other spouses creditors cant get at your property. E) Protection of Third Parties (370) 1) Bona Fide Purchasers a land sale will not be set aside if the purchaser gave valuable consideration to a person holding apparent title, so long as the BFP doesnt have notice of a superior claim of title. 2) Apparent Title a BFP can take a property interest from a spouse who has apparent title to property, shown through possession or having the title in his name, so long as the BFP doesnt have notice or knowledge of adverse claims. 3) Secret Title Holders a BFP is protected from a hidden or secret adverse claim of title (to the sellers) if the BFP couldnt know of the adverse claim (IE an unrecorded equitably adopted kids intestate claim). 4) Knowledge vs. Notice Knowledge is actual knowledge of an adverse claim on property while notice is knowledge of facts that would put the party on notice that some further investigation may be appropriate. 5) Joint Title Owners If 2 parties are listed on the deed to property, then obviously, you need to make sure that they both assent to the sale or encumbrance because their names both being on the deed puts you on notice that there are multiple claimants. (a) This puts you on notice. Anyone with any business sense would want to make sure that they are taking property under a valid title. You want to make sure that spouse 1 can sell spouse 2s share. His mere assertions that he can shouldnt be enough. F) Management and Liability Minutia 1) Employer Disclosure a spouses employer has no obligation (outside of discovery) to disclose employment benefits to anyone but the employee spouse, and thus, spouses had better look into such things when divorcing. 2) Virtual representation an archaic idea that a suit against the husband alone is sufficient to find liability against the joint community. (a) In present law, a wife is an indispensable party to a suit attempting to gain access to her portion of community property (specifically her special community assets); her rights will not be biased by suits against her husband. (i) Her interest in the community estate may be subject to community debts, but she must still be sued for a party to collect on her special community portion. (b) Thus, if a husband files suit and is dismissed, then no res judicata will be found against the wife (as she was not a party to that suit). 3) Suits against a Single Spouse you can sue a single spouse and not the other spouse if you are only trying to get at their portion of the community estate (joint-management and special community plus separate property). 4) Piercing the Corporate Veil (a) If the corporate veil is pierced, then a corporation is treated as a partnership (or a sole-proprietorship) and any assets held by the spouse in the business entity will be treated as community property subject to a just and right division.

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(b) Alter-Ego if a corporation is found to be just another name for an individual (not a separate entity), then the corporate veil may be pierced. V) DISSOLUTION OF THE MARRIAGE BY DIVORCE A) Just and Right Division (382) 1) Divorce Decrees divorcing couples can present a divorce decree to a court, but the court must still deem it just and right to be valid. 2) Appellate Review a just and right division will not be thrown out on appeal absent a clear abuse of discretion. 3) Separate Property While a court cannot divest a party of his separate property at divorce, separate property can be considered in making the division. 4) Phantom Debts if a debt does not truly exist or has not been appropriately proven, then you need to argue that it doesnt exist if it is assigned to your client, as such an assignment would improperly balance the property division. 5) Considerations a just and right division may consider: (1) adultery, (2) constructive fraud, (3) fault for divorce, (4) disparity of earning capacity, (5) business opportunities, (6) education, (7) relative physical condition/obligations, (8) relative financial condition, (9) disparity of ages, (10) size of separate estates, (11) nature of the property to be divided, (12) attorneys fees, (13) pension plans, (14) care for children, (15) reimbursement, etc. 6) Improper Gifts If a husband spends an outrageous sum on 3rd party gifts (IE to other girls), then equitable reimbursement (via a just and right division) can make sure that the wife gets her 50% of the gifts from the community. (a) If it is admitted that the husband has abused the community funds, then the burden is one him to show an exact sum, or the court will come up with one. 7) Pension Plans in an example of the courts broad discretion, a court (acting as the finder of fact) could choose to value one spouses pension plan at its current worth and the other spouses at its future worth after considering the retirement ages, current ages, etc. 8) Question of Law - Only the judge can make a just and right division and only the finder of fact can value and characterize. B) Divestiture of Separate Property Not Just and Right (387) a divorce court has no right to divest a party of their separate property. 1) Divestiture could be found by placing liens on property and then foreclosing (IE reimbursement, economic contribution, etc). 2) A court can put separate property in trust for the benefit of the kids, so long as the corpus of the trust is returned to the spouse. 3) Appellate Review Divestiture of separate property is the only automatic grounds for finding an abuse of discretion. (a) Normally an abuse of discretion in dividing property would only be found if the court could show (1) mischaracterization, and (2) that a different distribution would have been made under a proper characterization. C) Quasi-Community Property and the Just and Right Division (403) 1) Quasi-Community Property separate property acquired outside of TX that is taken in a fashion that it would have been community property had it been

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D)

E)

F)

G)

acquired in TX at the same time will be treated as community property at divorce (but not at death). (a) Property acquired for quasi-community property is still quasi-community. (b) Note that property acquired in a common law jurisdiction that was taken in a way that would produce separate property in TX, is still separate. 2) Common Law courts have held that even prior to codification of quasicommunity, this was the common law. This way the court can reach back as far as they want with this law. Valuation for Division (428) A trial court must have a valuation of marital assets to make a just and right division. 1) As per statute, upon a partys request, the court shall present findings of law and fact regarding characterization and valuation. (a) Failure to do this is reversible error (abuse of discretion) 2) Finder of Fact Only the finder of fact can value and characterize and only the judge can make a just and right division. 3) Discovery failure in discovery may necessitate a revaluation. Good Will 1) The Good Will Test divisible goodwill must: (a) Exist independent of the husbands skill, and (i) If this is a corporation, then you probably pass this test. (b) Must have a commercial value. (i) Value may be determined as defined in allocation of value to goodwill in a partnership agreement. IE If you leave our partnership, we will pay you $X for the value of your goodwill. Note that this manner of valuation (by the partnership agreement) has been found incorrect in some cases. 2) Non-Professional Goodwill goodwill can exist in any profession. 3) Personal Goodwill (IE sole proprietorship) no divisible community asset exists in a sole proprietorship which has no value outside the spouse (all goodwill is attributable to the spouse). 4) Corporate Goodwill (IE corporations) a divisible community asset exists in a corporation that has value outside the spouse personally (goodwill is not attributable to the spouses good will). Partnership Distributions (448) Any partnership distribution is income and thus is a community asset. 1) Origin no matter what the origin of the funds within the business entity (IE if husband put separate funds into a corporation), any distribution will be taken as community property. 2) Interests Note that a spouse doesnt have any interest in the other spouses separate corporation until distribution of funds. Retirement and Other Employee Benefits (463) 1) Defined Benefit Plans take an average salary for one year and use that to define a monthly, yearly, or lump sum payment on retirement. (a) Under Tex. Fam. Code 3.007(a&b), there is a separate property interest in the portion of a payment that the spouse was entitled to outside of

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marriage, and a community interest in any proportionate share of a payment that accrued during marriage. (b) Total value at date of divorce - value at date of marriage = community portion. (c) Burden of Proof - The spouse with SP interest must prove what the value was at the date of marriage. 2) Defined Contribution Plan take the amount of money that the party and/or corporation put into a retirement plan and then pay out a dependent sum. (a) Under Tex. Fam. Code 3.007(c), defined contribution plans will be treated just like normal investment property. You will need to trace your separate (pre-marriage) investments to overcome a community property presumption. (i) Apply tracing and characterization principles like you would for other property. 3) Stock Options (a) To define the community vs. separate interests in stock options, apply the formula: (i) % Separate Interest = 100 x Time spent single between inception and vesting / total time between inception and vesting H) Alimony or Maintenance (473) 1) Temporary (Pre-Divorce) Alimony A separation that represents the donee spouses portion of community income while the community still exists. 2) Agreed Alimony Parties can agree to alimony under contract law, even if courts cant give out alimony (beyond maintenance). (a) Agreed alimony cant be enforced via contempt of court, but it can be enforced in contract. 3) Post-Divorce Maintenance Post-Divorce Maintenance is appropriate if: (a) Abuse a spouse is convicted of or receives deferred adjudication for family violence during the proceeding the proceeding or within 2 years prior to the divorce filing. (b) 10 Years the marriage lasted >10 years and a spouse lacks separate and community assets to provide for minimum reasonable needs plus: (i) Incapacitated the spouse cant provide for themselves because they are incapacitated, or (ii) Disabled Kid the spouse has a disabled/retarded kid who needs to be watched over at home, or (iii) Earning Capacity spouse clearly lacks earning capacity necessary to meet minimum reasonable needs. Earning Capacity is presumptively not a valid grounds for maintenance unless the spouse has: Diligently attempted to find proper employment, or Attempted to become self-supporting during the separation and proceeding (IE education) (c) Enforcement courts can enforce maintenance with contempt of court and they can also enforce agreed alimony under contempt if the agreed

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alimony represents a property agreement that the court could have come up with under maintenance. (d) Quantum of Maintenance (i) Duration Maintenance shouldnt extend beyond 3 years and only for as long as it is reasonable to allow the spouse to fend for herself (unless she is disabled, is caring for a kid, or has some other good reason for not getting a good job). Continuous maintenance may be appropriate if the spouse or a kid in her care is disabled (mentally or physically) for the duration of the disability. (ii) Amount maintenance shouldnt exceed either $2,500/month or 20% of the payors income. The amount should only be enough to give the other spouse minimum reasonable needs. (iii) Considerations - A court should consider financial resources, education, duration of marriage, age, financial resources, etc in granting the amount and duration of maintenance. (iv)Termination maintenance ends upon death or remarriage. (v) Review of Maintenance an order for spousal maintenance is similar to an award of child support and will only be revered upon a showing of an abuse of discretion. I) Appellate Review of the Property Division 1) Divestiture if an appellate court finds that the trial court divested a separate estate of property, then this is per se reversible error. 2) Abuse of Discretion in any situation other than a divestiture of separate property, a party asserting an improper characterization and thus improper just and right division must show: (a) Mischaracterization - either by factual insufficiency (the great weight and preponderance of the evidence supports her) or legal insufficiency (as a matter of law, the property should have been characterized her way), and (b) Harm Analysis to show that due to the mischaracterization, the overall division was an abuse of discretion. (i) Standard: If a mischaracterization creates more than a de minimis effect on a property division, it is reversible error. 3) Appellate Role the appellate courts role is to determine if the trial court abused discretion in making a division. The appellate court cannot make any divisions of property or change a division itself. J) Other Post Judgment Actions 1) Motions in Aid and Clarification of Judgment (a) Power - If a judgment is unclear as to certain specifics of the execution of a divorce decree (IE time, place, manner of property division), then a judge may fill in the gaps to save the order. (i) The power to do this comes from a judges inherent power. (b) Limitation this power is only limited to procedural fixes; the court cannot change substantive provisions of a divorce decree once it has been handed down.

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(c) Appeal if a party wants to change substantive provisions of a divorce decree, they need to file an appeal. If a case is on appeal, the trial court cant issue motions in aid and clarification of judgment. 2) Omitted Property if property is not split in a divorce decree, then an ex-spouse can later petition for a just and right division of the omitted property. (a) SOL the statute of limitations for such a division is 2 years after a spouse denies you a right to such property. K) Divorce Minutia 1) Military Retirement Benefits military retirement benefits are to be divided at divorce as per the laws of that jurisdiction. 2) Lost Property If neither spouse benefited from, or currently holds lost property, then it is not a proper object for a just and right division. 3) Remarriage if 2 parties get remarried, then their divorced decree will become invalid. VI) INTERSPOUSAL TORTS A) Abrogation of the Inter-Spousal Tort Immunity Doctrine In 1987, TX did away with the last bits of inter-spousal tort immunity. Spouses are currently able to sue each other for any tort. B) Spouses may join a tort action with a divorce suit and it is discretionary with court on whether to sever the actions. C) Spouses may bring a claim for intentional infliction of emotional distress between spouses 1) Should be able to join this claim with other claims 2) May be res judicata if pursue separately 3) There is no cause of action for negligent infliction of emotional distress between spouses VII) PROPERTY RIGHTS THAT ARISE WHEN THERE IS NO FORMAL MARRIAGE A) Meretricious Relationship Cohabitation by persons who both know they are not married. 1) Meretricious relationships dont rise to the level of marriage, but some property rights can arise. If you can successfully win a meretricious relationships case, then you will get the expectations of the parties. (a) Note that no property rights will be found if some illegal meretricious stuff was going on between the parties. (b) Express Contract Show that the parties expressly stated what consideration would be given between the parties. (c) Implied Contract Show that the parties had a contract implied between themselves. (d) In absence of express agreement, a court may fashion an equitable remedy to compensate woman (e) Potential Remedies (i) Constructive Trust (ii) Resulting Trust (iii) Quantum Meruit - reasonable value of household services rendered reasonable value of support received (must show expectation of monetary reward for the household services rendered)

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 This is a tough one to claim. 2) Texas Law if she can show that money used to buy land was acquired in whole or in part by her labor in connection with man before when land was purchased, then she is entitled to portion of land in proportion to her labor (allowed in gay relationships too) (a) Her right had to have existed in the fund that purchased the land. Nothing that she does later will make a trust. (i) If so a trust arises in her favor. However, the trust needs be found at the time of purchase (so she needs to have contributed then). (ii) No need to show that she actually brought in actual funds If can show joint efforts lead to the property, then she will occupy position man would occupy. Each would own the property in proportion to the amount of labor they put into acquiring the property. IE if one party is putting up money to buy a house and the other party is putting in effort to fix it up and then they sell it the funds coming in may belong to both of them. (b) Partnerships if 2 parties buy land and then get married, a court may hold that both take 50% on divorce by stating that upon buying the land, the parties engaged in a partnership. (i) This may be true even if one party took title in his name. (ii) If parties both put money and work into the property, then it may be found to be the object of a partnership. B) Putative Spouse a party who in good faith believe that he/she is married, but in reality cant be married because of the existence of an unknown impediment, such as an un-dissolved prior marriage. 1) Presumption: the most recent marriage is presumed valid unless rebutted (a) Rebut by showing that you cannot find divorce in the records (i) Dont have to check every jurisdiction, just ones that you would reasonably think person would file divorce in 2) Once putative spouse has actual knowledge of the facts, the putative status goes away. 3) Putative spouses are entitled to the same property rights to property acquired during marriage as any normal spouse. (a) IE a putative wife will be able to take any property rights (IE life insurance) that accrued during the putative marriage. C) Common Law Marriage Given the same rights as those married by ceremony. 1) Common Law Marriage can be found via: (a) Declaration of Informal Marriage - signed (go down & declare) advantage is that can back date this declaration unlike marriage (i) This is beneficial because you can backdate this document IE we have been married since X date. (b) Informal Marriage - Meet the following requirements: (i) Man & Woman agreed to be married This agreement can be inferred if the parties lived together and held themselves out as married.

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(ii) Lived together in Texas after agreement (iii) They hold themselves out to be married You cant keep your marriage a secret (iv)Note: If there is no judicial proceeding to prove a common law marriage under the above section within 2 years of the parties ceasing to live together, then it is rebuttably presumed that they never agreed to be married. 2) Common law marriage can be shown by circumstantial evidence. (a) IE signing as husband and wife, celebrating an anniversary, etc. 3) Note that there is no common law divorce in TX.

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