Let's suppose that you were going through a divorce here in the Houston area and came to find out that your husband had recently gifted a valuable antique vase to your oldest daughter. Ordinarily, this type of thing would not bother you. After all, the vase may have caught your daughter's eye previously and your husband was just being generous. However, now that you are in the beginning stages of planning a divorce this type of behavior is a bit more attention-grabbing. An item that you and your husband purchased together on a trip to Europe would ordinarily be subject to division in your divorce. In this case, that seems to be out of the question given that the vase technically belongs to your daughter now.
It's just that the timing involved seems a little suspect. After all, your daughter is gifted a vase by your husband one week and then the next week he files for divorce against you. Maybe other gifts were made that were not as valuable as the vase but just as suspicious in terms of their timing. You don't want to get in the way of your daughter receiving a gift from your spouse. At the same time, however, you do not want to harm your position within a divorce where there is little margin of error for you. After all, you've not worked in years and that vase could have been important to your case.
What is fraud in the context of a divorce case in Texas?
When it comes to fraud there are two types that you need to be aware of in the context of divorce: constructive fraud and actual fraud. When we talk about constructive fraud, we are referencing fraud claims that are based on the duties of a fiduciary. If your spouse is bound by law to put your interests in some regard ahead of their own, then he owes you a fiduciary duty. For example, the attorney-client relationship is fiduciary.
To make a successful argument for constructive fraud against your spouse, you would need to be able to show that your spouse had a duty to act in your best interests in terms of managing property or an asset of some sort. If your spouse is found to have misappropriated property contained in your community estate, then you could assert within your divorce that your spouse committed constructive fraud against you and the community estate.
Here, an interesting aspect of a constructive fraud claim arises regarding the wasting of community assets in the above example laid out in the opening to today's blog post. Did your spouse essentially waste community property by "gifting" the item to your daughter without your knowledge or consent? You would need to ask yourself if your husband checked with you before making the gift or if that gifting had been anything on the table before the incident in question. If this is something that came completely out of the blue and occurred a week before he filed for divorce, then a constructive fraud claim under a wasting of community assets would seem to be a worthy claim for you to pursue within your divorce.
On the other hand, actual fraud claims that come out of a divorce case are more like fraud claims that exist outside of family law. To prove fraud, you must be able to show that your spouse transferred Community property for the primary reason of depriving you of that property with a level of dishonesty or intent to deceive which resulted in harm to your community estate. This is a higher burden for you to bear in terms of trying to prove fraud against your spouse in the context of a divorce. The reason for this is that you must be able to prove that your spouse acted dishonestly or with an intent to deceive you. As any criminal law attorney will tell you it is very difficult to prove intent. You must have very sound evidence to be able to make a case for actual fraud.
What should you do if fraud has been committed in your divorce?
All the above information on constructive or actual fraud is important but it doesn't get us anywhere until we can discuss what some practical steps are for you to act if your spouse has committed fraud against you either leading up to or during a divorce. If this has occurred to you would likely need to be able to present evidence to a judge that allows you to meet your burden to prove fraud in the first place. If you have done this successfully and the judge determines that your spouse has committed actual or constructive fraud on your community estate, then the judge must calculate the value of the property that the community has stated was deprived of.
What this means is that your community states would have been harmed as a Dixon value occurred as a result of fraud increase with a period what the court would then need to do is calculate the amount of what the value of your community state should be and then divide the estate between you and your spouse in a just and right manner. This is straight out of the Texas family code section 7.009. In terms of a reconstituted estate, the Texas family code defines this term as the total value of the community estate that would exist if an actual or constructive fraud in the community had not occurred. Basically, but for the fraud what would your community estate look like?
What are the options the court has once it determines the value of a reconstituted community estate?
Now that we have determined that fraud has occurred in your case, you have presented the claim in a trial and sufficiently proven to adjudge that fraud did occur we can now talk about what options a family court judge would have in terms of dividing property between you and your Spouse. The legal standard in Texas for dividing up a community state is doing so based on adjust and right division. Let's talk about What a judge could theoretically do in your situation to make you whole and help you to get back on your feet after a divorce.
The first thing a court could do would be to award you a money judgment and an appropriate share of your community estate. In practical terms, if the vase that we were talking about earlier in today's blog posts were valued at $5000 then you could be awarded a $5000 judgment against your spouse. on top of that, due to the fraud the judge could award you a disproportionate share of your community state where you would receive More than 50% of the community state property.
Next, you could be awarded a share that is appropriate based on your circumstances after the fraud has occurred. This is a similar outcome to what we just finished talking about except for there would be no Money judgment assessed in your favor and against your spouse. You may see something like this occur where the property value is not significant for the property that was in question but that it may have some sort of sentimental or other value to you. This outcome would be an acknowledgment of the bad behavior of your spouse but would not punish him or her financially due to the nature of the property not being valuable in a monetary perspective.
Finally, we could combine the prior two options and assess a money judgment against your spouse for their having committed fraud. The Community property estate would not need to be divided up disproportionately. This could be the result if your spouse truly needs a significant portion of the community estate after the divorce to live but the judge still wanted to be stern when it came to punishing him or her for having committed fraud.
Whatever your specific circumstances are and however you want to go about attempting to prove fraud in this case you should certainly speak to and develop a relationship with an experienced Texas family law attorney. When so much is riding on the outcome of a divorce you do not want to try to accomplish your goals without the assistance of an experienced Texas family law attorney. Our lawyers with the Law Office of Bryan Fagan are equipped to assist you to not only pinpoint whether fraud has occurred in your case but also to determine whether any of the above options would work well for your family. While options are a good thing you also need to be able to know which option works best for you considering your circumstances and the fraud that was committed in your case. What you don't know can certainly hurt you in this context and having someone by your side who has been there and done that can be the advantage that you need especially when dealing with a spouse who is anything but honest.
A look at relevant Texas divorce cases related to fraud
As we just finished discussing, you must have an attorney by your side in a divorce case that features any element of fraud. The reason for this is that proving rod is not the only thing relevant to this discussion. Rather, you must first be able to identify if fraud has occurred. Some spouses can be very sneaky and very tricky when it comes to hiding fraud. What may seem to you to be a completely benign or harmless transaction between your spouse and another person could be fraud that is harming you financially. The attorney can help you to identify fraud and then help you in preparing a case that can prove fraud in court.
An important case in the world of fraud on the community estate was argued before the Texas Supreme Court in 2007. The case, Chu v. Chong, had to do with one spouse who gave away Community property to friends or relatives who wanted a divorce was about to be filed. The Supreme Court determined that a child court, like the one you would be involved in your divorce, can order the defrauding spouse to return the property to the innocent spouse. Or, as we alluded to above the court could consider the fraud when determining a Justin right division of the community estate.
After reading through the options that we just finished talking about in the section before this one none of this should come as a surprise. However, in the case that we are discussing right now, the trial court did not take advantage of any of these options. In that case, the husband sold Community property to a third party without the consent of his wife. When the case went to trial, the divorce court ordered that the person who bought the property should return the property to the wife. However, the husband was allowed to keep the money that he was paid for it. What the judge ended up doing, in that case, was to assess a money judgment against the buyer for a considerable amount of money.
The bottom line here is that because one spouse defrauded the other both persons would be better off, and the community estate would be increased in value. It was only the third-party buyer who was truly punished for making this purchase under the circumstances. What the appellate court determined was that the divorce court made an error in allowing the wife to recover damages without first getting the property from the husband who took the property originally.
This case is interesting given that the buyer of the property could have been held responsible by a family court judge because the buyer was said to have known that the husband was selling his wife's interest in the property without her knowledge or consent. This touches on issues related to conspiracies and how people can participate in transactions and from the enjoyment of the fruits of those transactions to the detriment of another person. However, the appellate court determined that there was no such proof that the buyer knew that the wife was trying to be defrauded and no conspiracy charges were valid.
Finally, in the case of Schlueter v. Schlueter, the Texas Supreme Court held that a claim of fraud on the community estate can be used to recover specific property or to obtain a greater share of the community estate in a divorce. This divorce case is important because it answers the question of what remedies are available to a spouse who alleges fraud on the community estate that is committed by their husband or wife. In this case, the husband transferred some property from the community estate to his father before he filed for divorce.
The wife, in this case, sought claims for fraud against her husband and father-in-law for fraud, breach of fiduciary duty, and conspiracy. The trial court in this case awarded a disproportionate share of the community estate to the wife. Damages were also assessed against her husband and father-in-law. The issue, in this case, was that the husband/father-in-law alleged that it was appropriate for them to be held liable for an independent claim of fraud outside family law.
What the Supreme Court of Texas ultimately concluded was that a “just and right” division of the community estate was an adequate remedy for people like the wife in this case. The husband and father-in-law were not punished for the fraud, breach of fiduciary duty, and conspiracy claims alleged against them by the wife. The court stated that because the wife could be “made whole” under concepts and laws of family law it is not necessary to consider any of these other allegations that exist outside the world of family law specifically. The court acknowledged that in the interests of fairness a family court can punish frauds and address wrongs committed against an innocent spouse.
However, the court did state that the wife (wronged party in this case) has the right to reach into the separate estate to recover property that would make her whole. This would be in addition to receiving a share of the community estate that is just and right. The husband’s behavior must be considered when dividing up the community estate. The fraudulently transferred property would be returned to the community estate and held in trust. The reimbursed funds would go back to the community estate and a judge could determine how to divide that reimbursed property between spouses,
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