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Community property issues in Texas divorces: Wasting of assets by spouses

Texas is a community property state. This means that if you and your spouse were to get a divorce the laws of community property would dictate how your property is divided upon completion of your case. The presumption is that all property that came into being during your marriage is community property. There are exceptions, but generally speaking if you earn an income or purchase property during your marriage it will need to be divided between you and your spouse when you get divorced.

Some factors can impact a divorce from a property division standpoint that I wanted to discuss with you today in our blog post. Fraud is, unfortunately, a part of some divorce cases where one spouse has misrepresented circumstances to their other spouse or has misled him or her in some way to gain a financial advantage of some sort. Other types of fraud involve you simply doing things with property that belongs in your community estate without your spouse’s knowledge. 

The two types of fraud that you are likely to encounter in a divorce

If you are in an unfortunate position where you believe that your spouse has committed fraudulent acts against you, then you need to be aware of the two different types of fraud that there are in Texas. 

The first is known as actual fraud. We don't see allegations of actual fraud in divorce cases all that regularly due to their being more difficult to prove in court. If you are interested in pursuing an actual fraud claim against your spouse then you must supply the evidence to prove that actual fraud has been committed. It is not sufficient for you to throw out an actual fraud allegation and then leave your spouse to mount a defense and offer evidence as to why the actual fraud did not occur. 

The basis of fraud, as you probably know, is dishonesty. Your spouse must be shown by your evidence to have purposefully acted in a manner that was intended to deceive you. Typically this must be based in community funds being transferred to his or her separate estate. You would be deprived of the use of those funds. To prove actual fraud, you must also show a judge that your spouse intended to act wrongfully. It cannot have been mere negligence in how he or she acted that resulted in the fraud.

Constructive fraud is the more likely claim for you to be exposed to in a divorce case. The bottom line is that you and your spouse are expected to act as fiduciaries concerning your finances. This means that you must put your spouse's interests ahead of your own when making decisions regarding what you are doing financially. You both own the community estate, and therefore a placing a certain amount of trust in the other to act responsibly with the contents of that community estate.

When your spouse commits an act of constructive fraud, he or she is wasting community property assets. Any wasting of your spouse’s interests in property in your community estate is constructive fraud as long as your spouse does not know of the action. It is presumed that you commit constructive fraud if you transfer community property outside of your community estate without the knowledge of your spouse. 

Here is an interesting point that you may not have considered. Fraud doesn't just mean hiding away community property income to buy a property that you would not tell your spouse about. Rather, it can, and often does, involve your spouse using community property to purchase gifts, vacations and everything in between for a girlfriend. It could also mean that community property funds were being used without your knowledge to make improvements on a separate property home of your spouse.

Unlike what we saw in the section previous to this one, if you allege that your spouse committed an act of constructive fraud then it is up to your spouse to present evidence that rebuts the presumption that fraud did occur. Essentially, your spouse must show the judge that the transaction that occurred was fair and not intended to deceive you or benefit your spouse’s separate estate. 

What will a court look to determine if constructive fraud occurred?

Now that we know what the types of fraud are that can be alleged in a Texas divorce, it makes a great deal of sense to determine what circumstances a court will look to decide whether or not constructive fraud has occurred.

In circumstances where a gift was made of community funds from your spouse to another person, the nature of the relationship between your spouse and the other person will be examined. If it was a gift made by your spouse to a relative who needed the money and your spouse had no time to ask you about the gift then it is less likely that a court would hold that constructive fraud has occurred. However, if your spouse were engaging in a romantic relationship with another person and the gifts were made to their paramour, then a constructive fraud finding would be more likely. 

Next, how big is the gift about the size of your community estate? If your community estate is relatively small and the gift made is relatively large, then I could see a court deciding that constructive fraud has occurred. However, if the gift is only $1,000 and your community estate is worth upwards of $900,000 then I would struggle to see a situation where a judge would consider that type of transfer to be constructive fraud.

Connected to this last circumstance is whether or not the funds/property remaining in the community estate are sufficient to provide support for you after the divorce. Meaning, if you are going to be reliant upon the community estate share that you receive in the divorce to live for the first few months after your divorce, even a moderately sized gift from your spouse to another person without your knowledge or permission could hurt you severely. 

An example to better illustrate our points made about constructive fraud

Let’s imagine a hypothetical situation that will hopefully illustrate the points we have been making so far in today’s blog post. Suppose that you are a stay at home mother and wife who does not have much knowledge of the contents in your checking account. All you know is that your husband works, the money goes into a checking account and you are provided with a certain amount of money to spend on yourself, your kids and the household during each week. 

If your husband were to waste community assets and otherwise fail to account for how money was spent in the community estate during your marriage and subsequent divorce, then you are likely justified by filing a constructive fraud claim against him in your divorce.

Here is the most important aspect of a case like this: you, as the spouse who alleges a fraud/constructive waste claim, does not have a burden to prove the inappropriate transfers of money out of your community estate. All you have to do is show that your husband did not have anywhere near the monthly expenses to justify spending that much money. The burden of proof is then on your spouse to show that the transfers were for a reasonable purpose (keeping in line with his duty to act as a fiduciary) and/or that you had knowledge of the transfers being made and that you consented to them.

It is not always easy to show a court just how you spent money years ago. If your spouse cannot successfully do so then he will likely end up owing you a great deal of money. Finally, if your spouse is not entirely truthful about what bank account he owns and he also fails to support you during the marriage then these are factors that a court may consider when determining whether a judgment for constructive fraud against your spouse is justified. If fair use of the community property funds cannot be shown by your spouse, you are likely looking at a win for you in this aspect of your divorce case.  

What you can do to prepare for a constructive fraud claim in your Texas divorce

A good place for you to start your preparation for a constructive fraud claim in a divorce is to compare your spouse's income to their expenses over a couple of month period. If you find that there is a significant gap between the two numbers then you are likely justified in alleging that fraudulent acts have occurred. It is not your burden to show that it actually occurred or even likely occurred. Your spouse must come back and show that the funds were spent legitimately and not fraudulently.

So, if your spouse earns $10,000 a month and your family’s monthly expenses are less than $4,000 then it follows that you should have a fair amount of money in savings or retirement accounts. If you do not, and your spouse has not been able to talk to you about this without being evasive, then it is up to you to bring the allegation of constructive fraud and leave it to your spouse to defend against that allegation. 

What can you be awarded if your spouse acted fraudulently against you and your community estate?

The best way for a court to award you a judgment in your divorce against your spouse would be to divide the community estate disproportionately. This means that instead of splitting the estate down the middle and awarding each of you half of the estate, you would stand to receive a greater than 50% share.

The judge would need to calculate just how much value was taken out of your community estate by your spouse’s fraudulent actions. Whatever the current value of your community estate is, the judge would need to divide up the remaining estate’s value between you and your spouse in a manner that is justified under your present circumstances. 

If your community estate is worth $500,000 right now while your divorce is ongoing and your spouse is found to have committed constructive fraud against your community estate totaling $50,000, then your community estate is worth $550,000 for the judge rendering orders related to your community estate and wasting of assets.

You could be awarded more than 50% of what the estate is currently worth. An assumption would be made here that your spouse still has the $50,000 that was fraudulently removed from the estate previously. It is also possible that you could be awarded a money judgment for the $50,000. Keep in mind, however, that since your spouse also owns the community estate you are not likely to get a full $50,000 judgment. 

Are third party claims allowed in Texas divorces? 

Spouses cannot sue each other in Texas for separate tort actions related to fraud in the marriage. You will need to bring fraud allegations as part of your divorce lawsuit. If you are interested in bringing a lawsuit against a third party (a girlfriend/boyfriend of your spouse, for instance) related to fraud then I recommend you return to our blog tomorrow to find out more about this possibility. 

In the meantime, if you have any questions about the material that was discussed today then please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week here in our office. These consultations are a great opportunity to ask questions of our attorneys and to receive direct feedback about your particular circumstances. 

Our attorneys and staff take a great deal of pride in being able to represent and advocate for our clients in all of the family courts in southeast Texas. We must put your interests ahead of our own and to stand up for your rights. Thank you for your time and consideration and we hope you will join us tomorrow here on our blog.

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