When I work with clients going through divorce cases, reimbursement claims are the most difficult to describe. When something is difficult for an attorney to explain to a client, you can bet that it is difficult for you to understand. When you don't understand something, you feel uncomfortable pursuing it as a part of your case. On top of that, reimbursement claims are problematic for attorneys to prove in court. The main concern would be how to attach a specific and provable value of a reimbursement claim to a judge. The result is that you may miss out on an opportunity that you otherwise should have been able to take advantage of.
Reimbursement claims are based on equity, fairness, and generally doing what is right under the circumstances of your case. The judge can decide whether or not to grant a reimbursement claim and determine the value of that reimbursement claim. The degree to which you must provide evidence to the judge to prove a reimbursement claim is also unclear. You should be able to tell from all of this that there is quite a bit standing between you and a successfully argued reimbursement claim in your Texas divorce case.
As a result, we don't see reimbursement claims in most divorce cases. They may be discussed during the planning stages of a divorce with your attorney, but the chances of a reimbursement claim-making its way into your petition or counter-petition are pretty low. Even when they make their way into a divorce, reimbursement claims are typically not among the top five issues being argued about.
The basics of a reimbursement claim
You and your spouse will own a community estate during your marriage. There is a presumption under the law that all property you acquire during your marriage is community property. This covers income, real estate, personal property, and retirement savings. There are exceptions to this rule, however. If you have a marital or premarital property agreement, then those agreements may alter this general rule. Also, if you acquire property during your marriage by gift or will, those pieces of property will be considered the separate property of the spouse who received them.
Let's explain this concept a little further using an example. Suppose that your wife owned a home before you got married. That home would be your husband's separate property even if your income were utilized to contribute to various home improvements made on the property during your marriage.
A reimbursement claim allows you to "put back" community funds that were used to improve the separate property of your husband. That house will always remain the separate property of your spouse no matter what else happens in your divorce. Thus, the only way to recover the money spent improving that house would be to pursue a reimbursement claim. You would argue that community funds improved a separate property item and that the community estate is entitled to reimbursement of that expenditure.
The judge holds a great deal of power when it comes to reimbursement claims.
A frustrating part of this discussion is that judges hold a great deal of power when it comes to managing a reimbursement claim. Since the family code doesn't specify the grounds on which a reimbursement claim can be paid in a divorce, judges rely on equity to allow a reimbursement claim to sink or swim. As we touched on at the outset of today's blog post, equity means fairness. Would it be fair to you and your spouse to allow the claim to proceed or throw it out of consideration for the divorce?
How can a judge react to a reimbursement claim made in a Texas divorce?
A judge has the final say so in deciding whether to allow a claim for reimbursement to proceed. Therefore, whether or not any money is awarded for a claim is also up to the judge. If your judge gives the green light to either you or your spouse to pursue a reimbursement claim, then there are a range of options for them to follow.
The reimbursement claim can be divided up when the community estate is divided. Suppose your community estate is determined to have a good reimbursement claim against your spouse's separate estate (as we saw in the example above about your husband's separate property home). In that case, the value of the claim can be divided up between you and your spouse. If the community estate is to be reimbursed $50,000, then $25,000 could be sent to you and your spouse as a result.
Otherwise, you will likely see a court attach a monetary value to the reimbursement claim and award you a certain sum of money. In this way, the separate and community estates of you and your spouse would not get involved. You would receive this claim as a judgment against your ex-spouse that could be pursued in court if you are not paid by the date ordered in your final decree of divorce.
Another option that appeals to many people going through a divorce is to not worry about a money judgment or involving the community/separate estates, but instead to award you a piece of property that is equal to the reimbursement claim value. For instance, if your spouse owns shares of stock or mutual funds that equal the reimbursement claim, you could be awarded these instead of the other options previously discussed.
What can you do to prevent your spouse from successfully arguing a reimbursement claim?
Let's put the shoe on the other foot, now. Suppose that instead of attempting to argue for a reimbursement claim in your Texas divorce, you are now trying to argue against your spouse's reimbursement claim. What are the defenses, if any, to a reimbursement claim?
The best way, in my opinion, to mount a successful defense to a reimbursement claim is to remember that your opposing party has the burden to prove their case. True, this is not a defense in the legal sense, but it is effective in many cases. Evidence must be located that can prove their claim, and that evidence must also be admissible in a court of law. If the improvements made on your separate property home occurred 20 years ago, your spouse might find it challenging to be able to prove that the funds used to make those improvements were community property. Furthermore, attaching a value that is provable with evidence can be just as tricky.
Otherwise, if you are looking for a solid, legally based defense to a reimbursement claim, you will find that they are few and far between. First, you can argue that the claim being made by your spouse is not equitable. Channel your inner ten years old- this isn't fair that the claim is being considered. The judge, you will argue, should consider the totality of the circumstances and not allow the lawsuit to proceed.
You can also attempt to argue that your separate estate is owed a reimbursement claim of its own. This is a little trickier because you have to have a reimbursement claim that can be proved. However, if you want to make an argument that you have your reimbursement claim, it could be that you make this argument in mediation rather than court. You wouldn't have to prove all elements of the reimbursement claim in mediation. All you would need to do is make an allegation and see if it can ward off your spouse's claim.
What are some of the reimbursement claims in Texas that are not specified in the Texas Family Code?
The Texas Family Code lays out several possible reimbursement claims that you could pursue in your divorce. However, the list is not exhaustive, and there are other options that you could follow.
For instance, there is a way for you to argue that your separate estate is entitled to reimbursement for money spent before you're ever being married to your spouse. I'll give you an example of how this is possible and what circumstances it may be found. Suppose that your spouse purchased some land from her parents before your marriage. Around the same time, you sold your separate property home and netted around $20,000 from the sale. You and your wife-to-be decided to build a home on the land she just bought from her parents.
A few months later, you and your wife got married. Once the house was built, you all moved in. Unfortunately, you are now getting a divorce from one another. The land that you all lived on was separate property belonging to your wife. After all, it was purchased with income that was not yours, and it was done before your marriage. What about the house, however?
It is possible that a judge could rule that your separate estate is entitled to be reimbursed money from your wife's separate estate under this scenario. This is because the money you spent before your marriage may justify a reimbursement on equitable grounds. Courts have a vast amount of discretion when determining whether to allow a reimbursement claim to move forward and eventually be paid out. All of the circumstances of your case would need to be examined based on what is fair.
So, if you have a judge who is particularly "open-minded" when considering the facts and circumstances of your case, even a reimbursement claim based on the period before your marriage began can be successfully argued. The money you spent before the marriage to build the home benefited your spouse's separate property (the land).
What evidence do you need to come up with to prove a reimbursement claim?
So far, we have talked about what evidence you need to defend a reimbursement claim, but we have not yet talked about what you need to win a reimbursement claim successfully. Evidence is the foundation of any successfully argued point in a divorce trial. To the point, admissible evidence is the proper foundation of a successfully argued point.
For instance, if you are arguing that you are entitled to reimbursement (of either your separate estate or the community estate) for improvements to a piece of separate property land owned by your spouse, then you should show what the value of the land was before the upgrades and what it is now that the improvements have been made. Appraisals from the county or private sources should be collected and readied for possible hearsay objections from your ex-spouse.
Likewise, if community funds were used to pay down a separate property debt of your spouse, you could obtain bank statements that show what the balance of the loan was at the start of your marriage and what it is now. If you can show the funds used to pay down that debt were a community in nature, then you are on the right track as far as successfully presenting evidence to back up your reimbursement claim.
The note from the lender- the date the loan was made and the terms of the loan are essential. The details of the loan being paid off as far as how long it is expected to take to pay it in full can be testified to by you on the witness stand. All principal payments need to be shown to the judge. If the loan has been paid, then a statement from the lender must be presented in an acceptable format.
Questions about reimbursement claims? Contact the Law Office of Bryan Fagan
If you have any questions about today's blog post's content, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys are available six days a week to answer your questions. We offer free of charge consultations here in our office where you can get direct feedback about your specific circumstances from one of our attorneys.