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TRICKS OF THE TRADE

Christopher Hutson, Esq.


INTRODUCTION:

The Texas Family Code provides that the Court is to divide your community property as it deems "just and right." This "Just and Right" legal standard does not require an equal division of the community estate. That is, the Court is not required to award you an equal 50% share of your community property.


"One of the factors that the Court will consider is whether either of you has proved a reimbursement claim."

Instead, the Court will look at a number of factors to determine whether you might be entitled to a larger share of the community estate than your spouse. One of the factors that the Court will consider is whether either of you has proved a reimbursement claim. If so, then your position is either substantially improved or gets a lot worse.


WHY REIMBURSEMENT CLAIMS MATTER:

The reason reimbursement claims are important is that they can result in the Court awarding your spouse a lot more property in the divorce than they would have done if there were no reimbursement claim. That's because the claim is a debt against the donee estate that will enhance that donor estate. In layman's terms, the pool of money that will be divided between the parties to the divorce gets bigger by syphoning property that might otherwise be treated as the separate property of one spouse.


Take for example the case where husband is a raging alcoholic who has engaged in adultery throughout the marriage. In Texas, husband's fault is likely to impact the share of the community estate that he is awarded in the final divorce decree. More specifically, he is likely to be awarded a notably smaller percentage of the community assets. He may also be awarded a larger share of the community debts if they are attributable to his bad conduct.


"40% of $1 million is a lot less distressing than 40% of $100,000.00."


In such cases, it becomes immediately clear that increasing the total value of the community estate is of paramount importance to the 'at fault' spouse. A divorce decree awarding you only 40% of the community assets may be distressing, but 40% of $1 million is a lot less distressing than 40% of $100,000.00.


If I am the attorney representing a party in a case like this, my job is to maximize the value of my client's 40%. And knowing at the outset that my client is likely to take a smaller share of the estate, my focus will be on maximizing its value.


BASES FOR REIMBURSEMENT CLAIMS

Under Texas law the community or separate estate of either spouse may assert a reimbursement claim for the following:


(1) payment by one marital estate of the unsecured liabilities of another marital estate;

(2) inadequate compensation for the time, toil, talent, and effort of a spouse by a business entity under the control and direction of that spouse;

(3) the reduction of the principal amount of a debt secured by a lien on property owned before marriage, to the extent the debt existed at the time of marriage;

(4) the reduction of the principal amount of a debt secured by a lien on property received by a spouse by gift, devise, or descent during a marriage, to the extent the debt existed at the time the property was received;

(5) the reduction of the principal amount of that part of a debt, including a home equity loan: (A) incurred during a marriage; (B) secured by a lien on property;  and (C) incurred for the acquisition of, or for capital improvements to, property;

(6) the reduction of the principal amount of that part of a debt: (A) incurred during a marriage; (B) secured by a lien on property owned by a spouse; (C) for which the creditor agreed to look for repayment solely to the separate marital estate of the spouse on whose property the lien attached;  and (D) incurred for the acquisition of, or for capital improvements to, property;

(7) the refinancing of the principal amount described by Subdivisions (3)-(6), to the extent the refinancing reduces that principal amount in a manner described by the applicable subdivision;

(8) capital improvements to property other than by incurring debt;  and

(9) the reduction by the community property estate of an unsecured debt incurred by the separate estate of one of the spouses.


COMMON SITUATIONS TO BE AWARE OF

PAYMENTS TO REDUCE UNSECURED SEPARATE DEBT

The most common reimbursement claims arise in cases where community resources are used to reduce separate debt of one spouse. Bearing in mind that the income of both spouses is community property it does not mean that the non-debtor spouse has paid down the accrued separate debt of the debtor spouse. Rather, payments by one spouse from her post-marital income towards her separate premarital debts may be a dilution of her husbands share of the community income by 50% of the amount so used.


Bearing this in mind, if your spouse brought a large amount of separate debt to the marriage and has made significant payments to reduce that debt during marriage, you may have a reimbursement claim that could increase or equalize your total recovery from the community estate, regardless of your percentage award.


SUMMARY

As a practical matter reimbursement claims are not likely to come up frequently in typical divorce case. That is largely because the standard of proof needed to establish a reimbursement claim is high and many attorneys do not want to invest significant time and money investigating them. Given the possibility that your spouse may assert an offset to a reimbursement claim, in some instances this is the right approach.


However in the case of a large reimbursement claim such an investment of time may be worthwhile. An astute lawyer will find such claims useful leverage when negotiating an agreed settlement. Particularly when the facts are against you it can be helpful to have a hefty reimbursement claim against your spouse's separate property at your disposal.