Court Affirms Judgment In Divorce Proceeding That Property Was Community Even Though It Was Purchased With Trust Assets

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In Leggio v. Florian, the trial court awarded three real estate properties to the wife over an allegation by the husband that all of the properties were his separate property. No. 14-21-00168-CV, 2022 Tex. App. LEXIS 5563 (Tex. App.—Houston [14th Dist.] August 4, 2022, no pet. history). In the court of appeals, the court noted that “[i]f the trial court mischaracterizes a spouse’s separate property as community property and erroneously awards some of that property to the other spouse, then the trial court’s decree of divorce must normally be reversed in part and the case remanded for a new division of the marital estate, unless no harm has been shown from the erroneous division.” Id. There is a statutory presumption that the properties were community property because they were “possessed by either spouse during or on dissolution of marriage.” Id. (citing Tex. Fam. Code § 3.003(a)). The husband had the burden of rebutting the community-property presumption. The court noted:

Rebutting the community-property presumption requires an application of the inception-of-title rule. This rule provides that the character of property as either community or separate is determined by the time or circumstances in which a person first acquires an ownership interest in the property. Under this rule, if a person acquires property before marriage, then the property is considered to be separate, regardless of how it was acquired. But if the person acquires property during marriage, then the property is considered to be community, unless, for example, the person acquires the property by gift, devise, or descent, because those are all circumstances in which our law recognizes that the character of the property is separate.

Id. Even though the evidence showed that the properties were acquired during marriage, the husband argued that the properties were his separate property because they were purchased with funds from his personal asset trust and the title to those funds vested in him before his marriage. The court held:

Richard’s argument invokes the longstanding rule that separate property does not lose its character when it takes on new form—i.e., that separate property begets separate property. To avail himself of this rule, Richard was required to prove that the Three Properties were purchased with funds that were his separate property, in a process that is otherwise known as “tracing.” The degree of proof required to satisfy this tracing burden is by clear and convincing evidence. “Clear and convincing evidence” means the measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction that the allegation sought to be established is true. Expert testimony is not strictly necessary under this heightened evidentiary standard, though such testimony can be helpful when separate and community funds have been commingled. Lay testimony from an interested spouse can be sufficient, but the testimony must usually be corroborated by another witness or by documentation. “As a general rule, mere testimony that funds came from a separate source, without any tracing of the funds, will not constitute the clear and convincing evidence necessary to rebut the community presumption.”

Id. The court held that the husband did not produce any expert witnesses and that his lay testimony was insufficient. “First, Richard acknowledged during the trial that he deposited community monies into his trust, which resulted in a commingling of funds… Second, Richard did not establish any corroboration for his lay testimony.” Id. “Because the trial court could have reasonably concluded that Richard did not satisfy his tracing burden, we need not consider Richard’s remaining arguments, which challenged whether his separate-property trust was converted to community property because of his access, control, or mismanagement.” Id.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

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