I. The Texas Marital Property System
i. governs ownership, management, liability and disposition of all property possessed during and upon dissolution of a marriage.
ii. Is governed by community property principles derived from Spanish law.
1. CP is constitutionally driven
iii. Overview – mostly deals with divorce, death, or debtor/creditor
1. All marital property is either separate or community
2. Three MP estates- each estate can own property separately.
a. CP – owned by each of the spouse’s as 1/2 undivided interest.
b. Husband’s SP
c. Wife’s SP
3. Separate property
a. The property owned or claimed by the spouse BEFORE marriage
b. or property acquired by spouse during marriage by gift, devise or descent.
c. The recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage.
4. TX does not specifically defined CP.
a. CP has also been simply defined as that property which does not meet the constitutional definition of separate property utilizing the doctrine of implied exclusion.
iv. The Community Property Presumption & Characterization
1. “Characterization” – determining what type of estate it is.
2. Determining whether MP was acquired at a time or in a manner in which would deem it separate property of a spouse or whether it will simply be presumed CP.
a. Provides the first step in the analysis of every marital property case, whether during marriage or upon dissolution of a marriage by death or divorce.
3. Driven by the TX Const. Art XVI §15
a. The amendments to Art XVI have removed gender based references and have broadened the means of acquiring separate property.
4. CP Presumption – TX. FAM. Code – §3.003 (a) contains CP Presumption
a. All property of any kind owned or possessed during the marriage is presumed to be CP. (or on dissolution of marriage)
b. The CP presumption provides the first step in the analysis of every Mp case.
c. TX. FAM. Code – §3.003(b) – The presumption can be rebutted, but only by clear and convincing proof that the property in question is SP.
d. The person rebutting has the burden of proof.
i. The testate deceased spouse can devise only his SP and ½ of the CP
i. TC has broad discretion, but can’t divest title to SP.
a. Question – Red Corvette, Original estate $500K. Currently estate @ $300K. Must go through each piece of property and figure out when it was acquired, and what has happened to it since then.
i. No, Presumption is CP, including new corvette.
ii. We have to see when it was acquired, and what has happened to it.
6. Income earned on SP is Community Property by law.
b. Const. of 1876
i. De Blane v. Hugh Lynch Co.
a. Whether the cotton grown on the land of the wife, by the labor of the salves of the wife, remained her SP or became the common property of the husband and wife.
a. The court says the cotton was community property, subject to the execution.
b. The Principle which lies at the foundation of the whole system of CP is, that whatever is acquired by the joint efforts of the H & W , shall be their community property.
c. If a crop Is made by the labor of the wife’s slaves on the wife’s land, it is CP because the law presumes that the H’s skill or care contributed to its production; or, that he, in some other way, contributed to the common acquisitions
a. **Dividends from SP of the wife were the wife’s SP
b. TX courts have adhered strictly to the doctrine that dividends interest, rent and other income derived from SP of a spouse are CP.
i. Timber, offspring (livestock), are income.
i. §3.005 – one spouse makes gift of income producing property. The property is spouse’s SP. That income from property is presumed to be SP. Gifts from one spouse to another makes the property SP of the receiving spouse.
ii. Stringfellow v. Sorells
a. H has obligation he didn’t pay
b. Writ of execution levied on 2 mules
c. W argues they are her mules and can’t attach a lien on them.
d. Creditor argues that H & W cared for mule and H trained the mules making them more valuable.
2. The court ruled in favor of the wife (said it was he SP) Mere change in value is not CP.
a. Court says that they are the same mules even though they grew.
3. Tracing – if you have property that can be traced to SP, then those proceeds will be SP.
a. Equitable reimbursement – concept of equity
i. When court feels it is appropriate, they may allow CP estate to bring a claim against a spouse’s SP to get reimbursed for $ spent on the spouse’s SP
iii. General rule – all income from personal services and rental property is CP.
1. Exception – if one spouse makes a gift of income producing property, then the income from it is SP.
iv. Arnold v. Leonard – Doctrine of Implied exclusion
1. Debtor/creditor case
a. There was a levy on certain property that were rent and revenues that was SP of wife
2. Implied exclusion – legislature can’t change constitution – can’t add or subtract
a. The court said it was changing SP – statute is unconstitutional
3. Rent and revenues are CP
a. Creditor can only go after H’s SP – creditor can’t levy on it.
b. Wife still has all the rights with respect to particular property, but H’s interest attached to the proceeds of such property.
4. Characterization is wholly different from management power
c. 1948 Amendment
i. Legislature first recognized changing character by agreement
1. Partition – equal undivided interest
2. Exchange – C interest in one property and C interest in another
3. Agreement by parties to change character of property
a. Creditors – can’t prejudice them or affect their rights – NOW – creditors would have to show fraud.
ii. Graham v. Franco – negligence case
1. Issue: Whether W’s right to recover from defendant is CP or not.
a. It matters because H was contributorily negligent and at that time it was a total bar to the case.
2. §3.001(3) – “the recovery awarded for personal injuries sustained by either spouse during marriage shall be the SP of that spouse except for any recovery for loss of earning capacity during marriage.”
3. Damage recovery for personal injury is her SP because he body is hers.
a. Lost earnings is not income, because earnings are CP.
b. Medical expenses – it is the burden of the CP to take care of the spouse
i. – any recovery for medical expenses is CP
4. Graham v. Franco does NOT conflict with Arnold v. Leonard
a. Doesn’t change definition of SP. TX courts have long adhered to concept of tracing. If you can trace back to SP, then it is SP. (the “arm” was hers before marriage)
iii. Williams v. Williams
1. Issue: Whether a premarital agreement to waive the constitutional and statutory rights of a surviving spouse to a homestead and other exempt property is valid.
a. S.Ct. holds that the pre marital agreement is valid.
a. 1 premarital agreement and 1 supplemental agreement. Married for 141 days, then William died
b. Premarital agreement contained provisions relative to the waiver of homestead right and right to have exempt property
c. The premarital agreement set out that SP was to stay SP and that all income from the SP would be SP.
d. Wife re
medies in the statute the only ones available for finding a marital property agreement unenforceable.)
a. Mr. Daniel asserted that the property agreement was unenforceable and should be set aside on theories of fraud, unconscionability unjust enrichment, and breach of fiduciary duty.
a. Court states that there is no rational basis for the legislature to have intended spouse’s post nuptial income arrangements, covered by §5.53 to be enforced differently from partition and exchange of CP agreements covered by §5.52
a. The legislature simply intended to recognize the validity of voluntary property agreements between H and W, when such agreements were not unconscionable, and were based on a fair and reasonable disclosure of the parties respective assets and financial obligations.
viii. §4.1006- pre marital agreement – enforcement/ remedies are the same as in property agreements
ix. Partition agreement:
a. Must be in writing and signed by both parties
b. There must be an explicit “partition agreement”
c. Document must also contain words of promise or agreement
2. A premarital agreement becomes effective on marriage
3. After Marriage – a premarital agreement may be amended or revoked only by written agreement signed by the parties.
4. If marriage is determined to be void, an agreement that would otherwise have been a premarital agreement is enforceable only to the extent necessary to avoid an inequitable result.
x. Beck v. Beck
1. Involved prenup validity that was executed in 1977
a. Provision in agreement that any property in the name of only one spouse would be SP and those jointly named would be CP.
2. Issue: Is 1980 amendment retroactive?
a. If retroactive – then this agreement is valid
b. If not retroactive, then this agreement is invalid
3. **Court held that 1980 amendment was retroactive**
xi. Fanning v. Fanning
1. Issue: Validity and enforcement of pre-nup and 2 post nups (property agreements)
2. The courts do not require you to use the exact words “partition and exchange” as long as you use clause 2, then you can partition future income
3. Enforceability of the partition agreements
a. You would have to prove unconscionability and (A),(B) and (C) of §5.55(a)(2)
b. Unconscionability must be addressed on a case by case basis, looking to the entire atmosphere in which the agreement was made.
1. Threatening to permanently deprive spouse of custody of children constituted duress in the execution of a partition agreement
xiii. Sheshunuff v. Sheshunuff
1. H uses involuntariness defense
2. He can’t use common law defense, only defenses/ remedies provided by statute
a. BUT Fraud and duress are proof of involuntary execution
3. The court agrees with Mr. Sheshunuff
4. If spouse is simply threatening to do something he has a legal right to do, then it won’t constitute duress
xiv. Orsono case
1. Unmarried, pregnant, 40 yrs old
2. He was threatening not to marry her if she didn’t sign the pre-nup
3. The court says that it would not constitute duress.
4. Case by case scenario that court has to go through to establish involuntariness.
II. Characterization of Marital Property