CHARACTERIZING PROPERTY & PRESUMPTIONS By Shari Goldsberry

1. CHARACTERIZING PROPERTY& PRESUMPTIONSBy Shari Goldsberry

2. Everyone’s Favorite Client

3. CHARACTERIZATION Is the determination of whether property is community or separate Texas’s community property system, unlike other CP states, is constitutionally driven based on the Constitution of 1876 as amended in 1948, 1980, 1988, and 2000, which expanded the definitions of separate property.

4. CHARACTERIZATION • Why does it matter? A Judge can divide community property but can never divest a party of separate property. If that happens, the party’s constitutional rights have been violated.

5. COMMUNITY PROPERTY Inception of the Title The character of the property, whether separate property or community property, is fixed at the time a person first acquires an ownership interest in the property.

6. COMMUNITY PROPERTY • What is included: • Pay of spouses, employee benefits and retirement earned during the marriage • Earnings of children • Income from separate property • Property acquired w/ Community Debt

7. SEPARATE PROPERTY • Separate property is defined by the Texas Constitution as that acquired prior to the marriage or acquired after by gift, devise, or descent, Tex. Const. Art. XVI, sec. 15. • Texas Family Code 3.001 adds recovery for personal injuries sustained during marriage except for loss of earning capacity

8. SO? Prove it! • The burden to prove property is separate is by “clear and convincing evidence.” • The same as terminating parental rights

9. So? Prove it! • Documents, admissions and the testimony of fact or expert witnesses can be used to prove an item is separate property.

10. So? Prove it! • What about self-serving testimony that is not corroborated by documents of any kind?

11. So? Prove it! • What about self-serving testimony that is not corroborated by documents or other testimony of any kind?

12. So? Prove it! • It depends!

13. So? Prove it! • If the testimony is uncontradicted, Courts of Appeal in Dallas, Fort Worth and Beaumont have sustained the testimony as meeting the clear and convincing standard.

14. So? Prove it! • But the 1st Court of Appeals in Houston has said: “Mere testimony that property was purchased with separate funds, without tracing of the funds, is generally insufficient to rebut the [community property] presumption.” .

15. So? Prove it! • But the 1st Court of Appeals in Houston has said: “Mere testimony that property was purchased with separate funds, without tracing of the funds, is generally insufficient to rebut the [community property] presumption.” .

16. Trouble in Paradise..

17. Trouble in Paradise.. • Adam sues a former business associate for breach of contract. During the course of the lawsuit, he meets and falls in love with Eve, the court reporter, and they elope. The case proceeds to trial, and the jury awards the Adam a handsome sum. Is the jury award separate or community property?

18. Trouble in Paradise.. • The jury award is the husband’s separate property. Though they were married at the time the jury awarded the damages, the inception-of-title rule characterizes the property as separate or community “when a party first has right of claim to the property.” Smith v. Smith, 22 S.W.3d 140, 145 (Tex. App.—Houston [14th Dist.] no pet.) • “[E]venthough he did not recover for these damages until after the marriage, the damages were his separate property.” Id.

19. Trouble in Paradise.. • Adam is injured in a car accident and decides to sue the driver who struck him. The jury returns a verdict in his favor for pain and suffering. Is the jury award separate or community property?

20. Trouble in Paradise.. • The jury award from the husband’s personal injury suit is his separate property. • Section 3.001 of the Texas Family Codes states: “A spouses separate property consists of: … (3) the recovery for personal injuries sustained by the spouse during the marriage, except for recovery for loss of earning capacity during the marriage.”

21. Trouble in Paradise.. • Adam gives Eve a unique necklace crafted by a local artisan for their wedding anniversary. The jewelry designer dies suddenly, causing the value of his work to skyrocket. Learning this, Eve decides she’d rather have the money and sells the necklace for five times what her husband paid for it. Adam gets angry at her lack of sentiment and files for divorce, asking for half of the proceeds from the sale of the necklace. What is the result at trial?

22. Trouble in Paradise.. • The money from the sale of the necklace is the Eve’s separate property. • Section 3.005 of the Texas Family Code states: “If one spouse makes a gift of property to the other spouse, the gift is presumed to include all the income and property that may arise from that property.” (emphasis added)

23. Trouble in Paradise.. • Adam gives Eve a unique necklace crafted by a local artisan for their wedding anniversary. The jewelry designer dies suddenly, causing the value of his work to skyrocket. Learning this, Eve pays for the necklace to be insured. Three weeks later, their home is broken into, and the necklace is stolen. Eve files a claim and receives money. Is the money her separate property?

24. Trouble in Paradise.. • The insurance money is the wife’s separate property. • Texas Family Code section 3.008(a) states: “Insurance proceeds paid or payable that arise from a casualty loss to property during marriage are characterized in the same manner as the property to which the claim is attributable.”

25. Trouble in Paradise.. • Eve uses the insurance money from the stolen necklace to purchase a new 80” LED TV so she can watch her stories in style. Enraged that his wife is so obsessed with soap operas, Adam files for divorce and lists the television as community property. Is it?

26. Trouble in Paradise.. • No. The television is the Eve’s separate property as it was purchased with her separate property. Separate property retains its characteristic as separate property through exchanges as long as the transactions can be traced and proved with clear and convincing evidence. • “[S]eparate property begat separate property.” Ridgell v. Ridgell, 960 S.W.2d 144, 150 (Tex. App.—Corpus Christi 1997, no pet.)

27. Trouble in Paradise.. • Before they were married Adam wanted to surprise his bride-to-be with a new home. In secret, he meets with a real estate agent and puts down money on a house, signing an earnest money contract. After the honeymoon, Adam and Eve close on the house, and he signs the mortgage. Is the home their community property?

28. Trouble in Paradise.. • No. Adam “acquired a claim to the property at the time the purchase money contract was entered into. The earnest money date being prior to the marriage of the parties, the [husband’s] right of claim to the property preceded the marriage, and the character of the property as separate property was established.” Wierzchula v. Wierzchula, 623 S.W.2d 730, 732 (Tex. App.—Houston [1st Dist.] no writ).

29. Trouble in Paradise.. • What about the mortgage? Community or Separate?

30. Trouble in Paradise.. • Separate. Though debt acquired during a marriage is presumed to be community debt, here the husband applied for the mortgage “as a single man,” thus the lender looked only at his ability to pay the mortgage. Wierzchula v. Wierzchula, 623 S.W.2d 730, 732 (Tex. App.—Houston [1st Dist.] no writ). • “The agreement between the borrower and the creditor is one of the primary indicators of the character of the loan to be made.” Id.

31. Trouble in Paradise.. • Both of their names appear on the deed. Is the house still Adam’s separate property?

32. Trouble in Paradise.. • Maybe not. Adding Eve’s name to the deed created “the presumption that one spouse intends to make a gift to the other of one-half of his separate contribution made to purchase real estate during marriage when title to such real estate is taken in the name of both spouses.” Whorrall v. Whorrall, 691 S.W.2d 32, 35 (Tex. App.—Austin 1985, writ dism’d).

33. Trouble in Paradise.. • Before they were married the couple buys a poodle before their wedding using only the Adam’s money. After a few years of marital and doggie bliss, the dog breeds with a cocker spaniel and has five puppies of her own. Not having the space for six dogs, the couple decides to sell the adorable puppies. Is the income from the cockapoos separate or community property?

34. Trouble in Paradise.. • The proceeds from the sale of the puppies is community property. Income from separate property is community property. See generally Alsenz v. Alsenz, 101 S.W.3d 648, 653 (Tex. App.—Houston [1st Dist.] 2003, pet. denied) (determining that “[i]n general, income produced from separate property is considered community property”), and see Bobbitt v. Bass, 713 S.W.2d 217, 220 (Tex. App.—El Paso 1986, writ dism’d) (finding “[t]he increase of separate property cattle” to be community property).

35. Trouble in Paradise.. • Eve gives Adam a poodle for their first Christmas together. After a few years of marital and doggie bliss, the dog breeds with a cocker spaniel and has five puppies of her own. Not having the space for six dogs, the couple decides to sell the adorable puppies. Is the income from the cockapoos separate or community property?

36. Trouble in Paradise.. • The proceeds from the sale of the puppies is the Adam’s separate property. Since the poodle was a gift, the dog is the husband’s separate property. New born animals are treated as income. • Section 3.005 of the Texas Family Code states: “If one spouse makes a gift of property to the other spouse, the gift is presumed to include all the income and property that may arise from that property.” (emphasis added)

37. Trouble in Paradise.. • When single Adam owned a tract of unimproved land. After he is married, he and Eve decide to build a home on the lot. They live there for ten years before he files for divorce. He states the house is his separate property? Is it?

38. Trouble in Paradise.. • Yes. “ Any improvements made on separate property, including a residence, are considered the separate property of the land owner.” In re Marriage of Morris, 12 S.W.3d 877, 881-82 (Tex. App.—Texarkana 2000, no pet.)

39. Trouble in Paradise.. • Eve inherits unimproved land. She and Adam explore the estate, find oil, and immediately lease out the mineral rights. Are the royalties her separate property?

40. Trouble in Paradise.. • Yes. The land was her separate property because it was bequeathed to her Section 3.001 of the Texas Family Codes states: “A spouse’s separate property consists of: … (2) the property acquired by the spouse during the marriage by gift, devise, or descent.” • The royalties were also her separate property. “[S]olong as separate property can be definitely traced and identified it remains separate property regardless of the fact that the separate property may undergo 'mutations and changes'.” Norris v. Vaughan, 260 S.W.2d 676, 679 (Tex. 1953).

41. Trouble in Paradise.. • Eve becomes an artist, she digs clay from Adam’s separate property land to form into pots and vases for sale. She is quite successful at this and earns a lot of money for them. Years later, he files for divorce. Adam argues that the income from the sale of her pottery is his separate property. Is it?

42. Trouble in Paradise.. • No. While the land was the husband’s separate property and the clay alone may have been, effort was made by the community in the form of her craft “to impress community character upon the separate estate.” Norris v. Vaughan, 260 S.W.2d 676, 680 (Tex. 1953).