This morning the Fourteenth Court of Appeals released two memorandum opinions, In re Lehman, No. 14-17-00042-CV, on premarital agreements, and Miller v. Miller, No. 14-17-00293-CV, on fraud on the community.
In In re Lehman, wife appealed the trial court’s granting of summary judgment as to whether she voluntarily signed the premarital agreement. The day before their wedding in 2005, the parties executed a PMA which provided no CP would accumulate during the marriage. Attached to the agreement were schedules of their SP prior to marriage. Ten years later, wife filed for divorce. Husband sought summary judgment on the enforceability of the PMA. After a hearing, the trial court granted summary judgment. Wife’s sole issue on appeal is whether the trial court erred in holding wife failed to raise a genuine issue of material fact as to whether she voluntarily signed the PMA. The wife stated in her affidavit that she lived with the husband prior to marriage and that the husband provided the majority of the financial support for her and her two daughters and that she was unable to support herself at the time the PMA was signed. She could not afford her own lawyer when the PMA was signed so the husband paid for her lawyer to advise her on the PMA. She claimed in an affidavit that when she was presented with the PMA, she was not able to opt out of signing it because she had been unable to improve her situation and “just could not make the grade.” She claimed the husband would not have married her but for the PMA being signed and that she was concerned about her children and did not want to “be out on the street.” The court found she did not meet her burden of establishing a fact issue on voluntariness.
In Miller v. Miller, husband appealed the trial court’s reconstitution of the marital estate. Husband and wife married in 1969 and had three children (who were all adults at the time of the divorce). Husband is a doctor and wife worked at his clinic, which had five locations throughout Texas. In 2007, the parties undertook a business plan to increase their real estate property, accumulating significant property and debt. In addition to their large medical business, husband was responsible for creating a warren of business entities which primarily dealt in real estate. Unfortunately, in 2010, husband suffered a stroke which resulted in him being unable to work for a lengthy period. Wife became his sole caregiver but it was exhausting and trying for her. During his recovery, Husband was abusive to the wife. Their marriage began to deteriorate. Meanwhile, wife sold some of their real estate to cover expenses. In 2012, wife attempted suicide and then shortly thereafter filed for divorce. At some point before trial, one of the Millers’ business partners was indicted for misappropriating funds from a former employer. Despite the indictment, husband continued to trust the partner with the management of one of their development companies.
The bench trial was held over twelve days spanning nearly a year (!), from June 3, 2015 to May 18, 2016, during which time the community estate changed which resulted in updated proposed property divisions. A final decree was signed on December 20, 2016. Husband’s MNT was denied. The trial court’s FF/CL included findings that the wife had little to no future earnings capacity, that she suffers from severe depression, husband was obstructionist during the divorce, he failed to pay court-ordered support, he had the ability to earn substantial income after the divorce, wife was awarded property with little risk, such as cash and retirement accounts, husband was awarded most of his medical practice, and that husband committed fraud on the community to the tune of $189,672.34. The court awarded 49.28% of the community to wife and 50.72% to husband.
For some reason, the case was transferred from the Austin Court of Appeals to the 14th, meaning the 14th would use Austin’s precedents.
Husband’s issues on appeal included the trial court erred by finding the fraud on the community estate, arbitrarily reconstituting the estate absent evidence of damages, ordering a business not party to the divorce to pay wife, and making an unequal property division in a no-fault divorce.
In his first issue, husband made a number of complaints as to the trial court’s fraud finding:
(1) the presumption of fraud on the community never arose because the community character of the property never changed; (2) the disposition of community property was fair to Linda; (3) no fiduciary duty existed between Terry and Linda during the divorce; (4) Linda was uninformed by personal choice in the matters of the community estate; and (5) the community estate remained monetarily whole.
Husband alleged no presumption of constructive fraud arose because community funds were merely transferred to various entities within the community estate for the purpose of maintaining and preserving the community estate and thus the evidence was legally and factually insufficient. At trial, wife presented evidence of a lot of transactions among the various real estate and clinic entities, some of which were in the six figures. The trial court determined that the amount owed to the community estate was $189,672.34, but did not specify the basis for this amount. The COA found that husband’s testimony did not provide clear and compelling explanations for a number of sizable transactions. Also, husband continued to allow the indicted business partner to manage one of their companies, which was valued at over $1 million. The COA also cited other evidence at trial before finding that the trial court, as trier of fact, had sufficient evidence before it to make the determination it did.
Husband also argued that he rebutted the presumption of constructive fraud because most, if not all, of the community estate (worth about $7.6m) was his special community property and that gave him the right to control and dispose of it subject to his sole management. But the COA noted that the spouse’s disposition of his special CP must still be fair to the other spouse and the disposing spouse has the burden of showing the fairness of the dispositions. Husband testified that after his stroke he, inter alia, relied on the advice of professionals and business partners. However, the credibility of his testimony was subject to the trial court’s determination and the trial court could reasonably give husband’s testimony on this point less weight.
Husband also argued that during the divorce, which spanned four years, he did not owe wife a fiduciary duty and thus did not commit fraud on the community. The COA countered that fraud on the community is not an independent tort, but is part of the division of the estate. Courts have recognized fraud on the community when the wrongful disposition of CP occurs during the divorce.
Husband argued that wife testified at trial that she stayed out of the financial affairs even though she had access and means to learn about and participate in the management of property and thus she was “uninformed by personal choice” in matters of the community estate and therefore the trial court erred in finding constructive fraud. The COA noted husband failed to cite any authorities to support this argument. Additionally, there was conflicting evidence concerning the level of wife’s desire to be involved in their business affairs and thus the issue was a matter for the trial court to resolve. But even so, “We are aware of no Texas case holding that the law imposes a requirement of diligence on the non-managing spouse, particularly when a relationship of trust and confidence exists between spouses as to that portion of the community property controlled by the managing spouse.”
Finally, husband argued the trial court abused its discretion in reconstituting a community estate based on assets that were not lost and a community estate that remained “monetarily whole.” Husband argued that during the marriage, he reduced the community’s indebtedness and increased the value of retirement funds. He argued wife did not present evidence that husband engaged in any action that was fraudulent or in breach of his fiduciary duty. The COA found the trial court was within its discretion to not accept husband’s “self-serving testimony” at trial. Husband’s first issue was overruled.
In his second issue, husband argued the trial court erred in finding actual fraud, but as the trial court found only that husband had committed “actual or constructive fraud” and the COA affirmed the constructive fraud finding, it did not need to reach husband’s second issue.
In his third issue, husband alleged wife failed to establish any damages caused by his fraud on the community. This argument, the COA held, is essentially the same as his argument that the community remained monetarily whole and rejected it.
In his fourth issue, husband argued that the trial court erred by including an order in the decree requiring the clinic, which was not a party to the divorce, to pay wife $100,000. The COA found he did not raise this issue at the trial court level and it was thus waived. But even on the merits, the COA noted that the decree does not order the clinic to do anything; it requires husband to make a payment of $100,000 from a bank account in the name of the parties for clinic business (which was a community asset).
In his fifth issue, husband argued the trial court abused its discretion in making a “grossly disproportionate division” in wife’s favor when no fault grounds were proven or found in the trial court’s ruling. As you recall, wife was awarded 49.28% of the community estate and husband was awarded 50.72%. For some reason, husband argued that the values adopted by the court actually result in a 59/41 division but, the COA said, he “does not explain the basis of his conclusion that the trial court’s division actually resulted in a 59-41 division.” The issue was overruled and the trial court was affirmed in full.