Why is the division of property so difficult in divorce? In Texas, property that is acquired by either spouse during marriage is perceived as “community property,” thus in divorce proceedings, these assets are subject to equitable distribution, often meaning each spouse receives an equal share. Division of assets under community property laws can be difficult enough, but situations involving fraud can complicate matters further. Understanding the concepts behind fraud, constructive fraud, and waste of assets in divorce proceedings can be beneficial to discuss with your attorney.
Community Property
But what is community property? The Tex. Fam. Code Ann. § 3.002 refers to community property as everything that is not separate property, acquired by either spouse during marriage. Examples include:
Income from either spouse’s employment
Homes
Vehicles
Debts acquired after marriage
Personal belongings
Actual Fraud
Actual fraud occurs when a spouse transfers community property or spends community funds for the primary purpose of depriving the other spouse the use and enjoyment of the assets involved, and actual fraud in a divorce requires dishonesty or intent to deceive. Wright v. Wright, 280 S.W.3d 901 (Tex.App. Eastland, 2009). Examples of actual fraud may include:
Concealment of Assets: This occurs when one spouse hides assets, such as bank accounts, investments, or real estate properties, from the other spouse and the court.
Undervaluing Assets: A spouse may undervalue assets during the property appraisal process to minimize their worth and reduce the other spouse’s entitlement.
Transfers to Third Parties: Assets may be transferred to family members, paramours, friends, or business associates with the intention of reclaiming them after the divorce is finalized.
Constructive Fraud
Even if your spouse did not specifically intend to deprive you of community property, but the spouse may have committed constructive fraud. Constructive fraud occurs when one spouse disposes of the other spouse’s interest in community property without the other’s knowledge or consent. Puntarelli v. Peterson, 405 S.W.3d. 131 (Tex.App. Houston [1 Dist.], 2013). Examples of constructive fraud include:
Reckless Spending: One spouse may engage in extravagant spending or financial mismanagement, leading to the depletion of marital assets without the other spouse’s knowledge or consent.
Failure to Disclose: Even if there is no deliberate intent to deceive, if it results in unfair prejudice to the other spouse, the failure to disclose material information about assets or liabilities can constitute constructive fraud.
Fraudulent Conveyance: Actions such as transferring assets to a person, trust, or entity controlled by one spouse to shield them from division during divorce can be deemed constructive fraud.
Waste
What if our spouse has irresponsibly or recklessly spent the family’s assets? You should not be liable for the wrongdoings of your spouse, especially when you were not aware of the actions they took. That is why it is beneficial to seek the help of experienced attorneys regarding complex issues such as a waste of assets.
Specifically, the waste of assets is a type of constructive fraud.
Upon marriage, a fiduciary duty is created between the spouses. The marital relationship—one where the parties trust and rely on each other—creates a duty that each partner act in good faith and fair dealing. A spouse can breach this fiduciary duty in many ways by using the community property’s assets without the other’s knowledge or permission such as:
Spending money on themselves
Spending money on others
Selling the community property
Utilizing community funds for their own personal loans acquired before marriage
Since Texas is a community property state, assets acquired after marriage are considered to belong to both spouses. Therefore, when a spouse breaks this trust and wastes the family’s assets, a claim for waste of assets may be made. If you feel like you are in this situation and your spouse has either wasted assets or defrauded you from community property, seeking an experienced attorney is an effective way to make sure that you do not suffer from their wrongdoings.