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Reimbursement for Loans Made to Separate Property in Texas Divorce

When a business is struggling, the owner often wants to put money into it to try to save it.  This can be a simple matter when both spouses have ownership in the business.  Texas divorce attorneys understand, however, that it can be complicated when the business is one spouse’s separate property.  A Texas appeals court recently addressed this issue.ferris wheel

The wife filed for divorce nearly 14 years after the marriage.  At the time of the divorce, the wife was employed full-time.  The husband was unemployed and not seeking employment.  He stated he spent significant time dealing with a lawsuit involving his separate business.

The husband stated the business existed before the parties were married.  It ran independent businesses inside amusement parks.  Under the original arrangement, it paid the amusement park about 30% of the earnings of each location.  The wife stated that the business had done well and was profitable at that time.

In 2007, however, the amusement parks raised the fee to the business to 40% of earnings.  The business sued the amusement parks.  The wife stated the husband did not earn any income after that year.  The wife testified the husband spent an increasing amount of time on the lawsuit.  She said he would leave early and come home late.

The couple loaned money to the business during the marriage, with cash loans totaling more than $600,000.  The wife testified these loans came from her salary.  The husband drew a small salary from the business at the end of each year but loaned it back to the business.  These loans totaled more than $160,000.

The trial court awarded the husband the cash in his possession and his bank accounts, a vehicle, a golf cart, the business, and any recovery the business received from its lawsuit.  The wife was awarded the house and its contents, the cash in her possession and her bank accounts, her retirement accounts, two vehicles, and a health savings account.  The court assigned several debts to the husband.  The wife was assigned any debts she incurred on or after a specified date.

The husband appealed.  He argued the trial court abused its discretion in basing the division on a finding of fraud on the community.  The appeals court found, however, that the trial court had not based its division on a finding of fraud.  It noted the community estate was entitled to reimbursement from the husband’s estate for the cash loans.

The appeals court noted that reimbursement is an equitable tool.  The husband argued the wife had not introduced any evidence that the business was his separate property and therefore had not shown the community estate was entitled to reimbursement.  The husband had testified, however, that the business existed before the marriage.  Furthermore, the wife had testified it was his separate property, and there was nothing in the record contradicting that.  The appeals court found the wife had established the business was the husband’s separate property.

The husband also argued the division was arbitrary and unreasonable in assigning the assets to the wife and the debts to him.  The appeals court noted, however, that the division was related to reimbursement of the loans to the business.  The wife was entitled to receive half of the amount of the loan, and the trial court offset it by giving her the husband’s share of several community assets.  It offset the remaining amount the wife was entitled to get by assigning the husband the debts.  The appeals court noted the trial court’s broad discretion in resolving reimbursement and did not find the court’s order arbitrary or unreasonable.  The appeals court affirmed the trial court’s order.

This case shows that a court has discretion in resolving reimbursement of community property.  When a loan is made for one spouse’s separate property, the court may resolve that through an otherwise unequal division of property.  If you are facing a divorce, one of our skilled Texas divorce attorneys can help you get your fair share.   Call McClure Law Group at 214.692.8200.

More Blog Posts:

Valuation of Separate Property and Reimbursement in a Texas Divorce

What’s Mine Is Mine – Understand Separate Property