A recent Houston divorce case provides a new twist to claims of waste or constructive fraud. In that case, the wife basically asked the question, where did all my husband’s earnings go?
The court awarded the wife a judgement of $196,000 for wasting community funds because the husband could not account for how he had spent his after tax earnings during the five years the divorce case was pending. Furthermore, the wife did not have to prove any specific improper transfers were made of community funds. She merely had to show the husband’s expenses were much less than his earnings. The husband then had the burden to show where the money went.
More on Constructive Fraud
Constructive fraud is presumed when one spouse during the marriage transfers community property outside of the community estate without the other spouse’s knowledge or consent. A transfer can include a transfer to a third party, excessive gifts to third parties, and use of community property to benefit a spouse’s separate property estate. Once alleged by the complaining spouse, the responding spouse has the burden of rebutting the presumption by proving the fairness of the transfer or transaction. What follows are examples that have been held to be constructive fraud:
- One spouse’s gifts to the children’s educational funds
- Gambling losses
- Monies spent on extramarital affairs
- Spouse’s use of community monies to fund a trust for a son or a previous marriage
- Spouse replaced the beneficiary spouse on a life insurance policy with a paramour
In summary, the division of community property in a Texas divorce can be effected by claims of fraud made by one spouse against the other spouse. Actual fraud is not often alleged because it is hard to prove. Constructive fraud in a divorce context encompasses a wide range of actions and is much easier to prove. Once alleged, the responding spouse has the burden to prove the fairness of the transactions. For more information regarding the court side of these claims see my next blog, More on Constructive Fraud and Waste Claims.