Houston Bar Association - Family Law Section

Gray's Interesting Cases for November, 2009

Updated and presented by Sallee S. Smyth

Sharma v. Routh, 2009 Tex. App. LEXIS 7945 (Tex. App. – Houston [14th Dist.] October 8, 2009) (opinion on grant of motion for rehearing) (Opinion issued in Sharma v. Routh, 2008 Tex. App. LEXIS 9737 (Tex. App. – Houston [14th Dist.] December 31, 2008) (Cause No. 14-06-717-CV) withdrawn and new opinion substituted)
Prior to marriage, H and his first wife (both psychiatrists) amassed considerable wealth owning and operating psychiatric hospitals. Upon his first W’s death, her will established two trusts naming H as income beneficiary and trustee. Both trusts also named remainder beneficiaries. As trustee, H sold the trust corpus (interests in the psychiatric hospitals) in exchange for various promissory notes which thereafter produced income to the trust. Under the terms of the trust, this income was to be distributed to H and H had the right to distribute additional amounts from corpus to meet his needs subject to consideration of his other resources. Because H maintained his own independent wealth and because he sought to carry on his first wife’s legacy with the hospitals, H agreed to donate his trust distributions back to the hospitals so they could maintain cash flow and continue operations. As a result of this agreement, H never actually received trust distributions but he did report them on her personal income tax returns. Further, as trustee, H never invaded trust corpus however there was evidence that initial payments of principal and interest on the hospital notes had been deposited into H’s personal accounts by mistake. When this was discovered, an accounting was done and all amounts were then returned to trust accounts. H and W married and separated only 4 months later. After an initial default judgment was set aside, the case eventually went to trial. At the time of trial the trusts had “distributed” approximately $2 million in income to H. The court characterized this income as community property. Although this income had never actually been received by H (due to his prior decision to donate these amounts) and even though the court expressly denied reimbursement, the trial court treated this amount as part of the value of the community estate and awarded W a judgment against H for 50% of the accrued trust income. H appealed.

Initially, the COA issued a majority opinion on December 31, 2008 affirming the community character of the trust income determining that undisputed evidence established that H had an interest in the trust corpus (the promissory notes) and therefore the interest from those notes was community property. The initial majority opinion also rejected H’s claim that the trust income was acquired by gift or devise through his first W’s will. In a lengthy dissenting opinion Justice Frost advocated for the need to adopt a different standard to determine the character of trust income in Texas, suggesting that the beneficiary spouse must have a present possessory interest in trust corpus before trust income can be characterized as community.

On rehearing, the court has now adopted the dissenting opinion as the majority for the court. The new majority opinion has established a clear standard for determining the character of income distributions paid to a married beneficiary from an irrevocable trust during marriage, holding that the income distributions are only community property if the beneficiary spouse has a “present possessory interest” in the trust corpus. Because the evidence established that trust corpus had been deposited into H’s personal bank accounts by mistake at an the direction of his accountant and not the H as trustee, and further because these deposits were eventually corrected and returned to trust bank accounts, these facts “belied” H’s present possessory interest in trust corpus. Further, the trust designated a remainder beneficiary and the H trustee was not free to invade trust corpus (nor did he) to the detriment of the remainder beneficiary and without scrutiny. As such, the new majority opinion decided that H did not possess a legal interest in the corpus which would then support a determination that income from separate property is community property. The new majority holds that the trust income should have been characterized as H’s separate property as a matter of law because H received this income as a gift and devise under the terms of his first wife’s will. The COA reversed and remanded the property division.

Comment: The opinion further indicates that a concurring opinion will be issued by Chief Justice Hedges but as of this date, it has not issued. As this is my case I can report that a motion for rehearing is now being contemplated by the W.
In the Interest of G.T.S., A Child, 2009 Tex. App. LEXIS 7943 (Tex. App. – Houston [1st Dist.] October 8, 2009) (mem. opinion) (Cause No. 01-09-212-CV)
The child was born on March 17, 1992 while M was married to Hawkins but after they had separated. In June 1992 Schmidt executed an AOP (which did not specify that the child had a presumed father) and Schmidt was eventually named on the child’s birth certificate. Hawkins never signed a denial. At some point in 1992 M ran a birth announcement listing Kirby as the child’s father. In June 1992 M filed for divorce from Hawkins in Dallas county but did not name the child in her petition. Hawkins was served by publication and the divorce was granted in October. In 1994 M filed a parentage suit against Kirby in Rockwall County. She did not join Hawkins (the presumed father) or Schmidt (the acknowledged father) as necessary parties. Kirby underwent DNA testing which established that he was the bio dad. The Rockwall County district court adjudicated Kirby as the father and ordered child support. In 2005 the AG filed an enforcement action in Rockwall County against Kirby and Kirby responded with a bill of review arguing that the 1994 order should be set aside because all necessary parties had not been joined. The trial court granted the BOR and set aside the original parentage order. The record does not establish what eventually happened in this proceeding. In August 2007 M filed a parentage suit against Kirby in Henderson County. M joined Schmidt (the acknowledged father) who signed a waiver but she did not join Hawkins (the presumed father). Kirby filed a motion for summary judgment arguing that M’s suit was barred by the 4 year SOL contained in TFC§160.607(a) which requires that a suit to adjudicate parentage of a child who has a presumed father must be brought within 4 years after the child’s birth. The facts established that M had been married to Hawkins at the time of the child’s birth making him the presumed father. M responded and claimed that her suit could be brought at any time under the exception found in TFC §160.607(b) because she and Hawkins did not live together during the probable time of conception and since Hawkins could not be located, it could be inferred that he did not represent to others that the child was his. The trial court granted summary judgment but awarded M $5,000 in fees. M appealed the granting of summary judgment and Kirby cross-appealed challenge the award of fees.

The COA determined that M must do more than simply plead the exception and that although she offered summary judgment evidence that she and Hawkins had not lived together at the probable time of conception, she offered no evidence that they had not engaged in sexual intercourse during this time. Further the COA found that M failed to offer any summary judgment evidence which established that Hawkins had not held out as the child’s father and noted that the fact of his absence was not sufficient. Regarding attorney’s fees the COA held that if fees are to be awarded to the non-prevailing party the court must state good cause and since the judgment did not, this portion of the order was reversed and remanded for a hearing to determine the good cause issue. Summary judgment was affirmed.
Sharp v. Sharp, 2009 Tex. App. LEXIS 7964 (Tex. App. – San Antonio October 4, 2009) (Cause No. 04-08-921-CV)
H and W were divorced in 1990. Under the decree, W was awarded 50% of the monthly amount of the US Air Force “disposable retired or retainer pay” to be paid to H by virtue of his service and 50% of all increases in that pay due to cost of living or other reasons, if, as and when received. After the divorce H received a 100% disability rating from the VA as a veteran of the Vietnam war. He became eligible to receive Combat Related Special Compensation (CRSC) as a result of a federal statute which became effective in 2004. Under this statute, veterans such as H could receive the special compensation in lieu of full retirement pay and concurrent disability pay. In 2007 H elected to receive the CRSC and because he took it in lieu of retirement it greatly reduced W’s monthly benefit (from $1300/month to $180/month). W then filed a motion for clarification and asked that H be held in contempt. When her requested relief was denied, W appealed.

Citing the recent Supreme Court decision in Hagen v. Hagen, 282 S.W.3d 899 (Tex. 2009), the COA found that the Sharp decree unambiguously awarded W a percentage of only H’s military retirement benefits if, as and when he received it and that since the CRSC statute specifically provided that these payments were not considered “retirement pay” the Sharp decree did not divide CRSC benefits that might become payable to H based on his combat related disability. As a result, the COA affirmed the trial court’s order denying W relief. Compelled by the inequities that resulted in this case, one justice wrote a concurring opinion in which he emphasizes that Congress should revisit the wording of this statue to avoid such inequitable results for other former spouses in the future.

COMMENT: In Hagen the Supreme Court noted that VA disability compensation is not divisible while military disability pay was. The Sharp opinion merely holds that the CRSC benefit was not divided in the decree, leaving open the possibility that in the right circumstances a suit for undivided property might remain available. However, note that the CRSC benefit did not exist until 2004 when the federal statute was enacted and the Sharps were divorced in 1990. Since the CRSC benefit did not exist at the time of divorce, a Chapter 9 suit would not be available for Mrs. Sharp, however it might certainly be available for former spouses with divorce decrees post-dating the 2004 federal legislation. In present cases where a Vietnam Veteran is involved, counsel for the non-veteran spouse would be wise to consider and include an award of these contingent benefits if the veteran spouse has not already made this election.
McCaskill v. McCaskill, 2090 Tex. App. LEXIS 7998 (Tex. App. – Corpus Christi October 15, 2009) (mem. opinion) (Cause No. 13-08-122-CV)
H and W were married in 1999. In 2001 H filed for divorce and W signed a waiver. Subsequently W filed an answer. The case was set for trial and W filed for a continuance but on the day of trial announced that she was ready to proceed and a divorce was granted that same day. The decree provided that the parties do not own any community property other than personal effects. The decree did not mention confirmation of separate property to either spouse. In April 2006, approximately five years later, W filed a petition for post divorce division of property alleging that the 2001 decree failed to divide H’s retirement benefits. H filed an answer and special exceptions. In August 2006 W filed a petition for divorce against H alleging a common-law marriage beginning in July 2001 immediately following the prior divorce. Both suits were consolidated and tried together. As to the undivided property claim H testified that he did have a 401K plan at the time of the 2001 divorce but he was unwilling to concede that it was community property. There was conflicting evidence regarding the common law marriage. The trial court determined that the language of the 2001 decree which found that no community property existed was equivalent to a finding that there were no community property retirement benefits to divide and therefore denied the Chapter 9 relief. The Court found no common law marriage. W appealed.

The COA held that W carried the burden to establish that property which existed at the time of the 2001 divorce remained undivided and that because it was possible to conclude that H’s retirement benefits were found to be H’s separate property in 2001 and therefore not mentioned in the 2001 decree, it was not error for the trial court to deny W’s claims. Because of the conflicting evidence presented on the common law marriage claim, the COA found no abuse of discretion in denying the existence of a marriage. Affirmed. COMMENT: This case should make every lawyer stop and think before they draft a decree which includes only the simple finding that “no community property exists other than personal effects” because it seems in doing so that you create an inference that all other property must have either been separate property or simply did not exist which greatly undermines a future Chapter 9 suit to divide property actually omitted from a decree.
In the Interest of A.T.A., A Child, 2009 Tex. App. LEXIS 8083 (Tex. App. – Dallas October 19, 2009) (mem. opinion) (Cause No. 05-08-843-CV)
The AG filed a petition to confirm a non-agreed child support review order under Chapter 233 which established F as the child’s father and ordered child support. The record contains a “Form #329-Notice” which states that a copy of the notice “106 Rule” given to James Foster Sr. for Jr.. F did not answer and the court signed a order confirming child support. A year later F filed a bill of review seeking to set aside the c/s order claiming that service was defective and therefore the court had no personal jurisdiction over him. The trial court denied the bill of review and F appealed.

The COA held that in the absence of a Rule 106 order, there is no authorized Rule 106 service. This record had no motion for substituted service, no affidavit showing efforts to accomplish personal service and no 106 Order. The COA further stated that proof of non-service will conclusively establish the third element of a bill of review and this is the only element that is required when the BOR is based on lack of service. The COA held that the order confirming c/s was void and remanded the matter back to the trial court.
Baker v. Baker, 2009 Tex. App. LEXIS 8149 (Tex. App. – San Antonio October 21, 2009) (mem. opinion) (Cause No. 04-09-00006-CV)
H and W are involved in a divorce proceeding. At trial, H testified that he had inherited money and used $2000 to make a mortgage payment on the parties residence; $104,000 to pay off the mortgage on the residence and $50,000 to make improvements to the residence which has enhanced its value by at least $50,000. W stipulated to the funds used to pay the mortgage but disputed the $50,000 used for improvements. As part of the division of the community estate the decree gave W the right to purchase H’s interest in the property for a specified sum and further provided that if she chose not to, then she was ordered to vacate the residence, the residence was to be sold, and specified sums from the proceeds were to be awarded to each party as compensation for their respective reimbursement claims. Any proceeds left over were divided 50/50. The reimbursement amount awarded to H (if W did not purchase the property from him) was $154,000. W appealed.

On appeal, both parties claimed that the residence had been purchased jointly by the parties before marriage however neither party complained on appeal about the decree which treated the residence as part of the community property division. As a result the COA treated the residence as community. The COA held that H’s testimony alone was insufficient to establish the source of the funds used to make improvements to the residence and further he offered no evidence of the value of the property before improvements versus after in order to permit the trial court to make the required finding of enhancement as the value of the reimbursement claim. The COA modified the decree to reduce the payment to H in the event the W did not purchase from $154,000 to $104,000. W asserted several other errors all of which the COA determined had been waived.
In the Interest of M.T.C. and D.L.C., 2009 Tex. App. LEXIS 8192 (Tex. App. – Texarkana October 23, 2009) (Cause No. 06-08-145-CV
M and Step F married. M also had two children from a previous relationship and the bio F of this child was deceased. M and Step F separated and M went to Colorado with the son only, leaving the daughter behind with Step F. Step F initiated suit for conservatorship of the daughter. A month later, maternal GF and his wife intervened, seeking conservatorship or visitation in the alternative. M returned from Colorado and Step F amended his pleadings to state that he and M should be appointed JMC of both children. At the temporary hearing M and Step F challenged GP standing to intervene and were named temporary JMC. The court set the matter for trial in October 2007 which would include a determination of GP standing. The case was tried over two days with more than 20 witnesses. Both sides offered evidence that the other was not fit to have custody of the children. The court determined that while GF had standing, step GM did not have standing to seek visitation. There was no mention of whether she had standing to seek conservatorship. The court appointed an ad litem and ordered counseling for the children. The court thereafter reopened the evidence at the request of the ad litem to address counseling issues. Five months later GP’s filed a jury demand. In December 2008 the court awarded GF access through May 2009 and thereafter only as agreed to by M. M and Step F were appointed as JMC. GP’s appeal claiming (1) they were denied a jury trial; (2) the court erred in denying standing to Step GM; and (3) the court erred in failing to give them custody or visitation.

The COA held that a jury demand filed after trial has begun, but while it is in recess, is untimely. The COA further held that although Step GM might have had standing to seek custody if she could prove she had substantial past contact with the children, the evidence proved that she saw them only twice a year and otherwise merely sent cards and gifts. The COA held that this type of minimal contact did not rise to the level of contact contemplated by TFC §102.004(b) and that Step GM did not have standing to seek any relief in the trial court. Finally the COA found that the evidence was sufficient to appoint M and Step F as JMC and that GF did not establish the proof required to obtain grandparent access. Judgment affirmed.
Knight v. Knight, 2009 Tex. App. LEXIS 8289 (Tex. App. – Houston [14th Dist.] October 29, 2009) (Cause No. 14-08-424-CV)
H and W became common law married in 1994. Over the course of the marriage they invested in real estate and purchased various houses. At one point H transferred a 50% interest in 2 of the properties to W and later conveyed the remaining 50% to her, all as a gift. One of these properties was purchased by the flood control district after damage from a tropical storm and W used the proceeds to pay off a mortgage on one of the community residences. W took out a loan on the other property and used these proceeds to purchase additional real estate. At one point, H used community funds to retire an $8,000 judgment rendered against him before the parties marriage. H filed for divorce in 2007 and W filed a counter petition seeking a disproportionate division based on fault along with claims for reimbursement and for fraud on the community based on her discovery that H had been paying his ex-W $500/month for 18 months during their marriage without any court ordered obligation to do so. The case was tried and the court granted a divorce based on cruelty. The court confirmed W’s separate property real estate as hers but failed to consider the outstanding loan balance against the property in determining its value. The trial court denied W’s reimbursement claim and her claim of fraud. W appealed.

The COA found that W waived error re: the larger reimbursement claim for the mortgage because she failed to address this with the trial court after rendition or in her motion for new trial. The COA found that the evidence was undisputed that community funds were used to retire H’s separate property judgment and that there was no evidence which supported the trial court’s refusal to grant reimbursement and therefore the refusal was an abuse of discretion. Likewise the COA also found that it was an abuse of discretion to reimburse the community for the payments the H made to his ex-W in the absence of consent. Finally, the COA found that the court abused its discretion in failing to consider the outstanding mortgage on W’s separate property real estate noting that this likely impacted the court’s determination of a just and right division of the community. The COA affirmed the divorce but reversed the property division and remanded it for a new trial.

COMMENT: Although the COA opinion recognizes that reimbursement claims are equitable, it is interesting that in this case the COA determined that because W proved her reimbursement claim and because H offered no evidence as to why the claim should not be granted, the trial court committed error by refusing to grant it.
In the Interest of K.J.D., A Child, 2009 Tex. App. LEXIS 8344 (Tex. App. – Dallas October 30, 2009) (Cause No. 05-08-1113-CV)
Attorney’s fees awarded as child support in modification proceeding reclassified as award of a judgment only.