Go on, Take the Money and Run! How to get the most out of reimbursement claims.

Jimmy VaughtLeigh de la Reza

Kacy Dudley

GO ON, TAKE THE MONEY AND RUN!

HOW TO GET THE MOST OUT OF REIMBURSEMENT CLAIMS

“In adjusting the respective rights of the parties, the equities shall be balanced.”

Dakan v. Dakan

Before Marriage = separate property

After Marriage = community property

Separate Property Acquired during marriage: Gifts Inheritance Personal Injury Money

Inception of Title Rule

Husban

d’s

Separ

ate

Estat

e

Community Estate W

ife’s Separate

Estate

Marital Estates

Increased

A

ssets

Red

uce

d

Deb

ts

2 Basic Categories of Reimbursement Claims

REIMBURSEMENT CLAIMS INVOLVING THE REDUCTION OF DEBTSTFC 3.402

(a)(1) payment of unsecured liabilities

(a)(3) reduction of principal amount of debt secured by lien on property owned prior to marriage

(a)(4) reduction of principal amount of debt secured by lien received by gift, devise, or decent during marriage

(a)(5) reduction of principal amount of debt incurred during marriage, secured by lien, and incurred for acquisition of or for capital improvements to property

(a)(6) reduction of principal amount of debt incurred during marriage, secured by lien, for which creditor agreed to look solely to the separate marital estate of the spouse on whose property the lien is attached and incurred for the acquisition of or for capital improvements to property

(a)(7) refinancing of principal amount described by (3)-(6)

(a)(9) reduction of unsecured debt

§3.402(a)(1) payment by one marital estate of the unsecured liabilities of another marital estate.

§3.402(a)(9) the reduction by the community property estate of an unsecured debt incurred by the separate estate of one of the spouses.

What to Prove

1) Payment made by one marital estate toward the unsecured liability of another

2) Payment was reimbursable

3) The value of the contribution

Defenses

1)Debt was secured

2) Contribution was for the payment of child support, alimony, spousal maintenance or living expense of a spouse or child

3) Contribution was nominal in value 3.409(4)

4) Contribution was for a student loan

5) Contribution was for community living expenses

§3.402(a)(3) the reduction of the principal amount of a debt secured by a lien on property owned before marriage, to the extent the debt existed at the time of marriage.

§3.402(a)(4) the reduction of the principal amount a debt secured by a lien on property received by a spouse by gift, devise, or descent during a marriage, to the extent the debt existed at the time the property was received.

What to prove

1)Property was acquired prior to marriage or by gift, devise, or descent

2) Debt was in existence at time of marriage or when property was received3) Debt was secured by lien on spouse’s separate property4) Community estate (or spouse’s separate estate contributed to the reduction)5) Proof of the exact amount of the funds expended

Defenses1)Property is community

2) Offset for use and enjoyment—no offset for use of a primary or secondary residence

3) Proof that debt did not exist at time of marriage or when property was received

4) Debt was not secured by the property

5) Payments were nominal

§3.402(a)(5) the reduction of the principal amount of that part of a debt, including a home equity loan:

a) incurred during the marriage;

b) secured by a lien on property owned by a spouse; and

c) incurred for the acquisition of, or capital improvements to property.

What to prove

1)Debt was incurred during the marriage

2) Debt was secured by a lien on property owned by a spouse

3) Debt was incurred for the acquisition of or

for capital improvements to property

4) The value of the property unimproved

5) The value of the property improved

6) Cost of improvements

7) Improvements are capital improvements

Defenses1) Proceeds from loan were not spent for acquisition of

or capital improvements to property

2) Debt was not secured by a lien on spouse’s separate property

3) Offset for use and enjoyment (but not primary or secondary home)

4) Payments were nominal

§3.402(a)(6) the reduction of the principal amount of that part of a debt:

a) incurred during a marriage;

b) secured by a lien on property owned by a spouse;

c) for which the creditor agreed to look solely to the separate marital estate of the spouse on whose property the lien attached; and

d) incurred for the acquisition of, or for capital improvements to, property.

What to prove

1) Incurred during the marriage

2) Secured by a lien

3) Creditor agreed to look for repayment solely to the separate marital estate of the spouse whose property the lien attached

4) Incurred for the acquisition of or for capital improvements to property

Defenses1) No proof that creditor agreed to look solely to the

separate marital estate of a spouse

2) Community did not contribute to reduction in debt

§3.402(a)(7) the refinancing and reduction of the principal amount of debt described by subdivisions (3)-(6), the extent the refinancing reduces the principal amount in the manner described by the applicable subdivision.

What to prove

1)Same elements of proof as 3.402(a)(3)-(a)(6)

Defenses1)No reimbursement without a

principal reduction--even if the refinance created a lower interest rate.

REIMBURSEMENT CLAIMS INVOLVING THE INCREASE OF ASSETS

TFC 3.402(a)(2) inadequate compensation for the time, toil, talent, and effort of a spouse by a business entity under the control and direction of that spouse

(a)(8) capital improvements to property other than by incurring debt

Common law Jensen Claim

Inadequate compensation for time,

toil, talent, & effort

Enhancement of separate estate by virtue of time

and effort

TTT&E exceeded what was reasonably

necessary to manage & preserve separate estate

TFC §3.402(a)(2)

Inadequate compensation for time,

toil, talent, & effort

Of a spouse by a business entity

Under the direction of that spouse

§3.402(a)(8) Capital improvements to property other than by incurring debt

What to prove

1) One marital estate made capital improvements to another marital estate; and

2) Value of the property unimproved & Value of the property improved,

3) Cost of the improvements,

4) The improvements are capital improvements, and

5) No debt was incurred to make such improvements.

Defenses

1)The improvements made were not did not enhance the value

2)They were not capital improvements

3)Value of the property at the time the capital improvements were made is wrong

4)Offsetting benefits for use and enjoyment

Common Law Claims

Statutor

y Claims

SB 866 analysis:

“Provides that, for purposes of this subchapter, a claim for reimbursement includes only certain types of claims…”

§ 3.402(a) For purposes of this subchapter, a claim for reimbursement includes:

Common Law Jensen Claim

Inadequate compensation to the community estate for a spouse’s time, toil, talent, and effort to enhance the spouse’s separate property resulted in a claim for reimbursement to the extent the contributing spouse’s time, toil, talent, and effort exceeded what was reasonably necessary to preserve and maintain his or her separate property of either spouse.

What to prove

1)The value of the time and effort expended by the spouse

2) The enhancement of separate estate by virtue of the time and effort

3)The time, toil, talent, and effort exceeded what is reasonably necessary to manage and preserve the separate estate

Defenses1)No evidence on value of contribution

2) Compensation was adequate for the work performed

3) Any reimbursement that might be owed is less than the benefits received by the community

Contributions to Initial Purchase Price:

The use of separate funds for the down payment for the purchase price of the community home.

Garcia v. Garcia, 170 S.W.3d 644, 650

Gleich v. Bongio, 99 S.W.2d 881, 885 (Tx. 1937).

Property purchased with part separate funds and part community funds creates a split title.

75% Sepa-rate Prop-erty

25% Com-munity

Property

Ex: Property purchased with 75% SP funds and 25% CP funds

Decrease in property value—may beadvantageous to use common law reimbursement claim in Garcia v. Garcia.

Increase in property value—may beadvantageous to use split title in Gleich v. Bongio.

Noncapital improvements that enhanced the value of the estate.

Hailey v. Hailey, 176 S.W.3d 374, 384-85

Non-Reimbursable Claims

1) Payment of child support, alimony or spousal maintenance

2) Living expenses of a spouse or a child of spouse

3) Contributions of property of nominal value

4) The payment of a liability of a nominal amount

5) A student loan owed by a spouse

Fraud and Waste are not Reimbursement Claims

1) identify the contributing and benefiting estates;

2) specify the contribution conferred; 3) ask that the contribution be reimbursed; and

4) request an equitable lien against the benefited property to secure the reimbursement award.

Pleading should:

A Money judgment award

Should be secured with an Equitable Lien

1) Assert any claim for reimbursement the Respondent has in an answer or counterpetition

2) Assert that a claim is waived in a pre-marital or post-marital property agreement

Respondent’s Pleading should:

Other Defenses:

1) Equitable defense—or “the spouse is a jerk defense.”

2) Offsetting benefits

“One should always play fairly when one has the winning cards.”

- Oscar Wilde