Reimbursement Claims in Texas
What happens if a wife in a Houston divorce case owns a house for several years prior to the marriage with the deed in only her name and, during the marriage, mortgage payments continued to be made on the house?
Perhaps her husband performed significant work on the house himself without receiving compensation for the work.
If this marriage ends in divorce, how are these complex issues sorted out in terms of marital property division?
The Texas Family Code provides for a party, the husband in this example, to potentially bring a Texas reimbursement claim. This situation is encountered often by divorce lawyers in Houston and is called a community property reimbursement. This means that the community property estate would have a reimbursement claim against the wife’s separate property estate.
If you want to explore your legal options regarding marital property and possible Texas reimbursement claims, call our Houston divorce lawyers today at (713) 221-9088 for a free case evaluation.
How Reimbursement Claims Work in a Texas Divorce
In the example above, the wife’s house is most likely her separate property because she owned the house in fee simple before the marriage. The mere act of getting married generally does not change a separate property asset to a community property asset. (Although there are many actions that a party can take after marriage that can convert an asset from separate property to community property, the act of getting married itself does not convert the asset).
The payments that were made on the house during the marriage are likely, but not necessarily, community property assets, if the funds were earned by either spouse during the marriage. Therefore, the couple’s community property estate could have a Texas community property reimbursement claim against the wife’s separate property estate for the value of the total mortgage payments made during the marriage.
If there is a valid Texas reimbursement claim to the community property estate, this money does not go directly to the husband, however. Rather, the money goes back to the community property estate, which is subject to a “just and right equitable division” by a Texas family law court.
A similar analysis would apply to the example with the value of the husband’s uncompensated work on the house. The Texas Family Code provides that the value of the time, toil, talent and effort (TTT&E) of a spouse belongs not to that spouse’s separate property estate, but rather to the couple’s community property estate. The TTT&E spent by a spouse can be the basis of a claim for reimbursement by the community estate if:
· The spouse’s TTT&E is uncompensated or inadequately compensated; and
· The property is under the “control and direction” of the other spouse.
As this simple example of reimbursement shows, these issues can quickly lead to a high degree of complexity.
Reasons for Reimbursement
Reimbursement may be necessary to evenly divide assets if improvements that cannot be separated from the asset have added value during the marriage. In the community property reimbursement example above, the home improvements increased the value of the home, but the improvements—maybe a deck was installed or the kitchen was remodeled—cannot be separated from the home and divided between spouses. In this case, an equitable division of the improved property may be reached through reimbursement.
One of the most common claims in divorce cases is a Texas reimbursement claim by the community estate against a spouse’s separate estate. Other Texas reimbursement claims that can be made include situations where:
- The community estate benefits from one spouse’s separate property;
- One spouse’s separate property benefits the other spouse’s separate property; or
- One spouse’s separate property benefits the community property estate.
Texas judges have a lot of discretion regarding whether to recognize a reimbursement claim and how to value the claim. Discussing your potential reimbursement claim with an experienced family law attorney can help you get an idea of how likely it is that a judge will recognize your claim.
Reimbursement Statute in Texas
Texas Family Code 3.402 allows several claims for reimbursement. As discussed above, the statute allows reimbursement claims for capital improvements to property. The statute also allows reimbursement for a variety of debt transactions.
For example, in some cases where one spouse uses their separate property to pay down the separate debt of the other spouse, the court may allow a reimbursement claim by the spouse whose property paid down the debt. The Texas statute also allows a reimbursement claim if one spouse reduces the principal amount the other spouse owes on a home mortgage that the owing spouse created before the marriage.
Below are all of the claim types eligible for reimbursement in Texas. The statute is difficult to read, however, and you should talk to your divorce attorney about reimbursement.
What Can Be Reimbursed?
In Texas, courts allow reimbursement for claims in which one spouse:
- Received insufficient pay from the other spouse’s business for work performed;
- Paid the other spouse’s unsecured debts;
- Used community property to pay the other spouse’s debts;
- Made various payments for debts that were secured by the other spouse’s separate property, including property that the other spouse received as a gift or inheritance;
- Reduced a principal debt amount through refinancing;
- Made payments on debts incurred to buy or improve property;
- Made capital improvements to property.
A judge will recognize some of these reimbursement claims only if certain other conditions exist.
What Cannot be Reimbursed?
A court will not allow reimbursement of some expenditures made by one spouse during the marriage. Claims that are ineligible for reimbursement include:
- A spouse’s living expenses;
- Child support or alimony payments;
- Student loans owed by one spouse;
- Low value property contributions by one spouse; and
- Payment of low value liabilities by one spouse.
If you are not sure whether you are eligible for reimbursement, you should speak to a divorce attorney.
How Do Judges Resolve Reimbursement Claims?
Judges can resolve claims for reimbursement by almost any method they choose. The most straightforward solution is a money judgment, in which the judge orders one spouse to pay the claim either to the other spouse or to the community property estate.
Another fairly simple option is for the judge to award the spouse who holds the claim a greater share of the community property. If both spouses have reimbursement claims against one another, a judge can offset the claims against each other. This means the judge will subtract the smaller claim from the larger, and the spouse who owed the larger claim will simply pay the difference.