The Three Marital Estates In A Divorce
Texas is a community property state. This means that there is a presumption that everything the spouses own is community property. Separate property is anything a spouse owned prior to marriage, acquired as a gift or through inheritance, as well as certain recoveries for personal injuries.
This means that there are three distinct marital estates that exist in a divorce case. These three estates are the community property estate and each spouse’s separate property estate.
Reimbursement claims arise when one of these estates spends money or contributes other property for the benefit of another estate. Common examples include investments in improvements as well as payments to reduce debt.
It is helpful to think of these three marital estates in the form of a triangle. A reimbursement claim may exist between any two of the marital estates. The claim may be for or against any estate as well.
Types of Reimbursement Claims In A Texas Divorce
Certain types of reimbursement claims are specifically recognized the Texas law. These types of reimbursement claims are set out in section 3.402 of the Texas Family Code.
So what type of payments can create a reimbursement claim under the law?
I’ve listed them below:
- Payment of the unsecured liabilities of another marital estate;
- Inadequate compensation for the time, toil, talent, and effort by a spouse for a business entity controlled by that spouse;
- Reduction of principal on debt secured by a lien on separate property;
- Reduction of the principal on a debt secured by a lien and incurred for capital improvements to property;
- Capital improvements to property; and
- Reduction by the community estate of unsecured debt incurred by a spouse’s separate estate.
How Reimbursement Claims Affect Property Division
Reimbursement claims exist as an asset of one of the three marital estates in the form of a claim against the estate that received the benefits.
Let’s look at an example. If the community estate paid off $20k of unsecured debt of a wife’s separate estate, then the community estate claims that $20k reimbursement as an additional asset subject to division by the court.
This does not mean that the wife’s estate actually pays back that $20k. Instead, a court simply awards an additional $10k in assets from the community estate to the husband and reduces the wife’s award by $10k.
It is important to remember that family courts are courts of equity. This means that judge’s have wide discretion in how they divide property in a just and right manner.
The statute authorizing reimbursement claims specifically instructs courts to resolve reimbursement claims using equitable principles. This means that a judge has discretion to refuse a reimbursement claim as well as consider offsetting benefits the contributing estate received in return.
Offsetting Benefits and Offsetting Reimbursement Claims
If the estate that contributed property received a benefit in return, then the spouse defending the reimbursement claim can argue that a court should reduce the amount of any claim by the value of the benefits the contributing estate received.
This is called an offset.
In addition, there may be multiple reimbursement claims that exist both ways between two martial estates. Courts must consider the relative values of offsetting reimbursement claims and offset those values against each other.
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