In Texas, separate property can be converted to community property by a written agreement signed by both spouses that identifies the property to be convert and specified it is being converted to community property. Tex. Fam. Code § 4.203.  In a recent case, a former husband challenged the property division in his divorce decree, arguing certain assets had been improperly characterized as the wife’s separate property.

The wife was beneficiary of three irrevocable trusts set up by her grandparents.  The income from the trusts was to be distributed to the wife at least annually starting when she turned 21.  The trustee was also authorized to distribute principal for the wife’s care, comfort, support, and education if the trustee deemed it necessary. When she turned 32, the trustee had the discretion to distribute the balance.  After the wife’s thirty-second birthday, which occurred during the marriage, the trustee terminated the trusts and put the accounts in her name.  They were worth about $2.3 million at the time.

The parties hired an estate-planning attorney.  They both signed an engagement letter, stating they told the attorney they considered the current assets, specifically including the funds inherited by the wife, to be community property. The trust agreement stated that the trustors contemplated that all assets that would be transferred to the trust would be community property. However, it also included a provision allowing either party to modify, revoke, or terminate the agreement with respect to any of their own separate property held in the trust. They subsequently transferred the assets from the grandparents’ trusts to the new trust account.

Wife Files for Divorce

The wife later petitioned for divorce.  In his counter-petition, the husband brought breach-of-contract and fraud claims against the wife based on an alleged agreement the grandparents’ trust would be community property.

The wife asked the court to characterize the assets from the grandparents’ trust as her separate property. The trial court granted a partial summary judgment in her favor.  The court found the trust agreement was not an agreement to convert separate property to community property pursuant to Tex. Fam. Code § 4.203.  The court also determined that the revocable trust did not create a gift from the wife to the husband.

The wife then filed another motion for partial summary judgment, asking the court to characterize the assets held in the grandparents’ trusts after her thirty-second birthday as her separate property.  She filed another motion asking the court to find her revocation and termination of the revocable trust agreement was valid.

The trial court partially granted the second motion, finding the total value of the wife’s separate property in the revokable trust account was over $2 million, while the community property in the account was just $2,593.

Trial Court Rules in Favor of Wife; Husband Appeals

The trial court granted a directed verdict in favor of the wife as to the fraud and breach of contract claims.  The trial court affirmed the two partial summary judgment orders in its final divorce decree.

The husband appealed, arguing the court erred in finding that the trust agreement did not convert the wife’s separate property.

The husband argued the trust agreement met the requirements of an agreement to convert separate property set forth in Tex. Fam. Code § 4.203.  The appeals court focused on the language in the trust agreement.  The agreement said the parties “contemplate” that the assets that would be transferred to the trust would be community property, but it did not state that the assets were actually being converted.  Additionally, the trust agreement included a provision that allowed revocation, modification or termination as to any separate property, indicating separate property could be held in the trust.  Additionally, the trust agreement did not identify the property that was being converted. The appeals court found no error in the trial court granting partial summary judgment on this issue.

The husband also argued the trial court erred in finding the wife did not give half of the inherited property to the husband. He claimed the wife told him she intended to give him a half interest in the assets she received from the grandparents’ trust by creating the revocable trust. He also pointed to the transfer of those assets to the revocable trust account.

To prove a gift, a party must establish donative intent, delivery, and acceptance.  The donor must intend to make the gift and “absolutely and irrevocably” intend to divest herself of “title, dominion, and control” when she makes the gift. The transfer must be irrevocable.

The appeals court found the alleged statement the wife made regarding giving the husband half of the inheritance did not create a fact question as to donative intent because the assets were not transferred at that time. Additionally, depositing the assets in the trust account did not establish donative intent because assets in a joint account generally belong to the parties in proportion to their respective net contributions. Tex. Est. Code § 113.012.  Furthermore, the trust agreement allowed both parties equal control and title and allowed the wife to revoke the trust as to her separate property. The wife therefore maintained control over the separate property.  The appeals court found the husband had not raised a genuine issue of material fact as to donative intent.  The court did not err in concluding that the wife had not gifted an interest in the assets from the grandparents’ trust to the husband.

The husband further argued that the trial court erred in granting the directed verdict.  As to the breach of contract claim, the appeals court found that neither the trust agreement nor the wife’s alleged oral promises were valid contracts that required the wife to convert her separate property. The husband had not raised a fact issue regarding consideration.

The appeals court also rejected the husband’s fraud claim.  The appeals court found the wife’s statements and the “contemplate” language in the trust agreement were too vague to constitute a material misrepresentation. Additionally, the husband had not raised a material fact issue as to injury. He claimed he quit his job and became a firefighter in reliance on the representations, but the evidence showed he decided to become a firefighter before the wife made the representations. He also alleged he signed a mortgage in reliance on the representations, but the appeals court noted the house had been sold for an amount greater than the mortgage.

The appeals court affirmed the divorce decree.

Inheritances Add Complexity to Divorce; Call McClure Law Group Today

Inheritances and trusts can create complex issues in property division.  If you received a significant inheritance, a skilled Texas divorce attorney can help you protect your separate assets.  Schedule a consultation with McClure Law Group by calling 214.692.8200.