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Zombie Money, Real Money, and Marital Fraud In the context of divorce litigation, fraud on the community estate falls within the wide spectrum of various acts frequently termed as “marital fraud.” Prior to the passage of Texas Family Code Section 7.009, the Texas Supreme Court’s opinion in Schlueter was considered to be the authority on remedies available to an innocent spouse in a divorce where fraud on the community estate is involved. See Schlueter v. Schlueter (Tex. 1998). In Schlueter, the Texas Supreme Court reasoned that because the fraud was committed against the community estate, the innocent spouse’s remedy was to be awarded a disproportionate, or larger, share of the assets. The recurring problem was that the fraud by one spouse may have depleted the community estate to the point that not enough assets remained to fully compensate the innocent party. The Schlueter Court also ruled that a just and right division of the marital estate may include a money judgment on the fraud claim (not exceeding the value of the community estate). As a result, many parties interpreted the Schlueter decision to mean that the innocent spouse could either seek a disproportionate division of the community estate (which might not make the innocent spouse whole because insufficient assets remain to be divided) or the innocent spouse may seek a money judgment (which might be worthless if there are no assets subject to collection). The purpose of Section 7.009, as expressed by the drafters of the Texas Family Code, and as testified to by experts during Congressional Committee hearings (one of whom was this author on behalf of the Texas Family Law Foundation) is to statutorily clarify and potentially increase the remedies available to a spouse by making it clear that a just and right division of the marital estate, for purposes of remedying a marital fraud, encompasses and includes the award of a disproportionate division of the community estate or a money judgment, or both. In an effort to further diminish the potential problems resulting from a community estate squandered away by marital fraud, Section 7.009 also created a new marital estate, the “reconstituted estate.” The reconstituted
estate is defined as the total value of the community estate that would exist if the fraud had never occurred. The trial court should calculate the value of the reconstituted estate by determining the dollar amount by which the community was depleted, due to a party’s fraudulent acts, and adding that dollar amount back in to the current value of the estate. The reconstituted estate will then be subject to a just and right division. This method calculates the value of the community estate had the fraudulent actions not occurred, and then allows the court to penalize the spouse who committed the fraud by awarding the guilty spouse the non-existent, or what I refer to as “zombie,” money. This money is “zombie” money because the money existed at one point, then no longer existed, and now has been brought back to life, yet still doesn’t actually exist. In ordering a just and right division of the community estate, the guilty spouse’s property award will likely include the “zombie” money added back to the estate, regardless of whether these funds actually exist. A money judgment is also available in addition to the division of the reconstituted estate, and can also be an alternative to the
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division of the reconstituted estate. An easy example is the wasting of community assets, one of the most common forms of marital fraud we see in divorce. In this illustration, assume there is a $200,000.00 community estate. The husband has an adulterous affair, and is found to have spent (or wasted) $100,000.00 in community funds on his new girlfriend. Hence, there is in reality $100,000.00 remaining in the community estate. Under Section 7.009, we place the wasted money (the “zombie” money) of $100,000.00 back into the community estate, even though the husband has already spent those funds. This results in a reconstituted estate of $200,000.00. If the court determines that a just and right division of the community estate is 50% to each spouse, then the court can award from the reconstituted estate $100,000.00 (the “zombie” money) to the husband who wasted the funds, and the $100,000.00 (the remaining funds still in existence) to the wife. Hence, the wife still gets 50% of the community estate because it has been reconstituted to include the “zombie” monies before application of the division percentage determined by the Court.
In this example, the spouse who is found to have committed the fraud, the husband in this case, in reality got zero actual funds. If the court decided that the innocent spouse, the wife in this example, should receive a disproportionate division of the reconstituted estate, or, for example, 60% of the estate, there would be insufficient real monies to award the wife her $120,000.00. Under Section 7.009, the court can award the wife $100,000.00 of the funds still remaining, and a judgment of $20,000.00 against the husband, to complete the 60% award. At the time of the preparation of this article, this author could locate no published appellate opinions specifically addressing Section 7.009 or the reconstituted estate. Thus, the matter remains ripe for what is anticipated will be much learned discussion. Regardless, attorneys representing spouses who are the victim of marital fraud should take advantage of the statutorily created reconstituted estate, and the ability to award such “zombie” money to the guilty spouse, and other options made available by Section 7.009 to assure that compensation is sought for the wronged spouse to the greatest extent allowed by law. About the Author: Heather King is Board Certified in Family Law by the Texas Board of Legal Specialization. Ms. King is the complete family lawyer, one of the few family law attorneys with extensive experience from the beginning of a case, through trial or settlement to the handling of an appeal. Because of her range of talents, she is called upon to handle trials and appeals throughout Texas. Heather King joined KoonsFuller in 2007 as a shareholder and manager of the firm’s Southlake office. Ms. King is President of the Texas Academy of Family Law Specialists and a former President of the Tarrant County Bar Association and the Tarrant County Family Law Bar Association. Recently Heather King was voted 2013 Top Rated Lawyer in Appellate Law – Martindale-Hubbell™.
KoonsFuller, P.C. is a large family law firm with five fully staffed offices located in Texas: Dallas, Plano, Southlake, Denton and Houston. KoonsFuller has an experienced family law attorney for every family law matter. KoonsFuller has both the knowledge and resources to serve clients in matters including complex divorce litigation; property settlements of all sizes; marital agreements; asset tracing, valuation and division; child custody, possession and access, support and paternity; and trial and appellate work, as well as offering litigation alternatives such as mediation, settlement conferences, arbitration and collaborative law, across Texas and the nation.
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Denton Business Chronicle
Oct. 2013