Part of the process of any divorce is going through the couple’s property and characterizing and dividing that property. The property is usually divided up into 3 primary categories. The first is community property. Community property is the property either spouse acquires during marriage. The next two categories are each spouse’s separate property. This would typically be property acquired prior to the marriage or through some other means recognized by the Texas Family Code as creating separate property.
Community property is subject to a “just and right” division by the courts. However, separate property is not. The idea is that because the spouse owned their own separate property prior to the marriage, the other spouse does not have any interest in it.
What happens if one spouse has contributed to the other spouse’s separate property? What happens if one spouse has paid the mortgage on a separate property home during the marriage only to realize the spouse who owned the home prior to marriage gets all the benefit? This article is going to discuss one of those claims: a claim for reimbursement.
What Is Reimbursement?
A claim for reimbursement is when either the community estate (property in the community property characterization) or separate estate (property characterized as separate) contributes to another marital estate and that contribution qualifies for reimbursement.
Contributions that are reimbursable include:
- the payment by one marital estate of the unsecured liabilities of another marital estate (e.g., one spouse paying off the other spouse’s credit-card debt),
- one marital estate’s reduction (or refinancing) of the principal amount of another marital estate’s secured liabilities (e.g., community estate paying the mortgage on separate property real estate)
- one marital estate’s capital contributions to another marital estate other than by incurring a debt (e.g., separate estate using cash to buy a pool to be placed on community property home)
- inadequate compensation received by the community estate for one spouse’s time, toil, talent, and effort used in a business under that spouse’s direction and control (e.g., one spouse working in the family business but not being paid).
If one spouse establishes that they should be reimbursed, the amount awarded be the court could be either a community property asset or separate property asset, depending on which estate was the contributing estate. If the award is an asset of the community estate, the court must divide it as it would any other community asset—in a just and right manner.
What is the Purpose of Reimbursement?
The purpose of a claim for reimbursement is to recover specific contributions made by one marital estate to another marital estate; monetary contributions as well as contributions of labor and skill are reimbursable.
How Do You Prove a Claim for Reimbursement?
To prove a claim for reimbursement, the spouse seeking reimbursement (the “petitioner”) must establish the following:
- that a contribution was made by one marital estate to another,
- that the contribution was reimbursable, and
- Reimbursable Claims
- Payment by one marital estate of unsecured liabilities
- Utility payments on separate property
- Judgment debt
- Payment by community estate of unsecured liabilities.
- Payment reducing principal of secured debts.
- Payment for capital improvements.
- inadequate compensation for Spouse’s time, toil, talent, and effort.
- Noncapital improvements to real property.
- Contributions toward initial purchase price.
- Life-insurance premiums.
- Guarantees of debt.
- Premarital contributions.
- Non-reimbursable claims.
- Payments for child & spousal support.
- Payments for community living expenses.
- Nominal property contributions.
- Nominal liability payments.
- Spousal gifts.
- Repayment of student loans.
- Market increases.
- Fraud & waste of community assets.
- Reimbursable Claims
- the value of the contribution.
- Value does not need to be established to a mathematical certainty, but some evidence of value must be presented
So, You Have a Claim for Reimbursement, What Now?
Knowing that you have a claim for reimbursement is only the first step. You must also be able to prove that claim in court. The Judge will probably not simply take your word for it. The next question is, how do you prove a claim for reimbursement?
I joked in the title of this article that you should keep your receipts. However, the first place to start, with a claim for reimbursement, is with the documents. Titles to property, bank statements, loan documents, mortgage documents, insurance policies, etc. These are the documents that will let your attorney determine the characterization of the property, whether the contribution is reimbursable, and the amount of the reimbursement.
You MUST consult with an attorney in order to adequately put forward a claim for reimbursement. This is a very complicated and difficult issue to plead, present to the court, prove, and collect. Consulting with an attorney who has experience with these types of cases and knows the legal issues with a reimbursement claim is essential to your success.
A claim for reimbursement should be included in your petition for divorce or annulment. That document should:
1. identify which estate (separate or community) contributed and which estate benefited
2. Specify what the contribution was and how it was conferred
3. Request reimbursement of the contribution, and
4. Request some equitable lien in order to secure the reimbursement award.
If you don’t plead a case for reimbursement, you might well waive it. Again, it is crucial that you have assistance with you claim in order to be successful.
Lastly, you need to know it might be necessary to hire experts to testify about the nature, type and value of your claim for reimbursement. These experts may be business valuation experts, C.P.As, tax experts, real estate experts or others. The experts that may be needed will depend upon the nature and type of reimbursement claim.
The other thing you need to know is that these experts will likely cost thousands of dollars to retain. You need assistance to understand whether you will need expert witnesses and whether they will add or subtract from your case. An experienced attorney should be able to assist you with this decision.
You’ve Been Sued for Reimbursement, What Now?
Just because your spouse is asking to be reimbursed doesn’t mean that is the last word on the matter. The person who is responding to the divorce and claim for reimbursement can file their own claim against the other spouse. If both claims are granted, the claims can be offset against each other (i.e., cancel each other out). You can also assert a defense to the other spouse’s claim for reimbursement.
One of the defenses is that the contributing estate received a benefit from the contribution. Any offsetting benefits brought to the court’s attention must be considered in evaluating a claim for reimbursement. The court can reduce the amount of a reimbursement claim or deny it altogether when there is evidence that the contributing estate received a benefit in return for the contribution. Under the Family Code, a claim for reimbursement can generally be offset by the contributing estate’s use and enjoyment of the property.
Other than the offsetting benefit of use and enjoyment, the Family Code does not specifically permit or prohibit any other type of offsetting benefit against a claim for reimbursement. The Family Code does state, however, that the court “shall resolve a claim for reimbursement by using equitable principles.”
Under equitable principles, the Texas Supreme Court has held that a court can consider all the facts and circumstances surrounding the parties in evaluating a reimbursement claim. Under this broad principle, a party should be able to assert any relevant offsetting benefits received by the contributing estate.
Reimbursement is a valuable claim in a marital property dispute. Often one spouse or both spouses may have a reimbursement claim. It’s important that you consult with an attorney if you think you might have a claim for reimbursement and obtain their advice and counsel on that matter. Below I have attached a chart relating to common reimbursement claims for your review.
As always, keep your head up during a divorce and realize that it isn’t forever even if it feels like it right now. There will be an end to the fighting and expense. It is important that you have an attorney on your side to advise you of any and all rights you have and to plan for anything that your spouse may throw your way.