What Happens if There is Fraud in Dividing Community Property?

Community Property Fraud in Divorce

As much as one might hope that both sides in a divorce have been honest with each another in the process, the sad reality is that sometimes one of the spouses chooses to hide some of the community assets. This fraud cheats the other spouse out of part of the community estate that they have built together during the course of their marriage. The Texas Family Code (section 7.009) provides that if one spouse has committed actual or constructive fraud on the community estate, the court can take action to protect the innocent/wronged spouse.

Fraud on the community estate can take several forms, such as a spouse gambling away $20,000, spending a large sum on a girlfriend, or taking a friend (not their spouse) on an expensive vacation. At any rate, the action of the wrongdoing spouse has reduced the size of the community estate by say $20,000, as in one of the examples above, and thus $20K is no longer available to divide.

Division of the Reconstituted Estate

One of the remedies for this set out in the Texas Family Code is for the estate to what is called, “reconstituted.” The “reconstituted estate” is the total value of the community estate that would exist if the actual or constructive fraud on the community had not occurred. So using the example from above, if the community estate has $180,000 left after the wrong-doing spouse spends $20,000.00 by actual or constructive fraud, the reconstituted estate would be $200,000. The court could divide the $200,000.00 reconstituted estate in a just and right manner by awarding the innocent spouse $100,000 or 50% of the reconstituted estate. The court could award the wrongdoing spouse $80,000 because the guilty spouse fraudulently depleted the community estate of $20,000. This would be a 50/50 division of the community after the estate is reconstituted. If the court felt it was a fair and just division, the court could even divide the reconstituted community estate in a 60/40 division in favor of the innocent spouse, resulting in the innocent spouse receiving $120,000 and the spouse who committed the fraud receiving the $60,000 from the actual existing estate because the guilty spouse fraudulently spent the $20,000. Had the guilty spouse not spent the $20,000 and if there was a 60/40 division, the guilty spouse would have received $80,000.

If there were not enough funds to give a just and right division of the community estate to the innocent spouse/wronged, the court could also award a money judgment in favor of the wronged spouse against the guilty spouse. The court could also award the wronged spouse both a money judgment and what the court determines to be an appropriate share of the community estate.

As is the case in most family law matters, it's extremely important that you have an experienced family lawyer represent you. For more information, or to make an appointment for a consultation, call (940) 202-8323 or contact us here.