Fiduciary Issues in Family Law Cases - Orsinger · Fiduciary Issues in Family Law Cases ......

Fiduciary Issues in Family Law Cases

Richard R. [email protected]

http://www.orsinger.com

Orsinger, NelsonDowning & Anderson, L.L.P.

San Antonio Office:310 S. Saint Mary’s St., #2600

San Antonio, Texas 78205(210) 225-5567

http://www.orsinger.com

and

Dallas Office:5950 Sherry Lane, Suite 800

Dallas, Texas 75225(214) 273-2400

Fiduciary Litigation CourseDecember 5-6, 2013Westin Riverwalk

San Antonio, Texas

© 2013Richard R. OrsingerAll Rights Reserved

mailto:[email protected]

CURRICULUM VITAE OF RICHARD R. ORSINGER

Education: Washington & Lee University, Lexington, Virginia (1968-70)University of Texas (B.A., with Honors, 1972)University of Texas School of Law (J.D., 1975)

Licensed: Texas Supreme Court (1975); U.S. District Court, Western District of Texas (1977-1992; 2000-present); U.S. District Court, Southern District of Texas (1979); U.S. Court of Appeals, Fifth Circuit(1979); U.S. Supreme Court (1981)

Certified: Board Certified by the Texas Board of Legal Specialization Family Law (1980), Civil Appellate Law(1987)

Organizations and Committees:

Chair, Family Law Section, State Bar of Texas (1999-2000)Chair, Appellate Practice & Advocacy Section, State Bar of Texas (1996-97)Chair, Continuing Legal Education Committee, State Bar of Texas (2000-02)Vice-Chair, Continuing Legal Education Committee, State Bar of Texas (2002-03)Member, Supreme Court Advisory Committee on Rules of Civil Procedure (1994-2015 and appointed through 2018);

Chair, Subcommittee on Rules 16-165aMember, Pattern Jury Charge Committee (Family Law), State Bar of Texas (1987-2000)Supreme Court Liaison, Texas Judicial Committee on Information Technology (2001-2004)Tx. Bd. of Legal Specialization, Civil Appellate Law Advisory Commission (Member and Civil Appellate

Law Exam Committee (1990-2006; Chair 1991-1995); Family Law Advisory Commission (1987-1993)Member, Supreme Court Task Force on Jury Charges (1992-93)Member, Supreme Court Advisory Committee on Child Support and Visitation Guidelines

(1989, 1991; Co-Chair 1992-93; Chair 1994-98)Member, Board of Directors, Texas Legal Resource Center on Child Abuse & Neglect, Inc. (1991-93)President, Texas Academy of Family Law Specialists (1990-91)President, San Antonio Family Lawyers Association (1989-90)Associate, American Board of Trial AdvocatesFellow, American Academy of Matrimonial LawyersDirector, San Antonio Bar Association (1997-1998)Member, San Antonio, Dallas and Houston Bar Associations

Honors Received:

Texas Center for the Judiciary, Exemplary Non-Judicial Faculty Award (2014)Texas Bar Foundation Dan Rugeley Price Award for “an unreserved commitment to clients and to the

practice of our profession” (2014)Recipient of the Franklin Jones, Jr. CLE Article Award for Outstanding Achievement in CLE (2013)State Bar of Texas Family Law Section Best Family Law CLE Article (2009)Recipient of the Franklin Jones, Jr. CLE Article Award for Outstanding Achievement in CLE (2009)State Bar of Texas Certificate of Merit, June 2004Texas Academy of Family Law Specialists’ Sam Emison Award (2003)Association for Continuing Legal Education’s Award for Best Program (Enron, The Legal Issues)

(Co-director, March, 2002)State Bar of Texas Presidential Citation “for innovative leadership and relentless pursuit of excellence

for continuing legal education” (June, 2001)State Bar of Texas Family Law Section’s Dan R. Price Award for outstanding contributions to family

law (2001)State Bar of Texas Certificate of Merit, June 1997State Bar of Texas Gene Cavin Award for Excellence in Continuing Legal Education (1996)State Bar of Texas Certificate of Merit, June 1996State Bar of Texas Certificate of Merit, June 1995

Professional Recognition:

Listed as San Antonio Scene’s Best Lawyers in San Antonio (2014)Listed in Martindale-Hubbell/ALM - Top Rated Lawyers in Texas (2014)Listed as one of Texas’ Top Ten Lawyers in all fields, Texas Monthly Super Lawyers Survey (2014)Listed as one of Texas’ Top Ten Lawyers in all fields, Texas Monthly Super Lawyers Survey (2013)Listed as one of Texas’ Top Ten Lawyers in all fields, Texas Monthly Super Lawyers Survey (2012)Listed as one of Texas’ Top Ten Lawyers in all fields, Texas Monthly Super Lawyers Survey (2010 - 3rd Top Point

Getter)Listed as one of Texas’ Top Ten Lawyers in all fields, Texas Monthly Super Lawyers Survey (2009)Listed as Family Lawyer of the Year by BEST LAWYERS (2012)Listed as Family Lawyer of the Year by BEST LAWYERS (2011)Listed as Texas’ Top Family Lawyer, Texas Lawyer’s Go-To-Guide (2007)Listed as one of Texas’ Top 100 Lawyers, and Top 50 Lawyers in South Texas, Texas Monthly Super Lawyers

Survey(2003-2013)Listed in the BEST LAWYERS IN AMERICA: Family Law (1987-2015); Appellate Law (2007-2015)

Books and Journal Articles:

—Editor-in-Chief of the State Bar of Texas’ TEXAS SUPREME COURT PRACTICE MANUAL (2005)—Chief Editor of the State Bar of Texas Family Law Section's EXPERT WITNESS MANUAL (Vols. II & III) (1999)— Author of Vol. 6 of McDonald Texas Civil Practice, on Texas Civil Appellate Practice, published by Bancroft-Whitney Co. (1992) (900 + pages)—A Guide to Proceedings Under the Texas Parent Notification Statute and Rules, SOUTH TEXAS LAW REVIEW (2000)(co-authored)—Obligations of the Trial Lawyer Under Texas Law Toward the Client Relating to an Appeal, 41 SOUTH TEXAS LAW

REVIEW 111 (1999)—Asserting Claims for Intentionally or Recklessly Causing Severe Emotional Distress, in Connection With a Divorce,25 ST. MARY'S L.J. 1253 (1994), republished in the AMERICAN JOURNAL OF FAMILY LAW (Fall 1994) and Texas FamilyLaw Service NewsAlert (Oct. & Dec., 1994 and Feb., 1995)—Chapter 21 on Business Interests in Bancroft-Whitney's TEXAS FAMILY LAW SERVICE (Speer's 6th ed.)—Characterization of Marital Property, 39 BAY. L. REV. 909 (1988) (co-authored)—Fitting a Round Peg Into A Square Hole: Section 3.63, Texas Family Code, and the Marriage That Crosses StatesLines, 13 ST. MARY'S L.J. 477 (1982)

Continuing Legal Education Administration:

Course Director, State Bar of Texas:• Practice Before the Supreme Court of Texas Course (2002 - 2005, 2007, 2009, 2011, 2013, and 2015)• Enron, The Legal Issues (Co-director, March, 2002) [Won national ACLEA Award]• Advanced Expert Witness Course (2001, 2002, 2003, 2004)• 1999 Impact of the New Rules of Discovery• 1998 Advanced Civil Appellate Practice Course• 1991 Advanced Evidence and Discovery• Computer Workshop at Advanced Family Law (1990-94) and Advanced Civil Trial (1990-91) courses• 1987 Advanced Family Law Course. Course Director, Texas Academy of Family Law Specialists First Annual Trial

Institute, Las Vegas, Nevada (1987)

SELECTED CLE SPEECHES AND ARTICLES

State Bar of Texas' [SBOT] Advanced Family Law Course: Intraand Inter Family Transactions (1983); Handling the Appeal: Procedures and Pitfalls (1984); Methods and Tools of Discovery(1985); Characterization and Reimbursement (1986); Trusts andFamily Law (1986); The Family Law Case in the Appellate Court(1987); Post-Divorce Division of Property (1988); MaritalAgreements: Enforcement and Defense (1989); Marital Liabilities(1990); Rules of Procedure (1991); Valuation Overview (1992);Deposition Use in Trial: Cassette Tapes, Video, Audio, Reading

and Editing (1993); The Great Debate: Dividing Goodwill onDivorce (1994); Characterization (1995); Ordinary Reimbursementand Creative Theories of Reimbursement (1996); Qualifying andRejecting Expert Witnesses (1997); New Developments in CivilProcedure and Evidence (1998); The Expert Witness Manual(1999); Reimbursement in the 21st Century (2000); PersonalGoodwill vs. Commercial Goodwill: A Case Study (2000); WhatRepresenting the Judge or Contributing to Her Campaign CanMean to Your Client: Proposed New Disqualification and Recusal

Rules (2001); Tax Workshop: The Fundamentals (2001); Blue Skyor Book Value? Complex Issues in Business Valuation (2001);Private Justice: Arbitration as an Alternative to the Courthouse(2002); International & Cross Border Issues (2002); DiscoveryIssues Facing Associate Judges and Title IV-D Masters (2002);Premarital and Marital Agreements: Representing the Non-MoniedSpouse (2003); Those Other Texas Codes: Things the FamilyLawyer Needs to Know About Codifications Outside the FamilyCode (2004); Pearls of Wisdom From Thirty Years of PracticingFamily Law (2005); The Road Ahead: Long-Term FinancialPlanning in Connection With Divorce (2006); A New Approach toDistinguishing Enterprise Goodwill From Personal Goodwill(2007); The Law of Interpreting Contracts: How to Draft Contractsto Avoid or Win Litigation (2008); Effect of Choice of Entities:How Organizational Law, Accounting, and Tax Law for EntitiesAffect Marital Property Law (2008); Practicing Family Law in aDepressed Economy, Parts I & II (2009); Property Puzzles: 30Characterization Rules, Explanations & Examples (2009);Troubling Issues of Characterization, Reimbursement, Valuation,and Division Upon Divorce (2010); Separate & CommunityProperty: 30 Rules With Explanations & Examples (2010); TheRole of Reasoning in Constructing a Persuasive Argument (2011);Negotiating a Family Law Case (2012) New Appellate Rules forCPS Cases (2012); Court-Ordered Sanctions (2013); DifferentWays to Trace Separate Property (2014); Probate & Family Law -What a Family Lawyer Can Learn from the Texas Estates Code(2015)

UT School of Law: Trusts in Texas Law: What Are theCommunity Rights in Separately Created Trusts? (1985);Partnerships and Family Law (1986); Proving Up Separate andCommunity Property Claims Through Tracing (1987); AppealingNon-Jury Cases in State Court (1991); The New (Proposed) TexasRules of Appellate Procedure (1995); The Effective Motion forRehearing (1996); Intellectual Property (1997); Preservation ofError Update (1997); TRAPs Under the New T.R.A.P. (1998);Judicial Perspectives on Appellate Practice (2000)

SBOT's Advanced Evidence & Discovery Course: SuccessfulMandamus Approaches in Discovery (1988); Mandamus (1989);Preservation of Privileges, Exemptions and Objections (1990);Business and Public Records (1993); Grab Bag: Evidence &Discovery (1993); Common Evidence Problems (1994); ManagingDocuments--The Technology (1996); Evidence Grab Bag (1997);Evidence Grab Bag (1998); Making and Meeting Objections(1998-99); Evidentiary Issues Surrounding Expert Witnesses(1999); Predicates and Objections (2000); Predicates andObjections (2001); Building Blocks of Evidence (2002); Strategiesin Making a Daubert Attack (2002); Predicates and Objections(2002); Building Blocks of Evidence (2003); Predicates &Objections (High Tech Emphasis) (2003); Court-ImposedSanctions in Texas (2012)

SBOT's Advanced Civil Appellate Practice Course: Handlingthe Appeal from a Bench Trial in a Civil Case (1989); Appeal ofNon-Jury Trials (1990); Successful Challenges to Legal/FactualSufficiency (1991); In the Sup. Ct.: Reversing the Court of Appeals(1992); Brief Writing: Creatively Crafting for the Reader (1993);Interlocutory and Accelerated Appeals (1994); Non-Jury Appeals(1995); Technology and the Courtroom of the Future (1996); AreNon-Jury Trials Ever "Appealing"? (1998); Enforcing theJudgment, Including While on Appeal (1998); Judges vs. Juries: ADebate (2000); Appellate Squares (2000); Texas Supreme CourtTrends (2002); New Appellate Rules and New Trial Rules (2003);Supreme Court Trends (2004); Recent Developments in theDaubert Swamp (2005); Hot Topics in Litigation:Restitution/Unjust Enrichment (2006); The Law of Interpreting

Contracts (2007); Judicial Review of Arbitration Rulings:Problems and Possible Alternatives (2008); The Role of Reasoningand Persuasion in the Legal Process (2010); Sanctions on Review(Appeal and Mandamus) (2012)

Other CLE: SBOT Advanced Civil Trial Course: JudgmentEnforcement, Turnover and Contempt (1990-1991), Offering andExcluding Evidence (1995), New Appellate Rules (1997), TheCommunications Revolution: Portability, The Internet and thePractice of Law (1998), Daubert With Emphasis on CommercialLitigation, Damages, and the NonScientific Expert (2000),Rules/Legislation Preview (State Perspective) (2002); College ofAdvanced Judicial Studies: Evidentiary Issues (2001); El PasoFamily Law Bar Ass’n: Foreign Law and Foreign Evidence (2001); American Institute of Certified Public Accounts:Admissibility of Lay and Expert Testimony; General AcceptanceVersus Daubert (2002); Texas and Louisiana Associations ofDefense Counsel: Use of Fact Witnesses, Lay Opinion, and ExpertTestimony; When and How to Raise a Daubert Challenge (2002);SBOT In-House Counsel Course: Marital Property Rights inCorporate Benefits for High-Level Employees (2002); SBOT 19th

Annual Litigation Update Institute: Distinguishing Fact Testimony,Lay Opinion & Expert Testimony; Raising a Daubert Challenge(2003); State Bar College Spring Training: Current Events inFamily Law (2003); SBOT Practice Before the Supreme Court:Texas Supreme Court Trends (2003); SBOT 26th Annual AdvancedCivil Trial: Distinguishing Fact Testimony, Lay Opinion & ExpertTestimony; Challenging Qualifications, Reliability, and UnderlyingData (2003); SBOT New Frontiers in Marital Property: BustingTrusts Upon Divorce (2003); American Academy of Psychiatry andthe Law: Daubert, Kumho Tire and the Forensic Child Expert(2003); AICPA-AAML National Conference on Divorce: CuttingEdge Issues–New Alimony Theories; Measuring Personal Goodwill(2006); New Frontiers` - Distinguishing Enterprise Goodwill fromPersonal Goodwill; Judicial Conference (2006); SBOT NewFrontiers in Marital Property Law: Tracing, Reimbursement andEconomic Contribution Claims In Brokerage Accounts (2007);SBOT In-House Counsel Course: When an Officer Divorces: Howa Company can be Affected by an Officer’s Divorce (2009);Fiduciary Litigation Trial Notebook Course: Family Law andFiduciary Duty (2010); SBOT Handling Your First Civil AppealThe Role of Reasoning and Persuasion in Appeals (2011-2012);New Frontiers in Marital Property Law: A New Approach toDetermining Enterprise and Personal Goodwill Upon Divorce(2011); AICPA-AAML National Conference on Divorce: BusinessValuation Upon Divorce: How Theory and Practice Can Lead toProblems In Court & Goodwill Upon Divorce: DistinguishingBetween Intangible Assets, Enterprise Goodwill, and PersonalGoodwill (2012); SBOT Anatomy of Fiduciary Litigation: VoirDire and Jury Questionnaires; History of Texas Supreme CourtJurisprudence, 170 Years of Texas Contract Law (2013); SBOTExceptional Legal Writing: The Role of Reasoning and Persuasionin Legal Argumentation (2013); Family Law Update - 2013,Judicial Conference (2013); Family Law and Fiduciary Duty,Fiduciary Litigation Course (2013); Two Hot Topics in FamilyLaw: Same-Sex Marriage; Mediated Settlement Agreements, 2014Judicial Conference, Texas Center for the Judiciary (2014); SBOTAdvanced Personal Injury Course, Court-Ordered Sanctions(2014); Texas Center for the Judiciary, Same-Sex Marriage andGender Identity Issues (2015); History of Texas Supreme CourtJurisprudence, The Rise of Modern American Contract Law(2015); New Frontiers In Marital Property Law, Distributions fromBusiness Entities: Six Possible Approaches to Characterization(2015)

Continuing Legal Education Webinars: Troubling Issues ofCharacterization, Reimbursement, Valuation, and Division Upon

Divorce; Texas Bar CLE, Live Webcast, April 20, 2012, MCLENo. 901244559 (2012); Family Law Update - 2013, Texas Centerfor the Judiciary Video

Table of Contents

I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-II. DUTIES BETWEEN SPOUSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-

A. WHAT IS THE DUTY BETWEEN SPOUSES? . . . . . . . . . . . . . . . . . . . . . . . -1-1. Spouses Have a Fiduciary Relationship. . . . . . . . . . . . . . . . . . . . . . . . . -1-2. What Obligations Does the Interspousal Duty Entail? . . . . . . . . . . . . . -3-3. Fiduciary Relationship After Filing a Contested Divorce. . . . . . . . . . . -3-4. Fiduciary Relationship Ends Upon Dissolution of Marriage. . . . . . . . . -4-

B. AS TO PERSONAL BEHAVIOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-C. AS TO MARITAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-

1. Reconciling Management Rights With Other Spouse’s Ownership Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-

2. Fairness Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-3. Case Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-4. Actual Fraud Vs. Constructive Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . -7-5. Confusing Actual Fraud with Fraudulent Misrepresentation. . . . . . . . . -9-6. The Pattern Jury Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-

D. AS TO SPOUSAL PROPERTY AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . -14-III. REMEDIES FOR MARITAL PROPERTY FRAUD. . . . . . . . . . . . . . . . . . . . . . . . . . -15-

A. REMEDIES AGAINST THE WRONG-DOING SPOUSE. . . . . . . . . . . . . . . -15-B. THE “RECONSTITUTED ESTATE.” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-C. REMEDIES AGAINST THIRD PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . -17-

1. For Fraud Involving Community Property. . . . . . . . . . . . . . . . . . . . . . -17-2. For Fraud Involving Separate Property. . . . . . . . . . . . . . . . . . . . . . . . -19-3. Resulting and Constructive Trusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-

a. Resulting Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-b. Constructive Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-c. Resulting and Constructive Trusts Distinguished. . . . . . . . . . . -20-d. Examples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-

IV. OTHER SOURCES OF FIDUCIARY DUTIES BETWEEN SPOUSES . . . . . . . . . . -20-1. Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-2. Attorney-Client. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-3. Controlling to Non-Controlling Owner. . . . . . . . . . . . . . . . . . . . . . . . -21-4. Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-5. Relationship of Trust and Confidence. . . . . . . . . . . . . . . . . . . . . . . . . -22-

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Fiduciary Issues in Family Law Cases_______________________________________________________________________________________________________________Chapter 8

Selected Fiduciary Issues in Family Law Cases

by

Richard R. OrsingerBoard Certified in Family Law& Civil Appellate Law by the

Texas Board of Legal Specialization

I. INTRODUCTION. This Article dealswith selected issues of fiduciary law that arisein the family law context.

II. DUTIES BETWEEN SPOUSES. Texashas long recognized that the marital relation-ship entails special obligations betweenspouses. In Wiley and Co. v. Prince, 21 Tex.637, *3 (1858), Chief Justice Hemphill wrote:

There is no relation in which more influ-ence, more dominion can be exercised byone person over another than that exer-cised by the husband over the wife. Theyare separate in this state as to property,but in other respects the legal existence,the powers of the wife, are merged in thehusband, and his conduct in obtaininggifts or suretyships from her propertyshould therefore be watched with themost scrupulous attention.

The old legal doctrines of partial merger ofidentity and disabilities of coverture, whichprevailed in Nineteenth Century Texas, havesince been eliminated from Texas law. Still,the relationship of husband and wife continuesto be viewed in law as one of mutual trust.

A. WHAT IS THE DUTY BETWEENSPOUSES?

1. Spouses Have a Fiduciary Relation-ship. A number of Texas appellate opinionssay that the relationship between spouses is afiduciary relationship. Knight v. Knight, 301

S.W.3d 723, 731 (Tex. App.--Houston [14thDist.] 2009, no pet.) (“A fiduciary duty existsbetween a husband and a wife as to the com-munity property controlled by each spouse”);Smith v. Deneve, 285 S.W.3d 904, 911 (Tex.App.--Dallas 2009, no pet.) (saying, in dicta,“[t]he marital relationship is a fiduciary one”);Solares v. Solares, 232 S.W.3d 873, 881 (Tex.App.--Dallas 2007, no pet.) (“A fiduciary dutyexists between spouses”); Miller v. Ludeman,150 S.W.3d 592, 597 (Tex. App.–Austin2004, pet. denied) (“Husbands and wivesgenerally owe a fiduciary duty to one an-other”); Toles v. Toles, 113 S.W.3d 899, 916(Tex. App.--Dallas 2003, no pet.) (“A fidu-ciary duty exists between spouses”); Connellv. Connell, 889 S.W.2d 534 (Tex. App.--SanAntonio 1994, writ denied) (“It is establishedlaw that the relationship between a husbandand wife is a fiduciary relationship, and thespouses are bound by that fiduciary duty indealing with the community estate”); Bucknerv. Buckner, 815 S.W.2d 877, 880 (Tex. App.--Tyler 1991, no writ). (“It has long been recog-nized in Texas that a confidential relationshipdoes exist between a husband and his wife.”).Justice Willett commented, in dicta in the caseDitta v. Conte, 298 S.W.3d 187, 191 (Tex.2009):

By analogy, the marital relationshipbetween spouses is a fiduciary relation-ship.FN21 That special relationship is ofcourse more than the sum of discreteactions taken by one spouse toward an-other. If, for example, cruelty and adul-

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tery are recognized grounds fordivorce,FN22 a spouse suing for divorce onthose grounds should not be tasked to suefor divorce within a specific statutorylimitations period. The effect of thatconduct on the special relationship oftrust and confidence between spousesmay continue and change over time.[Footnotes omitted.]

In Hubbard v. Shankle, 138 S.W.3d 474, 483(Tex. App.--Fort Worth 2004, pet. denied),the appellate court said that “the relationshipbetween a husband and wife is ordinarily afiduciary relationship.” (Emphasis added). InBuckner v. Buckner, 815 S.W.2d 877, 878(Tex. App.--Tyler 1991, no writ), the courtsaid: “It has long been recognized in Texasthat a confidential relationship does existbetween a husband and his wife.” The courtthen goes on to say: “Having established thata fiduciary or confidential relationship existsarising out of a marriage, the burden ofdemonstrating the fairness of the transactionpasses to the person making therepresentation.” In Daniel v. Daniel, 779S.W.2d 110, 115 (Tex. App.--Houston [1stDist.] 1989, no writ), the court said: “Becauseof the confidential relationship between ahusband and a wife, courts have imposed thesame duties of good faith and fair dealing onspouses as required of partners and otherfiduciaries.” In Bohn v. Bohn, 455 S.W.2d401, 406 (Tex. Civ. App.–Houston [1st Dist.]1970, writ dism’d), the court said “[t]hat aconfidential relationship exists betweenhusband and wife has been recognized inTexas.” It can be seen that some courts use theterms “fiduciary” and “confidential”interchangeably when discussing obligationsbetween spouses.

The Texas Family Code does not say that a relationship of trust exists between spousesthat imposes upon spouses duties that are

legally equivalent to the relationship betweena trustee and a beneficiary, or a principal andan agent, or a lawyer and a client, or evenbetween partners in a general partnership. TheTexas cases on point are inexact in the wordsthey use. The duties that exist betweenspouses, that arise by operation of law onaccount of the marital relationship, can best beseen as a separate type of fiduciary duty thatdoes not equate to the other formal fiduciaryduties that arise by operation of law. Forexample, in Freeman v. Freeman, 1998 WL830533, *5 (Tex. App.–Austin, pet. denied)(unpublished), the appellate court denied thata fiduciary relationship existed betweenspouses at all times, and refused to hold thatthe wife’s failure to inform her husband, thathe was not the father of a child born duringmarriage, was a breach of a fiduciaryobligation.

A distinction was drawn in a Maryland casebetween a fiduciary relationship and aconfidential relationship, in the context ofspouses. Lasater v. Guttmann, 5 A.3d 79, 93(Md. App. 2010). The court concluded thatspouses were not true fiduciaries, absent anagreement establishing that relationship. Id. at94. However, spouses could have aconfidential relationship, but this was notpresumed by virtue of the marital relationship.Id. at 94. In distinguishing a fiduciary from aconfidential relationship, the Maryland Courtof Appeals quoted Scott on Trusts to the effectthat certain consequences automatically flowfrom a fiduciary relationship, but the sameconsequences do not automatically flow froma confidential one. Id. The Texas cases clearlyindicate that a fiduciary or confidentialrelationship arises by operation of law fromthe marriage relationship.

The Texas Supreme Court, in a non-family-law case, has distinguished between formalfiduciary obligations arising by operation of

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law from certain relationships (i.e., principal/agent, partners) and informal relationshipsarising from factual situations that may giverise to a fiduciary duty (called “confidentialrelationships”). Crim Truck & Tractor Co. v.Navistar Intern. Transp., 823 S.W.2d 591,594 (Tex. 1992). However the duties weresimilar.

Texas cases appear to use the terms fiduciaryand confidential interchangeably in familylaw cases, and the duties do not varydepending on the label affixed.

2. What Obligations Does the Inter-spousal Duty Entail? Given that therelationship between spouses is fiduciary, orconfidential, what duties does the relationshipentail? Different courts have described thisduty differently. In Izzo v. Izzo, 2010WL1930179, *7 (Tex. App.–Austin 2010, pet.denied), the Court said: “The fiduciary dutybetween spounses extends to a duty todisclose material information in businesstransactions”). In Buckner v. Buckner, 815S.W.2d 877, 880 (Tex. App.--Tyler 1991, nowrit), the court said: “The husband mustdisclose the material facts within hisknowledge and the legal consequencesflowing from them to his wife.” In Daniel v.Daniel, 779 S.W.2d 110, 115 (Tex. App.--Houston [1st Dist.] 1989, no writ), the courtspoke of a duty of good faith and fair dealing.In Matthews v. Matthews, 725 S.W.2d 275,279 (Tex. App.–Houston [1st Dist.] 1986, writref’d n.r.e.), which involved the enforceabilityof a post-marital partition agreement, theCourt said: “Appellant and appellee, ashusband and wife, owed each other specialfiduciary duties. . . . The fiduciary relationshiprequires that appellant demonstrate the basicfairness of the transaction.” In Bohn v. Bohn,455 S.W.2d 401, 406 (Tex. Civ.App.–Houston [1st Dist.] 1970, writ dism’d),the court said, in connection with an

interspousal transfer, that the spouse whoreceived the property had the burden of“affirmatively showing that he acted in goodfaith, and that the gift was voluntarily andunderstandingly made.” In Daniel v. Daniel,779 S.W.2d 110, 115 (Tex. App.--Houston[14th Dist.] 1989, no writ), the court said:“Because of the confidential relationshipbetween a husband and a wife, courts haveimposed the same duties of good faith and fairdealing on spouses as required of partners andother fiduciaries.” As discussed in SectionII.C.4 and 5 below, a spouse may not conveyaway community property with the intent todeprive the other spouse of his or her interestin the property. Nor may a spouse conveyaway community assets in a manner that is“unfair” to the other spouse. So a singleconsensus description of the fiduciaryobligations between spouses has not yetevolved.

3. Fiduciary Relationship After Filing aContested Divorce. Several Texas appellatecourts have said that the fiduciary relationshipbetween spouses ends at the start of acontested divorce in which the spouses eachhave independent attorneys or financialadvisors. Boaz v. Boaz, 221 S.W.3d 126, 133(Tex. App.--Houston [1st Dist.] 2006, nonpet.) (“adverse parties who have retainedprofessional counsel, including husbands andwives in a suit for divorce, do not owefiduciary duties to one another”); Ricks v.Ricks, 169 S.W.3d 523, 526 (Tex.App.–Dallas 2005, no pet.) (“The fiduciaryduty arising from the marital relationshipceases in a contested divorce when thehusband and wife each hire independentattorneys to represent them”); Toles v. Toles,113 S.W.3d 899, 916 (Tex. App.--Dallas2003, no pet.) (“A fiduciary duty existsbetween spouses. . . . However, thatrelationship terminates in a contested divorcewhen a husband and wife each have

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independent attorneys.”); Boyd v. Boyd, 67S.W.3d 398, 405 (Tex. App.–Fort Worth2002, no pet.) (“The fiduciary duty arisingfrom the marriage relationship does notcontinue when a husband and wife each hireindependent professional counsel to representthem in a contested divorce proceeding”);Parker v. Parker, 897 S.W.2d 918, 924 (Tex.App.--Fort Worth 1995, writ denied) (“Whilemarriage may bring about a fiduciaryrelationship, such a relationship terminates ina contested divorce when a husband and wifeeach have independent attorneys and financialadvisers”); Bass v. Bass, 790 S.W.2d 113, 119(Tex. App.--Fort Worth 1990, no writ)(“Although marriage may bring about afiduciary relationship . . . , such a relationshipclearly does not continue when a husband andwife hire numerous independent professionalcounsel to represent them respectively in acontested divorce proceeding”). The AustinCourt of Appeals, however, in Sheshunoff v.Sheshunoff, 172 S.W.3d 686, 701 n. 21 (Tex.App.--Austin 2005, pet. denied), rejected acategorical rule that hiring separate counsel tonegotiate a property division alwayseliminates fiduciary obligations. It makessense that the duty of disclosure that existsbetween spouses would be supplanted, at leastto some extent if not entirely, by the discoveryrules of procedure that govern the disclosureinformation in a lawsuit. However, if therelationship gives rise to a fiduciaryobligation between spouses exists independentof the marriage, like a partnership relationshipor an agency relationship, one would thinkthat those duties are not altered by the filingof a divorce. And in instances where a spouseconvinces the other spouse to enter into asettlement unbeknownst to his or herattorneys, the rule might not apply.

4. Fiduciary Relationship Ends UponDissolution of Marriage. Regardless ofwhether or not the divorce is contested, the

dissolution of the marital bonds by divorcebrings the interspousal fiduciary relationshipto an end. In re Marriage of Notash, 118S.W.3d 868, 872 (Tex. App.--Texarkana2003, no pet.) (“The fiduciary duty betweenhusband and wife terminates on divorce”);Camacho v. Montes, 2006 WL 2660744, *3(Tex. App.--Amarillo 2006, no pet.) (mem.op.) (“The formal fiduciary relationshipbetween Frances and Delfino as husband andwife terminated on their divorce.”); Gross-nickle v. Grossnickle, 935 S.W.2d 830, 846(Tex. App.--Texarkana 1996, writ denied) (nofiduciary duty after divorce). However,spouses continue to be held to special post-divorce duties in the management of the otherspouse’s property that is under the non-owning spouse’s management and control.

§ 9.011. Right to Future Property

(a) The court may, by any remedyprovided by this chapter, enforce anaward of the right to receive installmentpayments or a lump-sum payment due onthe maturation of an existing vested ornonvested right to be paid in the future.

(b) The subsequent actual receipt by thenon-owning party of property awarded tothe owner in a decree of divorce orannulment creates a fiduciary obligationin favor of the owner and imposes aconstructive trust on the property for thebenefit of the owner.

B. AS TO PERSONAL BEHAVIOR.Despite the fact that, as a practical matter andfrom an emotional perspective, maritalinfidelity is seen by many spouses as a breachof trust and by some spouses as perhaps theultimate breach of trust, adultery is neithercriminal nor actionable in Texas. Nor is it,according to one case, a breach of fiduciaryduty. See Freeman v. Freeman, No. 03-97-

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00626-CV, 1998 WL 830533, *5 (Tex. App.–Austin Dec. 3, 1998, pet. denied) (hiding factthat child born into marriage was nothusband’s child was held not to be a breach offiduciary duty). Adultery may, however, beused as a ground for divorce, Tex. Fam. Code§ 6.003. And adultery may be used by the trialcourt as a basis for a disproportionate divisionof the community estate. Murff v. Murff, 615S.W.2d 696, 698-99 (Tex. 1981); Young v.Young, 609 S.W.2d 758, 762 (Tex. 1980).Spouses may be held liable for committingtortious wrongs against the other spouse, mostparticularly (but not limited to) causingpersonal injury. Bounds v. Caudle, 560S.W.2d 925 (Tex. 1977) (wilful andintentional torts); Price v. Price, 732 S.W.2d316, 319 (Tex. 1987) (negligence). No barrierstands against interspousal suits for breach ofcontract, or equitable relief for recovery.Claims for spouse’s injury to the communityestate, however, are treated differently.

C. AS TO MARITAL PROPERTY. Texasfamily law cases recognize a fiduciary dutyrunning between spouses as to management ofthe community estate. E.g., Knight v. Knight,301 S.W.3d 723, 731 (Tex. App.--Houston[14th Dist.] 2009, no pet.) (“A fiduciary dutyexists between a husband and a wife as to thecommunity property controlled by eachspouse”). If a spouse fraudulently disposes ofcommunity property, the community estate isinjured and the community estate has a claimagainst the wrongdoing spouse, and in someinstances against the third-party recipient ofcommunity property. The claim is often called“fraud on the community.” As will bediscussed later in connection with remediesfor fraud on the community, the claim may besatisfied out of the wrongdoing spouse’s shareof the community estate, or his or her separateestate, or by money judgment against thewrongdoing spouse, or in some instancesagainst the third party who received

community property. However, the TexasSupreme Court has ruled that the remedy forfraud on the community does not reside intort. Schlueter v. Schlueter, 975 S.W.2d 584,589 (Tex. 1998) (“there is no independent tortcause of action for wrongful disposition by aspouse of community assets”). Stateddifferently, a spouse cannot recover in tort for“a deprivation of community assets asopposed to a tort committed against a personor his or her separate property.” Id. at 589.Note that Schlueter suggests that one spousemay sue the other spouse for tortious injury tothe first spouse’s personal separate property.This view was reiterated in Chu v. Hong, 249S.W.3d 441, 445 (Tex. 2008). A claim for aspouse’s fraud on the community is first rem-edied out of the property division, and then byrecovery from third parties, while traditionaltort remedies exist for personal injury andinjury to a spouse’s separate property, againstthe other spouse and against third parties. Id.at 444.

1. Reconciling Management Rights WithOther Spouse’s Ownership Rights. Indealing with improper conveyances ofcommunity property, Texas courts have had toreconcile themselves to the fact that the TexasFamily Code gives sole management andcontrol to a spouse over property that thespouse would have owned if single. Tex. Fam.Code § 3.102. The quandary was described inGivens v. Girard Life Ins. Co. of Am., 480S.W.2d 421, 427-28 (Tex. Civ. App.--Dallas1972, writ ref ‘d n.r.e.):

Reconciliation of the managerial powerof one spouse with the interest of theother spouse as equal owner is a probleminherent in the concept of managementby one spouse of marital property ownedin common. This concept has come downto us from the laws of Spain and Mexico,and is carried forward in the statutes

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above mentioned without substantialchange, except that the managerialpowers of the husband have beenrestricted and those of the wife have beenextended with respect to classes ofproperty not now before us.

Our review of the authorities reveals thatthe husband's power to make gifts ofcommunity property has always beenlimited, though the limits have neverbeen clearly defined . . . .

Over the last 40 years, Texas courts have beenmoving toward more clearly defining thelimits on a spouse’s right to managecommunity property, and a consensus hasemerged on how those limits should bedefined. Now the rule can be stated:

Although a spouse has the right todispose of community property under hisor her control, he may not dispose of hisspouse's interest in community funds ifactual or constructive fraud exists.

Greco v. Greco, 2008 WL 4056328, *5 (Tex.App.--San Antonio 2008, no pet.) (mem. op.).This statement requires an understanding ofthe parameters of actual and constructivefraud in the context of marital property rights.

2. Fairness Standard. The fiduciary dutyexisting between spouses as to themanagement and disposition of communityproperty and the other spouse’s separateproperty is typically described in terms thatdiffer from terms applied to other types offiduciary duty. However, in law suits overmisappropriation of marital property, Texascourts have adopted the approach fromgeneral fiduciary litigation that the allegedlywrong-doing spouse has the burden toestablish fairness of the transaction. Miller v.Miller, 700 S.W.2d 941, 945 (Tex. App.--

Dallas 1985, writ ref'd n.r.e.). As noted below,however, fairness is an issue for constructivefraud claims. Actual fraud claims require theinjured spouse to prove fraudulent intent.

3. Case Law. Most of the case law in thearea involves a spouse wrongfully conveyingcommunity property to a third party.However, some instances involve destructionof community property, others thedisappearance of community property, whileothers involve interspousal transfers ofseparate property. The issues have arisen upondivorce, and also upon death. In death cases,the contest is usually over the decedentdesignating someone other than the spouse asbeneficiary of a community property lifeinsurance policy.

A characteristic statement of the law is inFanning v. Fanning, 828 S.W.2d 135, 148Tex. App.--Waco 1992), aff’d in part andreversed on part on other grounds, 847S.W.2d 225 (Tex. 1993), where the issue wastransfers to the husband’s paramour:

The courts have taken a dim view towardgifts by the husband to “strangers” of themarriage, “particularly of the femalevariety.” Spruill v. Spruill, 624 S.W.2d694, 697 (Tex. App.--El Paso 1981, writdism'd). Constructive fraud is the breachof a legal or equitable duty, which thelaw declares fraudulent because itviolates a fiduciary relationship. Carnesv. Meador, 533 S.W.2d 365, 370 (Tex.Civ. App.--Dallas 1975, writ ref'd n.r.e.).Such a trust relationship exists between ahusband and wife with regard to thecommunity property controlled by onespouse. Id. Thus, a presumption ofconstructive fraud arises when a spouseunfairly disposes of the other spouse'sinterest in community property. Id. Theburden of proof is, therefore, upon the

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disposing spouse to prove the fairness ofthe disposition of the other spouse'sone-half community ownership. Id.

See Mazique v. Mazique, 742 S.W.2d 805,807-08 (Tex. App.--Houston [1st Dist.] 1987,no writ) (“a trust relationship exists betweena husband and wife as to that portion of thecommunity property controlled by themanaging spouse, . . . and a presumption offraud arises when a spouse unfairly disposesof the other spouse's one-half interest in thecommunity”). In Murff v. Murff, 615 S.W.2d696, 699 (Tex. 1981), the Supreme Courtupheld an award of a money judgment to wifeagainst her husband who “had substantialsums in savings before the separation that haddisappeared by the time of trial . . . .” SeePuntarelli v. Peterson, 405 S.W.3d 131, 139(Tex. App.--Houston [1st Dist.] 2013, no pet.)(“While waste claims often are premised onspecific transfers or gifts of communityproperty to a third party, a waste judgmentcan be sustained by evidence of communityfunds unaccounted for by the spouse incontrol of those funds”).

The validity of interspousal transfers was atissue in Bohn v. Bohn, 455 S.W.2d 401, 409(Tex. Civ. App.–Houston [1st Dist.] 1970, writdism’d).

The validity of death-related transfers were atissue in Barnett v. Barnett, 67 S.W.3d 107(Tex. 2001) (husband designated his estate asbeneficiary of community property lifeinsurance, and his mother inherited his estate,in fraud of the community, but the claim waspreempted by ERISA); In re Estate of Vackar,345 S.W.3d 588 (Tex. App.--San Antonio2011, no pet.) (Husband leaving $100,000 ininsurance proceeds to his sister was set asideas unfair); Carnes v. Meador, 533 S.W.2d365, 371 (Tex. Civ. App.–Dallas 1975, writref'd n.r.e.) (funds on deposit and a pre-death

gift); Murphy v. Metropolitan Life InsuranceCo., 498 S.W.2d 278, 282 (Tex. Civ. App.--Houston [14th Dist.] 1973, writ ref'd n.r.e.)(life insurance); and Givens v. Girard Life Ins.Co. of Am., 480 S.W.2d 421, 427-28 (Tex.Civ. App.--Dallas 1972, writ ref ‘d n.r.e.)(proceeds from life insurance policy).

4. Actual Fraud Vs. Constructive Fraud.In the context of claims for misappropriationof community property, a spouse may sueeither for intentional fraud, or constructivefraud, or both. The distinction is often blurredby courts, which creates confusion.

Actual or intentional fraud exists when aspouse transfers community property with theintent to deprive the other spouse of his or herinterest in the property. For actual fraud, theburden of proving fraudulent intent is on theclaimant, and the question of whether theconveyance was “fair” is not an issue. SeeJean v. Tyson-Jean, 118 S.W.3d 1, 9 (Tex.App.--Houston [14th Dist.] 2003, pet. denied)(distinguishing actual fraud from constructivefraud); In re Soza, 542 F.3d 1060, 1072 (5thCir. 2008) (Winer, J., concurring)(distinguishing actual from constructive fraudin Texas law). See Tex. Fam. Code § 6.707(transfers of property or debts incurringduring pendency of divorce are void withrespect to the other spouse “if the transfer wasmade or the debt incurred with the intent toinjure the rights of the other spouse”).

Constructive fraud does not depend upon thestate of mind (or scienter) of the actingspouse. Constructive fraud is constructivebecause fraudulent intent is attributed byoperation of law to the acting spouse, basedon the circumstances, without regard tohis/her actual motivation.

Some courts have mistakenly equated “fraudon the community” to constructive fraud. See

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Boaz v. Boaz, 221 S.W.3d 126, 133 (Tex.App.--Houston [1st Dist.] 2006, no pet.)(“Fraud on the community in the wrongfuldisposition of community assets is ‘[t]hebreach of a legal or equitable duty whichviolates the fiduciary relationship existingbetween spouses.’”); Knight v. Knight, 301S.W.3d 723, 731 (Tex. App.--Houston [14thDist.] 2009, no pet.) (“The breach of a legal orequitable duty which violates this fiduciaryrelationship existing between spouses isreferred to as “fraud on the community,” ajudicially created concept based on the theoryof constructive fraud”). In actuality, fraud onthe community can be either actual fraud orconstructive fraud. The Corpus Christi Courtof Appeals wrote in Nagubadi v. Nagubadi,2005 WL 327962, *3 (Tex. App.--CorpusChristi 2005, no pet.) (mem. op.):

In divorce proceedings, a spouse hasvarious remedies against another spousefor improper conduct involving thecommunity estate. See Schlueter v.Schlueter, 975 S.W.2d 584, 588 (Tex.1998). Texas recognizes the concept of“fraud on the community,” which is awrong by one spouse that the court mayconsider in its division of the estate of theparties and that may justify an unequaldivision of the property. Id. The burdenof proof to demonstrate the fairness of atransfer of property outside of thecommunity is upon the spouseresponsible for the transfer; however, thecomplaining spouse has the initial burdento show that there was a transfer ofcommunity property in the first place.FN1

In re Marriage of Notash, 118 S.W.3d868, 873 (Tex. App.–Texarkana 2003, nopet.).

Fraud on the community can becommitted through actual orconstructive fraud. Actual fraud

requires the non-managing spouse toshow that the other spousedishonestly and purposely intendedto deprive the non-managing spouseof the use and enjoyment of theassets of the joint communityproperty. See id. Constructive frauddoes not require a showing offraudulent intent and may be shownif a managing spouse unfairlydeprives the other spouse of thebenefit of the community property.See id. On appeal, the appellate courtreviews the trial court's decisionunder an abuse of discretionstandard, keeping in mind that trialcourts are allowed to consider manyfactors when making a just and rightdivision of community property,including the fraudulent wasting ofcommunity assets.

The basis for a finding of actual fraud on thecommunity is proof of fraudulent intent. Thebasis for a finding of constructive fraud on thecommunity is breach of a fiduciary duty,which requires the wrongfully-acting spouseto prove the fairness of the transaction.

Thus, the burden of proof for actual fraud ison the claimant to prove that fraudulent intentmotivated a transfer. A claim of constructivefraud places the burden of proof on thetransferring spouse to prove that a transferwas fair to the other spouse. Thus the matterto be proven, and the party who must prove it,is different for the two claims.

Fraud on the community must be disting-uished from a claim that a transfer of separateproperty from one spouse to the other shouldbe set aside on the ground of actual fraud orconstructive fraud. On the few occasions thishas arisen, the courts tend to applyconstructive fraud standards as well as

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traditional grounds such as fraud, duress, andoverreaching. See Bohn v. Bohn, 455 S.W.2d401, 409 (Tex. Civ. App.–Houston [1st Dist.]1970, writ dism’d).

5. Confusing Actual Fraud withFraudulent Misrepresentation. The case ofWest v. West, 2012 WL 403912 (Tex. App.--Houston [1st Dist.] 2012, no pet.) (memo.op.), discussed the long-established divisionof fraud into actual fraud and constructivefraud. However, citing two non-family lawcases, the Court portrayed actual fraud interms of a conventional claim for fraudulentmisrepresentation. Id. at *2. Constructivefraud, in contrast, the Court said, isestablished by showing that one spouseunfairly deprived the other spouse of thebenefit of community property. Id. at 2. Theappellate court departed from the standardview when it equated actual fraud to a claimof fraudulent inducement. In a fraud on thecommunity claim, actual fraud does notrequire proof of misrepresentations ofmaterial facts, or detrimental reliance by theother spouse. The conventional differencebetween actual and constructive fraud is madeclear in the Pattern Jury Charges, discussedbelow.

6. The Pattern Jury Charges. The dutiesbetween spouses regarding community andseparate property are described in the StateBar of Texas’ PATTERN JURY CHARGES(FAMILY & PROBATE) in a series ofinstructions and jury questions. The PatternJury Charges also cover actual fraud relatingto mishandling the other spouse’s separateproperty. While there are relatively manycases relating to fraud on the community, incontrast there is no Texas case law regardingfraud on the other spouse’s separate estate.There is reason to believe, however, that theduty one spouse owes the other spouse as tothe latter’s separate property is more exacting

than the duty regarding community property,(i.e., there is no sole management and controlover the other spouse’s separate property),and the remedies for breach of the duty almostcertainly differ in some respects.

The Pattern Jury Charges are set out below.These provisions define the duties, and alsoindicate remedies for breach of the duties.Remedies are discussed in a separate sectionlater in this Article.

The PJC (Family & Probate) Chapter relatingto fraud is set out below. The Commentsreflect that the sources for the instructions andquestion are drawn from both family lawcases and fiduciary litigation between non-spouses.

PJC 206.1 Confidence and TrustRelationship between Spouses

A relationship of confidence and trustexists between a husband and wife withregard to that portion of the communityproperty that each controls. Thisrelationship requires that the spouses usethe utmost good faith and frankness intheir dealings with each other.

Because of the nature of the spousalrelationship, conduct of a spouseaffecting the property rights of the otherspouse may be fraudulent even thoughidentical conduct would not be fraudulentas between nonspouses.

COMMENT

Source. The foregoing instructions aremodeled on Weir v. King, 166 S.W.2d187 (Tex. Civ. App.--Dallas 1942, writref’d w.o.m.); see Buckner v. Buckner,815 S.W.2d 877 (Tex. App.--Tyler 1991,n.w.h.); cf. Miller v. Miller, 700 S.W.2d

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941 (Tex. App.--Dallas 1985, writ ref’dn.r.e.).

Fiduciary relationship with regard toseparate property. The duty describedin the foregoing instruction regarding thecommunity property managed by aspouse could apply as well if one spousemanages the separate property of theother spouse.

PJC 206.2 Actual Fraud by Spouseagainst Community Estate

PJC 206.2A Actual Fraud by Spousea g a i n s t C o m m u n i t y E s t a t e -—Instruction

A spouse commits fraud if that spousetransfers community property or expendscommunity funds for the primary purposeof depriving the other spouse of the useand enjoyment of the assets involved inthe transaction. Such fraud involvesdishonesty of purpose or intent todeceive.

PJC 206.2B Actual Fraud by Spouseagainst Community Estate—Questions

QUESTION 1

Did PARTY A commit fraud with respectto the community-property rights ofPARTY B?

Answer “Yes” or “No.”

Answer: _______________

If you have answered Question 1 “Yes,”then answer Question 2. Otherwise, donot answer Question 2.

QUESTION 2

State in dollars the value, if any, bywhich the community estate of PARTY Aand PARTY B was depleted as a result ofthe fraud of PARTY A.

Answer: $_______________

COMMENT

Source. The instruction in PJC 206.2A isderived from Land v. Marshall, 426S.W.2d 841 (Tex. 1968); Archer v.Griffith, 390 S.W.2d 735 (Tex. 1965);and Horlock v. Horlock, 533 S.W.2d 52(Tex. Civ. App.—Houston [14th Dist.]1975, writ dism’d). Such fraud couldinvolve the incurring of an indebtednessrather than a direct transfer of property orexpenditure of funds. Question 2 is basedon Tex. Fam. Code § 7.009(b)(1).

Other actual fraud theories. Theforegoing submission reflects only one ofmany theories of actual fraud that mightbe presented in a case involving spouses.See, e.g., Stone v. Lawyers TitleInsurance Corp., 554 S.W.2d 183 (Tex.1977); Uniform Fraudulent Transfer Act,Tex. Bus. & Com. Code §§ 24.001–.013.The variety of possible theories is toogreat to be comprehensively covered inthis book, but the submission may bealtered to present other theories.

No independent cause of action. Aspouse has no independent cause ofaction against the other spouse for actualfraud on the community, but the courtmay consider such fraud in arriving at a“just and right” division of thecommunity estate. Schlueter v. Schlueter,975 S.W.2d 584 (Tex. 1998). The courtshall calculate the value of thereconstituted estate–the total value of thecommunity estate that would exist if

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fraud on the community had notoccurred–and divide the value of thereconstituted estate between the parties ina manner the court deems just and rightby granting any necessary legal orequitable relief. Tex. Fam. Code § 7.009.

Include this additional instruction. Theinstruction in PJC 206.1 (confidence andtrust relationship between spouses)should be given with the foregoinginstruction and questions.

PJC 206.3 Actual Fraud by Spouseagainst Separate Estate

PJC 206.3A Actual Fraud by Spouseagainst Separate Estate—Instruction

A spouse commits fraud if that spousetransfers separate property of the otherspouse or expends separate funds of theother spouse for the primary purpose ofdepriving the other spouse of the use andenjoyment of that property or those funds.Such fraud involves dishonesty ofpurpose or intent to deceive.

PJC 206.3B Actual Fraud by Spouseagainst Separate Estate—Questions

QUESTION 1

Did PARTY A commit fraud with respectto the separate-property rights of PARTYB?


Answer: _______________

If you have answered Question 1 “Yes,”then answer Question 2. Otherwise, donot answer Question 2.

QUESTION 2

What sum of money, if paid now in cash,would fairly and reasonably compensatethe separate estate of PARTY B for thedamages, if any, resulting from the fraudof PARTY A?

Answer in dollars.

Answer: $_______________

COMMENT

Source. The instruction in PJC 206.3A isderived from Land v. Marshall, 426S.W.2d 841 (Tex. 1968); Archer v.Griffith, 390 S.W.2d 735 (Tex. 1965);and Horlock v. Horlock, 533 S.W.2d 52(Tex. Civ. App.—Houston [14th Dist.]1975, writ dism’d). Such fraud couldinvolve the incurring of an indebtednessrather than a direct transfer of property orexpenditure of funds.

Other actual fraud theories. Theforegoing submission reflects only one ofmany theories of actual fraud that mightbe presented in a case involving spouses.See, e.g., Stone v. Lawyers TitleInsurance Corp., 554 S.W.2d 183 (Tex.1977); Uniform Fraudulent Transfer Act,Tex. Bus. & Com. Code §§ 24.001–.013.The variety of possible theories is toogreat to be comprehensively covered inthis book, but the submission may bealtered to present other theories.


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PJC 206.4 Constructive Fraud bySpouse against Community Estate

PJC 206.4A Constructive Fraud bySpouse against Community Estate-—Instruction

A spouse may make moderate gifts,transfers, or expenditures of communityproperty for just causes to a third party.However, a gift, transfer, or expenditureof community property that is capricious,excessive, or arbitrary is unfair to theother spouse. Factors to be considered indetermining the fairness of a gift,transfer, or expenditure are—

1. The relationship between the spousemaking the gift, transfer, or expenditureand the recipient.

2. Whether there were any specialcircumstances tending to justify the gift,transfer, or expenditure.

3. Whether the community funds used forthe gift, transfer, or expenditure werereasonable in proportion to thecommunity estate remaining.

PJC 206.4B Constructive Fraud bySpouse against Community Estate-—Questions

QUESTION 1

Was the transfer made by PARTY A toTHIRD PARTY fair?


Answer: _______________

If you have answered Question 1 “No,”then answer Question 2. Otherwise, donot answer Question 2.

QUESTION 2

State in dollars the value, if any, bywhich the community estate of PARTY Aand PARTY B was depleted as a result ofthe transfer made by PARTY A to THIRDPARTY.

Answer: $_______________

COMMENT

Source. The instruction in PJC 206.4A ismodeled on Mazique v. Mazique, 742S.W.2d 805 (Tex. App.—Houston [1stDist.] 1987, writ ref’d n.r.e.), and Carnesv. Meador, 533 S.W.2d 365 (Tex. Civ.App.—Dallas 1975, writ ref’d n.r.e.).Question 2 is based on Tex. Fam. Code §7.009(b)(1).

Other constructive fraud theories. Theforegoing submission reflects only one ofmany constructive fraud theories thatmight be presented in a case involvingspouses. The variety of possible theoriesis too great to be comprehensivelycovered in this book, but the submissionmay be altered to present other theories.

No independent cause of action forfraud against community estate. Aspouse has no independent cause ofaction against the other spouse forconstructive fraud on the communityestate, but the court may consider suchfraud in arriving at a “just and right”division of the community estate.Schlueter v. Schlueter, 975 S.W.2d 584(Tex. 1998). The court shall calculate thevalue of the reconstituted estate–the total

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value of the community estate that wouldexist if fraud on the community had notoccurred–and divide the value of thereconstituted estate between the parties ina manner the court deems just and rightby granting any necessary legal orequitable relief. Tex. Fam. Code § 7.009.


If transaction is disputed. Theinstruction as written assumes that thereis no dispute that the gift, transfer, orexpenditure of community property wasmade. If the transaction is in dispute, theforegoing submission should beconditioned on a finding that thetransaction occurred.

If separate estate was defrauded. Ifconstructive fraud by a spouse against theother spouse’s separate estate is in issue,Question 2 should be submitted asfollows:

What sum of money, if paid now in cash,would fairly and reasonably compensatethe separate estate of PARTY B for thedamages, if any, resulting from thetransfer made by PARTY A to THIRDPARTY?

Answer in dollars.

Answer: $_______________

PJC 206.5 Fraud Action against Non-spouse Party

PJC 206.5A Fraud Action against Non-spouse Party—Instruction

A person commits fraud if that personparticipates with a spouse in a transfer ofcommunity property for the primarypurpose of depriving the other spouse ofthe use and enjoyment of the assetsinvolved in the transaction. Such fraudinvolves dishonesty of purpose or intentto deceive.

PJC 206.5B Fraud Action against Non-spouse Party—Questions

QUESTION 1

Did NONSPOUSE PARTY commit fraudwith respect to the community propertyrights of PARTY B?


Answer: _______________

If you answered “Yes” to Question 1,then answer Question 2. Otherwise, donot answer Question 2.

QUESTION 2

What sum of money, if paid now in cash,would fairly and reasonably compensatethe community estate of PARTY A andPARTY B for the damages, if any,resulting from the fraud of NONSPOUSEPARTY?

Answer in dollars.

Answer: $_______________

COMMENT

Source. The instruction in PJC 206.5A isderived from Land v. Marshall, 426S.W.2d 841 (Tex. 1968); Archer v.Griffith, 390 S.W.2d 735 (Tex. 1965);

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and Horlock v. Horlock, 533 S.W.2d 52(Tex. Civ. App.--Houston [14th Dist.]1975, writ dism’d). Such fraud couldinvolve the incurring of an indebtednessrather than a direct transfer of property orexpenditure of funds; similarly, it couldinvolve separate, rather than community,property.

A judgment for fraud against a third partywas affirmed in Schlueter v. Schlueter,975 S.W.2d 584 (Tex. 1998), but thesupreme court did not reach the questionof whether the tort should be abolished.However, a third party who knowinglyparticipates in the breach of a fiduciaryduty may be liable. Osuna v. Quintana,993 S.W.2d 201 (Tex. App.—CorpusChristi 1999, n.w.h.); Connell v. Connell,889 S.W.2d 534 (Tex. App.—SanAntonio 1994, writ denied).

Other fraud theories. The foregoingsubmission reflects only one of manytheories of actual fraud that might bepresented in a case involving spouses.See, e.g., Stone v. Lawyers TitleInsurance Corp., 554 S.W.2d 183 (Tex.1977); J. Michael Putman, M.D.P.A.Money Purchase Pension Plan v.Stephenson, 805 S.W.2d 16 (Tex. App.--Dallas 1991, no writ); UniformFraudulent Transfer Act, Tex. Bus. &Com. Code §§ 24.001–.013. Manytheories of constructive fraud might alsobe presented in a case involving spouses.See, e.g., Mazique v. Mazique, 742S.W.2d 805 (Tex. App.--Houston [1stDist.] 1987, writ ref’d n.r.e.), and Carnesv. Meador, 533 S.W.2d 365 (Tex. Civ.App.--Dallas 1975, writ ref’d n.r.e.). Thevariety of possible theories is too great tobe comprehensively covered in this book,but the submission may be altered topresent other theories.

If separate estate was defrauded. In anappropriate case, the word communityshould be replaced with the wordseparate in Question 1 in PJC 206.5B,and the phrase community estate ofPARTY A and PARTY B should bereplaced with the phrase separate estateof PARTY B in Question 2.

Exemplary damages. Exemplarydamages may be available in appropriatecircumstances. See Tex. Civ. Prac. &Rem. Code ch. 41. Reference to damagessubmissions suggested for other types ofcases that are contained in other volumesof the Texas Pattern Jury Charges seriesmay be helpful in formulating anappropriate submission for the particularcase.

[End of PJC quotation]

D. AS TO PREMARITAL AGREE-MENTS AND MARITAL PROPERTYAGREEMENTS. “As a rule, a party is notbound by a contract procured by fraud.”Formosa Plastics Corp. USA v. PresidioEngineers & Contractors, Inc., 960 S.W.2d41, 46 (Tex. 1998). Fraud in inducing acontract usually involves a materialmisrepresentation of fact. ____. In the absenceof a material misrepresentation, fraud can alsobe proved by a failure to disclose, but onlywhen there is a duty to disclose, such asbetween fiduciary and principal. Ins. Co. of N.Am. v. Morris, 981 S.W.2d 667, 674 (Tex.1998) (“Generally, no duty of disclosurearises without evidence of a confidential orfiduciary relationship. Fiduciary duties ariseas a matter of law in certain formalrelationships, including attorney-client,partnership, and trustee relationships”). Whilethe Texas Family Code allows for only twodefenses against the enforcement of apremarital or postmarital agreement, Tex.

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Fam. Code §§ 4.006; 4.105 (lack ofvoluntariness and unconscionability), severalappellate opinions have intimated orsuggested that a marital-based fiduciaryobligation may impact the decision on thesetwo statutory defenses. In Marsh v. Marsh,949 S.W.2d 734, 740 n.4 (Tex. App.–Houston[14th Dist.] 1997, no writ), the court said: “inpost-marital agreements a fiduciary dutyexists that is not present in premaritalagreements between prospective spouses.” InSheshunoff v. Sheshunoff, 172 S.W.3d 686,700-01 (Tex. App.--Austin 2005, pet. denied),the court of appeals said that the existence ofa spousal fiduciary duty did not alter theburden of proof in the Family Code that theparty seeking to defeat a post-maritalagreement must prove either lack ofvoluntariness or unconscionability. However,in Izzo v. Izzo 2010 1930179 (Tex. App.–-Austin 2010, pet. denied), the court said: “it isworth noting that even if the only fiduciaryresponsibility in this case arose from thegeneral duty between spouses, such a dutywould remain relevant to our analysis of thestatutory affirmative defenses to enforcementof a post-marital property agreement.” InDaniel v. Daniel, 779 S.W.2d 110, 114 (Tex.App.--Houston [14th Dist.] 1989, no writ), thecourt said: “Texas courts have closelyscrutinized property agreements made byspouses during marriage. Because of theconfidential relationship between a husbandand a wife, courts have imposed the sameduties of good faith and fair dealing onspouses as required of partners and otherfiduciaries.” Accord, In re Marriage of Smith,115 S.W.3d 126, 135 (Tex. App.--Texarkana2003, pet. denied) (“Because of theconfidential relationship between a husbandand wife, Texas courts have closelyscrutinized property agreements made byspouses during marriage and have imposedthe same duties of good faith and fair dealing

on spouses as required of partners and otherfiduciaries”).

III. REMEDIES FOR MARITALPROPERTY FRAUD. The primary issuesinvolving remedies for fraud against maritalproperty include: (i) whether the claim lies intort, requiring proof of the recognizedelements of causes of action such as trespass,conversion, fraud, negligence, conspiracy,etc., with concomitant remedies of actual andexemplary damages; (ii) whether the claimlies in family law, with concomitant remediesof marital property reimbursement,disproportionate division of the communityestate and money judgment against the otherspouse; (iii) whether the claim lies in equity,with concomitant remedies of rescission,restitution, and the imposition of a resulting orconstructive trust; (iv) some combination ofthe above; and (v) the extent to which thirdparties are liable.

A. REMEDIES AGAINST THEWRONG-DOING SPOUSE. In Schlueter v.Schlueter, 975 S.W.2d 584 (Tex. 1998), theTexas Supreme Court held that a spouse'sclaims against the other spouse for fraud onthe community are not to be compensated astort claims, but rather are to be taken intoaccount in the division of the communityestate. The Court held:

Because a wronged spouse has anadequate remedy for fraud on thecommunity through the "just and right"property division upon divorce, we holdthat there is no independent tort cause ofaction between spouses for damages tothe community estate.

Id. at 585. The Supreme Court went on to saythat:

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[A] claim of fraud on the communityis a means to an end, either to recoverspecific property wrongfully conveyed, ...or ... to obtain a greater share of thecommunity estate upon divorce, in orderto compensate the wronged spouse for hisor her lost interest in the communityestate.

Id. at 588. The Supreme Court distinguishedcommunity property fraud claims from tortclaims, saying:

Just as in the present case, Belzinvolved alleged intentional deprivationof the wife's share of community assets.Nevertheless, despite the intentionalnature of the claim, because the fraudwas perpetrated on the community, thecourt correctly distinguished it from casesinvolving personal injuries for whichrecovery belongs to the separate estate.

Id. at 588.

As to punitive damages, the Court said:

Because of our holding in the presentcase that there is no independent tortcause of action for wrongful dispositionby a spouse of community assets, thewronged spouse may not recover punitivedamages from the other spouse.

Id. at 589.

In Schlueter, the Supreme Court didn't reachthe question of whether a separate andindependent tort claim exists againstthird-parties who act in concert with a spousein committing fraud on the community. Id. at590. However, the Fort Worth Court ofAppeals expressly ruled that a spouse cannotsue third parties in tort for fraud on thecommunity. In Harper v. Harper, 8 S.W.3d

782 (Tex. App.–Fort Worth 2000, pet.denied), the husband (Dan) investedcommunity money in real estate, but he tooktitle in the name of his girlfriend (Ruth).When wife died, her heir filed suit againsthusband and the girlfriend for breach offiduciary duty, fraud, and conspiracy tocommit fraud on the community estate. Thejury found a breach of fiduciary duty by fraud,as well as conspiracy, and awarded actual andpunitive damages. The Fort Worth Court ofAppeals reversed the judgment for damages. Id. at 784. The Court said:

. . . [F]raud on the community existsoutside the realm of tort law and cannotbe brought as an independent cause ofaction. . . . Therefore, punitive damagesbased on this cause of action are also notrecoverable.* * *

Because there is no independent tortcause of action for fraud on thecommunity, any damages against Dan orRuth on that basis were erroneous.

Id. at 784. A similar approach was taken in Inre Estate of Fells, 2013 WL 5777958, *7(Tex. App.--Beaumont 2013, no pet.) (memo.opinion), where the appellate court said:

For breach of a fiduciary duty resulting indeprivation of one-half of the communityassets, a wronged spouse has the sametwo remedies against the estate as does awronged spouse in a divorce action. SeeCarnes v. Meador, 533 S.W.2d 365,370–71 (Tex.Civ.App.-Dallas 1975, writref'd n.r.e.). While the spouse has noindependent cause of action to recoverseparate damages, he can (1) rescind thetransfer of assets, or (2) obtain a damageassessment limited to the value ofproperty transferred. See Chu v. Hong,249 S.W.3d 441, 446 (Tex.2008) (citing

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Schlueter v. Schlueter, 975 S.W.2d 584,588 (Tex.1998)). If the share ofremaining community funds in the estateis insufficient, he may recover theproperty from the funds in the donee'shands in appropriate circumstances. SeeCarnes, 533 S.W .2d at 371.

Perhaps the Supreme Court needs to considerthe question of whether a fraud on thecommunity claim is treated the same on deathas on divorce. The rationale underlyingSchlueter, was that fraud on the communitycould be rectified in the just and right divisionof marital property in a divorce. When themarriage is dissolved by death and notdivorce, the community estate is automaticallydivided 50-50. There is no “just and right”division when the marriage is dissolved bydeath. So perhaps the Schlueter limitationshould not apply.

The more recent Supreme Court case of Chuv. Hong, 249 S.W.3d 441 (Tex. 2008),involved a claim against a third party forparticipating in fraud on the community, andthus did not expressly deal with the remedyagainst the wrongdoing spouse. In discussingits reasoning regarding the third party,however, the Supreme Court reiterated what ithad ruled in Schlueter, and indicated that thenormal remedy for fraud on the community isan adjustment in the property division. Theadjustment could be a disproportionatedivision of the remaining community estate,or a reimbursement claim against thewrongdoing spouse’s separate estate whichbrings wealth back into the community estateto be divided in the divorce.

B. THE “RECONSTITUTED ESTATE.”In 2011, the Legislature added Section 7.009to the Family Code, prescribing how a claimfor actual or constructive fraud on thecommunity should be handled. If the

fact-finder finds that a spouse has committedactual or constructive fraud on thecommunity, the trial court must calculate thedepletion of the community estate due to thefraud and add that back in, so as to create a"reconstituted estate." Tex. Fam. Code §7.009(b)(1). The reconstituted estate is to bedivided in a manner that is just and right. Id.at § 7.009(b)(2). The court may grant thewronged spouse "an appropriate share of thecommunity estate remaining after the actual orconstructive fraud," or award a moneyjudgment to the wronged spouse, or both. Id.at § 7.009(c).

C. REMEDIES AGAINST THIRDPARTIES. PJC 206.5 quoted above pertainsto claims against third parties for participatingin fraud on the community. The PJC uses theterm “damages” as the measure of the remedyagainst the third party. The case of Chu v.Hong, however, invites reconsideration aboutwhether the remedies against third partiesshould be categorized as (i) damages (with orwithout exemplary damages), (ii) restitution,(iii) constructive trust, (iv) resulting trust, (v)disgorgement, or (vi) some other category.

1. For Fraud Involving CommunityProperty. One might think that the languagein Schlueter and Chu v. Hong suggests that“damages” is not the appropriate label for theremedy against third parties for participatingin fraud on the community, and it could beargued further that exemplary damages aretherefore not available. However, Chu v.Hong pretty clearly indicates that thepreference for compensating the innocentspouse through the property division does notpreclude recovery against third parties wherea third party received the community propertyand when the injured spouse cannot be madewhole through the property division.Chu v.Hong, 249 S.W.3d 444-45.The argument thatthe remedy against third parties for

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participating in fraud on the community is notdamages (and therefore must be a form ofequitable recovery) is clouded by the holdingin Chu v. Hong, which says: “We hold thecourts below erred in allowing one spouse torecover damages without first recovering thecommunity property from the spouse whotook it.” Id. at 443. This language suggeststhat a damage recovery against a third party isallowed if the harm cannot be rectifiedthrough the property division. The SupremeCourt went on to say:

[I]f one spouse can enlarge thecommunity estate by suing the other'srelatives, many acrimonious divorcecases will undoubtedly become more so.That may be necessary when relativeshave community property in their hands;but when they do not, little is gained byadding third parties if the property can berestored through orders between theformer spouses. . . . Schlueter requiresHong to seek restitution from her ownhusband before seeking it from someoneelse's lawyer.

Id. at 446. The foregoing language indicatesthat a third party can be liable in some way(rescission? damages? constructive trust?) ifa remedy against the wrongdoing spousewould not undo the harm. In saying this theSupreme Court affirms the principleestablished in Carnes v. Meador, 533 S.W.2d365, 371 (Tex. Civ. App.–Dallas 1975, writref’d n.r.e.), which said that to rectify fraud onthe community, the aggrieved spouse mustfirst go against property of the disposingspouse and, if that is unavailing, then againstthe third-party-recipient.

The Texas Supreme Court recognized that theimposition of a constructive trust as a remedyavailable to an aggrieved spouse for fraud onthe community, in Barnett v. Barnett, 67

S.W.3d 107 (Tex. 2001). There, a husbanddeleted his wife as beneficiary of acommunity property life insurance policy andinstead designated his mother as beneficiary. When the husband died, the policy proceedswere paid to the mother. The widow sued themother for fraud on the community. TheSupreme Court said this about the remedyavailable to the wife:

Under Texas law, Marleen Barnett hasa cause of action for fraud on thecommunity. Neither Dora nor any of theother defendants challenged the court ofappeals' holding that a fraud on thecommunity occurred in this case.Marleen's state-law remedy is to imposea constructive trust on one half of theproceeds of the Prudential policy thatinsured the life of her estranged husband.

The recovery was limited to one-half of thepolicy proceeds because, upon death of aspouse, one half of the community estatebelongs to each spouse and the husband wasfree to give away his one-half interest. Osunav. Quintana, 993 S.W.2d 201, 208-09 (Tex.App.–Corpus Christi 1999, no pet); Jackson v.Smith, 703 S.W.2d 791, 796 (Tex. App.-–Dallas 1985, no writ).

In Barnett there was no divorce and no abilityof a court to order a disproportionate divisionof the community estate. In a divorce thecommunity estate does not have to be divided50/50. Therefore the claim for fraud on thecommunity asserted in a divorce proceeding isfor 100% of the transfer. Osuna, 993 S.W.2dat 209. This is why the Pattern Jury Chargesask the jury to assess 100% of the injury to thecommunity estate. The trial court decides howthis recovery is split as part of the propertydivision.

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The issue of whether the label “damages” isappropriate to use against third parties, andthe issue of whether the remedies against thirdparties are limited to equitable claims, impactthe questions of (i) whether exemplarydamages are available; and (ii) whether anequity-based claim (such as constructive trustand resulting trust) against a third party isextinguished if the wrongfully-transferredcommunity property cannot be traced toexisting assets in the hands of third parties.

In the broad history of equity, particularly inBritish courts up to the current time, theequitable remedy of constructive trust isavailable only if the misappropriated propertyis still in the hands of the third party at thetime suit is brought against him. According tothat view, the remedy of constructive trust isextinguished if the third party spends orconveys away the wrongfully-received fundsor assets. In the Texas court system, wherelaw and equity courts are combined, it can beargued that, in instances when a third partywho has wrongfully received communityproperty no longer has the property,nonetheless the third party should be made toanswer to the victim by a money judgment fordamages. This line of thinking has not beenexplicitly developed in the Texas case law atthis point but it is implicit in some of thedecisions and opinions in the area, and thepoint should be pressed by zealous advocates.

2. For Fraud Involving SeparateProperty. The reasoning of Schlueter andChu revolves around the availability of aremedy expressed through the power of thecourt to award reimbursement and adisproportionate division of the communityestate. The separate estates of the spouses arenot subject to division in a divorce.Eggemeyer v. Eggemeyer, 554 S.W.2d 137,139-40 (Tex. 1977). While a court couldaward reimbursement against one spouse in

favor of the other spouse’s separate estate toremedy harm to the innocent spouse’sseparate estate, it can also be argued that onespouse’s wrong against the other spouse’sseparate estate is more akin to a propertywrong between strangers, and that the normalremedies in tort and equity should also beavailable to the aggrieved spouse, in additionto remedies available through the propertydivision.

3. Resulting and Constructive Trusts. Acourt exercising equity powers can declare aresulting trust or impose a constructive truston property in the hands of a third party.

a. Resulting Trust. A resulting trust arisesby operation of law when title is conveyed toone party while consideration is provided byanother. Cohrs v. Scott, 338 S.W.2d 127, 130(Tex. 1960). Generally, a resulting trust canarise only when title passes, not at a latertime. Id. at 130. This rule, often stated in thecase law, does not apply between spouses. Between spouses, the inception of title ruleapplies, so that a resulting trust can arise onlyat the inception of title, even if title passes ata later time. A resulting trust also arises whena conveyance is made to a trustee pursuant toan express trust, which fails for any reason. Nolana Development Ass'n v. Corsi, 682S.W.2d 246, 250 (Tex. 1984). The purpose ofa resulting trust is to prevent unjustenrichment. Id. at 250. Ordinarily, theproponent of a resulting trust has the burdenof overcoming the presumption of ownershiparising from title by "clear, satisfactory andconvincing" proof of the facts giving rise tothe resulting trust, Stone v. Parker, 446S.W.2d 734, 736 (Tex. Civ. App.--Houston[14th Dist.] 1969, writ ref'd n.r.e.). However,when marital property is in issue, thepresumption of community prevails over thepresumption of ownership arising from title,so proof that property is possessed by a

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spouse during marriage is sufficient toestablish, prima facie, a resulting trust in favorof the community even where title is held inthe name of one spouse alone. See Tex. Fam.Code § 3.003.

b. Constructive Trust. A "constructivetrust" is not really a trust; it is an equitableremedy. The court imposes a "constructivetrust" when an equitable title or interest oughtto be, as a matter of equity, recognized insomeone other than the taker or holder oflegal title. The Supreme Court described thedoctrine as follows:

A constructive trust does not, like anexpress trust, arise because of amanifestation of intention to create it. Itis imposed by law because the personholding the title to property would profitby a wrong or would be unjustly enrichedif he were permitted to keep the property.

Omohundro v. Matthews, 341 S.W.2d 401,405 (Tex. 1960). Accord, Mills v. Gray, 210S.W.2d 985, 987 (1948). (“a trust intentionalin fact is an express trust; one intentional inlaw is a resulting trust; and one imposedirrespective of intention is a constructivetrust”).

c. Resulting and Constructive TrustsDistinguished. In Mills v. Gray, 210 S.W.2d985, 987-88 (1948), the Texas Supreme Courtdrew the following distinction between aresulting trust and a constructive trust:

Resulting and constructive trusts aredistinguishable, but there is someconfusion between them. From apractical viewpoint, a resulting trustinvolves primarily the operation of theequitable doctrine of consideration - thedoctrine that valuable consideration andnot legal title determines the equitable

title or interest resulting from atransaction - whereas a constructive trustgenerally involves primarily a presenceof fraud, in view of which equitable titleor interest should be recognized in someperson other than the taker or holder ofthe legal title. [Citing 54 Am. Jur. 22, §5.]

d. Examples. In Osuna v. Quintana, 993S.W.2d 201 (Tex. App.–Corpus Christi 1999,no pet.), the husband started a secondbigamous family and bought a house and carsfor their use. The trial court imposed aresulting trust for the benefit of thecommunity estate of the first marriage, on theproceeds from foreclosure of the house andthe cars. The appellate court affirmed, basedon the doctrine of “purchase money resultingtrust.” Id. at 210. The trial court also awardedthe wife a judgment for $460,000 against thehusband and his second wife, jointly andseverally, representing money the husbandhad given the second wife. That judgment wasaffirmed, after a partial reduction due to apartial failure of proof. Id. at 204. In Andrewsv. Andrews, 677 S.W.2d 171 (Tex.App.–Austin 1984, no writ), a couple hadbeen living together for seven years and wereengaged to be married when they decided tobuy a house together. The male fiancésurreptitiously caused the title to the house tobe taken in his name alone. The appellatecourt said that this behavior “was a deliberateviolation of their confidential relationship,which was likewise a fiduciary relationship.”Id. at 173. The trial court therefore imposed aconstructive trust and awarded half the valueof the house to the wife. This was approvedby the court of appeals.

IV. OTHER SOURCES OF FIDUCIARYDUTIES BETWEEN SPOUSES.

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1. Power of Attorney. It is not unusual fora spouse to hold a power of attorney for theother spouse. The agent who holds a power ofattorney for a principal owes a fiduciary dutyto the principal. Sims v. Sims 2003 WL22025907 (Tex. App.–El Paso 2003, no pet.)(unpublished) (wife breached fiduciary dutyby misusing power of attorney from husband);Miller v. Miller, 2002 WL 31410965 (Tex.App.–Dallas 2002, pet. denied) (unpublished)(husband who had power of attorney tomanage wife’s separate property owedfiduciary duty to wife as to that separateproperty).

2. Attorney-Client. Where one spouse is anattorney and the other is not, it may happenthat the attorney-spouse perform legalservices or give legal advice to the non-attorney spouse. Establishing an attorney-client relationship in this way carries alongwith it the fiduciary duties owed by a lawyerto his/her client. Izzo v. Izzo, 2010 WL1930179, *7 (Tex. App.–Austin 2010, pet.denied) (memorandum opinion) (“. . . there issufficient evidence to support the trial court’sfinding of fact that John became Sharon’sattorney, investment advisor, and custodian ofher assets prior to the parties’ marriage. As aresult, we also agree with the trial court’sconclusion that John owed Sharon a fiduciaryduty”); Bohn v. Bohn, 455 S.W.2d 401, 409(Tex. Civ. App.–Houston [1st Dist.] 1970, writdism’d) (lawyer/husband’s failure to suggestthat wife seek independent legal adviceregarding gift to husband raised inference ofunfair conduct); Vickery v. Vickery, 1997 WL751995, *14 (Tex. App.–Houston [1st Dist.]1997, writ denied) (unpublished opinion onmotion for rehearing) (“A husband and wifeowe each other special fiduciary duties. . . .Additionally, we think it is significant thatGlenn is an attorney. To the extent that Glennwas advising Helen of the legal aspects of atransaction by which he would benefit, Glenn

assumed the ‘high duty of an attorney to hisclient.’”).

3. Controlling to Non-Controlling Owner.The duties owed by controlling owners ofbusiness to minority owners of businesses arecomplex, and can vary depending upon thetype of entity. It has long been recognized that“[c]orporation officers and directors arefiduciaries, and the consequences of their actsas such are determinable under the facts ineach case.” International Bankers Life Ins.Co. v. Holloway, 368 S.W.2d 567, 576 (Tex.1963). The duty is owed to the entityhowever, and not other shareholders, except incertain circumstances. It has been stated that–

A corporate officer owes a fiduciary dutyto the shareholders collectively, i.e. thecorporation, but he does not occupy afiduciary relationship with an individualshareholder, unless some contract orspecial relationship exists between themin addition to the corporate relationship.

Faour v. Faour, 789 S.W.2d 620, 621-22(Tex. App.--Texarkana 1990, writ denied).For another shareholder to sue directly, s/hemust “prove the existence of a relationship . .. other than the business relationship.” Hsu v.U.S. Small Business Admin., 2000 WL 31867,*3 (Tex. App.--San Antonio 2000, no pet.)(unpublished). In Miller v. Miller, 700 S.W.2d941, 945-46 (Tex. App.–Dallas 1985, writref’d n.r.e.), this other relationship was thespousal relationship.

4. Partners. It is not uncommon to find thatspouses are partners with each other ininvestment partnerships or in family limitedpartnerships. Notwithstanding many appellateopinions characterizing the duty betweenpartners as a fiduciary duty, the TexasBusiness Organizations Code does not definethe duty owed by partners to each other as a

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fiduciary duty. Tex. Bus. Org. Code§ 152.204(d) (“A partner, in the partner’scapacity as partner, is not a trustee and is notheld to the standards of a trustee”). The dutiesthat partners owe each other are described inmore specific terms in Tex. Bus. Org. Code§ 152.203 (use partnership property only forpartnership purposes), § 152.204 (duty ofloyalty and duty of care and to exercisepowers in good faith and in a manner the actorbelieves to be in the best interest of thepartnership), § 152.205 (accounting forprofits, refraining from acting on behalf ofsomeone with an adverse interest, andrefraining from competing), § 152.206 (dutyof care is care of an ordinarily prudent personin similar circumstances), § 152.207 (dutiesapply during winding up). A partner can besued by the partnership or other partners forbreaching the partnership agreement. Id.§ 152.210. A general partner in a limitedpartnership owes these same duties to limitedpartners. Id. § 153.152(a)(1)(2).

5. Relationship of Trust and Confidence.Texas case law suggests that a confidentialrelationship can arise from the facts andcircumstances of a particular situation, evenwhere a fiduciary relationship does not existby operation of law. See Izzo v. Izzo, 2010 WL1930179, *7 (Tex. App.–Austin 2010, pet.denied) (John became Sharon’s attorney,investment advisor, and custodian of herassets prior to marriage, and thus owed herfiduciary duties that existed independentlyfrom the fiduciary duty of a spouse). To provea confidential relationship, the injured partymust show a high degree of trust, influence, orconfidence was placed in the wrongdoer.Crim Truck and Tractor Co. v. Navistar Int’lTransp. Corp., 823 S.W.2d 591, 594 (Tex.1992). Once a confidential relationship isestablished, then duties akin to fiduciaryduties arise, and the principles of fiduciarylaw come into play. A spouse may be able to

invoke broader fiduciary principles than themarriage relationship entails, by showing theexistence of a relationship of trust andconfidence. However, if the injury is sufferedby the community estate, Schlueter and Chu v.Hong indicate that the recovery is to thecommunity estate, and the remedy is to restoreto the community estate what was lost, but notto add to the community estate with morethan was lost.

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