Types of Fraud on the Community Estate And What You Can Do

Has Your Spouse Financially Cheated You?

It is not unheard of a spouse being inclined to make transactions that favor themselves and harm their spouse in the midst of a divorce. For example, one might choose to pay off old debts, transfer money to a relative, or spend community funds on a paramour. If this has happened to you, there are several ways an experienced lawyer can attempt to recover those funds. Texas law is designed to correct any depletion of community assets arising from the wrongful acts of a spouse.

Types of Fraud on the Community Estate

There are several ways that a spouse can defraud the community estate. They are categorized as follows:

1) Actual Fraud Committed by a Spouse Against the Community Estate

A spouse commits fraud if that spouse transfers community property or spends community funds for the primary purpose of depriving the other spouse of the use and enjoyment of the assets involved in that transaction. In other words, a spouse commits fraud if:

• They improperly transfer community property; OR,
• They spend community funds for the main purpose of depriving the other spouse from using and/or enjoying the assets involved.

In addition to the foregoing factors, actual fraud requires that the offending spouse was dishonest, had ill motives, or had the intent to deceive the other spouse.

2) Constructive Fraud Committed by a Spouse Against the Community Estate

A spouse may make moderate gifts, transfers, or expenditures of community property for a good reason to another person (e.g. third party). However, a gift, transfer, or expenditure of community property that is inconsistent with the desires of, is excessive, or that is arbitrary, is unfair to the other spouse. This also includes the actions of one spouse which unfairly disposes of the other spouse’s interest in community property or unfairly incurring community indebtedness without the other spouse’s knowledge or consent When determining the fairness of a gift, transfer, or expenditure a court may consider the following factors:

1. The relationship between the spouse making the gift, transfer, or expenditure and the person receiving the gift. 
2. Whether there were any special circumstances that could justify the gift, transfer, or expenditure.
3. Whether community funds used for the gift, transfer, or expenditure were reasonable in proportion to the community estate remaining.

3) Breach of Fiduciary Duty to a Spouse

Under Texas law, spouses have fiduciary duties in the management, control, and disposition of community property. A breach of fiduciary duty occurs when one spouse exercises the power of his special community property or over the community estate in an excessive or unreasonable manner. A spouse has a right to dispose of community property but only if reasonable and in the absence of fraud.

The “Reconstituted Estate”

When a court discovers mishandling of community funds as outlined above, they will attempt to reverse damage caused by the offending spouse.  What is a “reconstituted estate”? This term refers to the hypothetical value of a community estate absent actual or constructive fraud. If the Court determines that a spouse has committed actual or constructive fraud on the community estate, the court must:

1. Calculate the value by which the community estate was depleted as a result of the fraud and calculate the amount of the reconstituted estate; and
2. Divide the value of the reconstituted estate between the parties in a manner the court deems just and right.

What Should You Do?

If you suspect that your spouse has committed fraud, you should contact an experienced family law attorney. With the right team behind you, you can protect yourself and your property.