An issue that is commonplace in a divorce case is when one party is requesting that their estate be reimbursed for payments made to community liabilities. A major question asks by the parties is “what is reimbursement” and “how much can I get reimbursed”?
What does a claim for reimbursement include?
Reimbursement includes a) payment by one marital estate of the unsecured liabilities of another marital estate; b) inadequate compensation for the time, toil, talent, and effort of a spouse by a business entity under the control and direction of that spouse; c) the reduction of the principal amount of a debt secured by a lien on property owned before marriage, to the extent the debt existed at the time of marriage; d) the reduction of the principal amount of a debt secured by a lien on property received by a spouse by gift, devise, or descent during a marriage, to the extent the debt existed at the time the property was received.
What about the reduction of the principal amount of that part of a debt, including a home equity loan?
Yes, reimbursement for the reduction of the principal amount of a debt including a home equity loan provided that incurred during a marriage; secured by a lien on property; and incurred for the acquisition of, or for capital improvements to, property.
Additionally, reimbursement claims is allowed for the reduction of the principal amount of that part of a debt incurred during a marriage; secured by a lien on property owned by a spouse; for which the creditor agreed to look for repayment solely to the separate marital estate of the spouse on whose property the lien attached; and incurred for the acquisition of, or for capital improvements to, property.
What about the refinancing of the principal amount to the extent the refinancing reduces that principal amount in a manner described by capital improvements to property other than by incurring debt; and the reduction by the community property estate of an unsecured debt incurred by the separate estate of one of the spouses.
The court shall resolve a claim for reimbursement by using equitable principles, including the principle that claims for reimbursement may be offset against each other if the court determines it to be appropriate.
However, benefits for the use and enjoyment of property may be offset against a claim for reimbursement for expenditures to benefit a marital estate, except that the separate estate of a spouse may not claim an offset for use and enjoyment of a primary or secondary residence owned wholly or partly by the separate estate against contributions made by the community estate to the separate estate.
Reimbursement for funds expended by a marital estate for improvements to another marital estate shall be measured by the enhancement in value to the benefited marital estate.
The party seeking an offset to a claim for reimbursement has the burden of proof with respect to the offset.
Are there additional categories of reimbursement claims?
The Texas Family Code expressly precludes a separate property estate from asserting an offset for the use and enjoyment of property against a claim for reimbursement brought by the community estate with respect to a primary or secondary residence. In other words, if a spouse purchases a residence before marriage and, during the marriage, the spouses live in that residence and reduce the indebtedness against that residence, the use and enjoyment of the separate-property residence cannot be asserted as an offset to a claim by the community estate for reimbursement of, for example, monies used to reduce the mortgage indebtedness.
In the case, Vallone v. Vallone, 644 S.W.2d 455 (Tex. 1982), when separate property is combined with community time, talent, and labor, and both the community and the separate estate make claim upon the incremental increase in value, the courts are confronted with conflicting principles of marital property law. It is fundamental that any property or rights acquired by one of the spouses after marriage by toil, talent, industry, or other productive faculty belongs to the community estate. Nevertheless, the law contemplates that a spouse may expend a reasonable amount of talent or labor in the management and preservation of the spouse’s separate estate without impressing a community character upon that estate.
In the case, In re Marriage of McCoy & Els, 488 S.W.3d 430 (Tex. App.—Houston [14th Dist.] 2016, no pet.), the Court found that in order to support a reimbursement claim, evidence must establish the enhanced value that resulted from the related capital improvements themselves.
In Moroch v. Collins, a marital property agreement that waives and releases each spouse’s present and future claims for reimbursement against the other’s separate estate does not necessarily waive and release reimbursement claims against the community estate.
Reimbursement claims in any divorce action can become complicated and require the party to invest time and money to trace and characterize funds involved in the claim. It is important to evaluate any reimbursement claim upon filing for divorce so that proper discovery of documents is done to lay the foundation for a reimbursement claim.