A February 2025 opinion from the Houston Fourteenth Court of Appeals upheld a constructive fraud claim involving the husband’s large cash withdrawal and two payments he made to his mother after the wife moved out of the house. The opinion also illustrates a common method of applying constructive fraud to the division of community property.
The trial court in Key v. Key, No. 14-23-00726-CV (Tex. App. – Houston [14th Dist.] 2/6/2025)(mem. op.) found that the husband had committed a fraud on the community estate in the amount of $171,308.50-which is the sum of a large cash withdrawal and the two checks paid by husband to his mother. The trial court did not order the husband to pay any damages for that fraud. Instead, the trial court treated that fraud amount as an illusory asset in the reconstituted community estate. In its just and right division of that illusory asset, the trial court awarded the wife the $50,000 that she had already received back from the husband’s s mother, while awarding the husband the remaining balance of $121,308.50.
The property division spreadsheet incorporated into the trial court’s ruling reconstituted the community estate by listing the $171,308.50 as an asset (even though it was spent or gone) and put that asset into the property division column of the spouse who committed the constructive fraud. This would mathematically have the effect of awarding the wife more of a real, existing asset to equal-out the illusory asset awarded to the husband,
As to the constructive fraud the husband committed, the opinion in Key v. Key also states:
The trial court stated in both its decree and its findings of fact and conclusions of law that the fraud amount was being divided as part of Stephanie’s “waste claim”-and waste is simply another term for constructive fraud. See Boothe v. Boothe, 681 S.W.3d 916, 924 (Tex. App.-Houston [14th Dist.] 2023, no pet.) (“Waste, or constructive fraud, is one form of fraud on the community . . . .”).
Gregory argues next that the evidence is legally and factually insufficient to support the trial court‘s finding of fraud.
Fraud is presumed whenever one spouse disposes of the other spouse’s one-half interest in community property without that other spouse’s knowledge or consent. See Orzechowski v. Orzechowska, No. 14-20-00055-CV, 2021 WL 3202679, at *4 (Tex. App.-Houston [14th Dist.] July 29, 2021, no pet.) (mem. op.). This presumption can arise not only by evidence of specific transfers or gifts of community assets outside of the community, but also by evidence that community funds are unaccounted for by the spouse in control of those funds. Id. Once the presumption of fraud arises, the burden shifts to the disposing spouse to prove the fairness of the disposition. Id.
Here, Gregory admitted that he transferred community assets outside of the community. He wrote two checks to his mother, drawing on accounts that he jointly owned with Stephanie. And he wrote the checks independently, without Stephanie’s knowledge or consent, as she had already left the marital home. Those transfers gave rise to a presumption of fraud, which meant that Gregory assumed the burden of proving the fairness of their disposition.
The trial court was free to determine that Gregory did not satisfy that burden. Gregory admitted that he did not owe any debts to his mother. Gregory stated he made the withdrawals because Stephanie left without notice. When he came home from work, “half the house was gone, her cars [sic] was gone, she was gone.” Gregory continued, “So at this point, you know, I don’t know what’s going on.” The trial court could have reasonably concluded from this testimony that Gregory wrote the checks to his mother because he was concerned that Stephanie might otherwise deplete their joint accounts, just as she had left with their other property.
The cash withdrawal was also made from a joint account. Gregory testified that he spent this cash on “lawyer fees, bills, credit cards, [and] household items,” but he did not corroborate this testimony with any documentation. Absent corroborating evidence, the trial court was free to reject Gregory’s explanation. We therefore conclude that the evidence was legally and factually sufficient to support the trial court‘s finding of fraud. See Cantu v. Cantu, 556 S.W.3d 420, 431 (Tex. App.-Houston [14th Dist.] 2018, no pet.) ( that the evidence was sufficient to support a finding that the husband had committed a fraud on the community by making cash gifts to his paramours, and recognizing that the trial court was not required to credit the husband’s bare testimony that the cash gifts were actually loans).
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