A July 2025 case from the Houston Fourteenth Court of Appeals provides a great summary of constructive fraud in a divorce and includes useful examples of shady financial actions by a spouse that create a presumption of constructive fraud. This case even holds that the husband taking the children of the marriage on trips without the wife was constructive fraud!
Wadhwa v. Wadhwa, No. 14-23-00521-CV (Tex. App. – Houston [14th Dist.] 7/22/2025)(mem. op.) includes these useful lessons on constructive fraud in a divorce:
- Constructive-fraud claims are based on the fiduciary duties that exist between spouses and are sometimes labeled as claims for breach of fiduciary duty or waste. Unlike actual fraud, constructive fraud does not require the intent to deceive. Instead, a presumption of constructive fraud arises when a claimant spouse shows that the other spouse has disposed of community property without the claimant spouse’s knowledge or consent. Once the presumption arises, the burden of proof shifts to the disposing spouse to rebut the presumption by showing that the disposal was fair. (citations omitted).
- When analyzing whether the disposal of community property is “fair,” the court can consider (1) the size of the property in relation to the total size of the community estate; (2) the adequacy of the remaining estate; and (3) the relationship of the parties involved in the transaction, or in the case of a gift, the relationship of the donor spouse to the donee.
- Upon determining that a spouse has committed fraud on the community, the court “shall (1) calculate the value by which the community estate was depleted as a result of the fraud on the community 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.” Tex. Fam Code Ann. § 7.009(b).
- [Husband owned 90% of International Lodging, of which 40% was community property] Additionally, it is further undisputed that: [Husband] transferred eighty-seven and-one-half ownership interest in International Lodging to [Husband’s father] in 2015, during the marriage, for nothing in return and without [Wife’s] s knowledge and consent; the La Quinta Inn hotel was sold for $3,100,000.00 in 2022; [Husband’s father] received $675,000.00 from the sale of the La Quinta Inn hotel owned by International Lodging; and International Lodging was dissolved after the sale of the hotel. Therefore, we conclude that the evidence raised a presumption of constructive fraud as a matter of law as to Husband’s s transfer of the forty percent ownership interest in International Lodging acquired during the marriage, and the burden shifted to [Husband] to show how the transaction was fair. . . . . Here, it is undisputed that [Husband’s father] directly received $675,000.00 from the sale of the hotel owned by International Lodging and that [Husband’s father] owned eighty- seven and one-half percent of International Lodging at the time of the sale. Accordingly, the value of the marital estate’s forty-percent interest in International Lodging was at least $308,542.50, of which $154,271.25 would belong to [Wife] under the trial court‘s division of the community estate. We cannot conclude that [Husband] established the transaction was fair because this transaction greatly depleted the marital estate and benefitted [Husband’s] father.
- Husband claimed his 7% ownership of another company was his separate property but he provided no proof other than his testimony, so it was presumed to be community property. He sold his interest during the marriage and received $225,000 and soon after that deposit he wrote a check for $215,000. Wife testified all of this was done without her knowledge or consent. Husband testified that he believed he wrote the check to his mother to pay her back for various loans, but he provided no documentation and his mother did not testify. The Court of Appeals held: “Because [Husband’s] s broad assertions are unsupported and uncorroborated, because he signed the check over to his mother and testified it largely benefitted his mother and father, and because [Husband’s] s position at trial was that the marital estate had more liabilities than assets, we cannot conclude that [Husband] demonstrated that this transaction totaling $215,000.00 was fair to the community estate. We conclude that [Husband] failed to rebut the presumption of constructive fraud as to this expenditure of the community estate’s funds, and the trial court erred in dividing the marital estate without considering this constructive fraud by [Husband].” (citations omitted).
- The surprising part of this opinion is that the Court of Appeals found that the Husband taking his children on trips was constructive fraud. Here is exactly what the opinion says:
[Wife] testified that, during the divorce proceedings, [Husband] took their children on a trip to Telluride, Colorado; “a really fancy resort” for skiing in Spring of 2022; numerous flights to Austin; a trip to Universal Studios in Florida; and a trip to New Orleans. [Wife] testified she was not part of these trips and did not know where the money for the trips came from. [Wife] further testified that, during the marriage, the family “would occasionally go to Destin, Florida, and every three years we may go to a lower-end ski resort, but it was minimal.” Thus, there was no evidence that [Wife] consented to these trips, and we conclude that [Wife] raised a presumption of constructive fraud that shifted the burden to [Husband] to show how these expenditures were fair. [Husband] does not dispute that he and the children took these trips, and he presented no evidence or testimony at trial-nor does he present any argument on appeal-in support of a finding that these expenditures were fair or that they were funded by [Husband’s] s separate property. Additionally, [Husband] did not present any evidence concerning the costs of these trips, but his sworn inventory, which was admitted into evidence, provided that the marital estate was in the negative by approximately $50,000.00. [Wife’s] financial information statement was also admitted into evidence, and it provides that [Wife] works as a hairstylist and earns a modest $2,500.00 a month and has considerable debt and expenses. Even though these expenditures were made for trips with the parties‘ children, we cannot conclude that [Husband] established that they were fair to the marital estate because [Wife] was omitted from the trips and the expenditures depleted the marital estate even more when it already was in a significant amount of debt. We conclude that [Husband] failed to rebut the presumption of constructive fraud as to his expenditures of the community estate’s funds to finance trips with the children during the divorce proceedings, and the trial court erred in dividing the marital estate without considering this constructive fraud by [Husband]. (citations omitted).