Reimbursement: Proving Enhancement of Value

The case of In re Marriage of McCoy & Els, 488 S.W.3d 430, 435 (Tex. App.-Houston [14th Dist.] 2016, no pet.) applied the pre-2023 reimbursement law but it is still probably applicable because both the old and new reimbursement statutes apply an “enhancement of value” measure to claims arising from improvements.  The court in this case held:

Husband also contends that neither Wife’s nor Fischer’s testimony supports the trial court‘s finding of a reimbursement claim in the amount of $162,000. In particular, Husband contends that there is “no competent evidence” of the enhancement at the time of repairs.

“The enhanced value is determined by the difference between the fair market value before and after improvements made during the marriage.” Rogers v. Rogers, 754 S.W.2d 236, 239 (Tex.App.–Houston [1st Dist.] 1988, no writ). To be reimbursable, a property’s enhanced value must be “attributable to the community expenditures.” Zagorski v. Zagorski, 116 S.W.3d 309, 321 (Tex.App.–Houston [14th Dist.] 2003, pet. denied) ; see also Rogers, 754 S.W.2d at 240 (claimant must show “what portion of the enhanced value was attributable to these expenditures”). Thus, it is not sufficient for the party seeking reimbursement to prove that the value of property has simply increased over time; the party seeking reimbursement must prove that the enhanced value of the property “was actually due to the renovations” or other improvements. See Garza v. Garza, 217 S.W.3d 538, 547 (Tex.App.–San Antonio 2006, no pet.) (no abuse of discretion in denying reimbursement claim when the only testimony about the value of the property was that the husband purchased it for $4,000 and it was worth $9,000 at the time of trial). Nor is evidence of the cost of improvements alone sufficient to prove enhanced value. See Rogers, 754 S.W.2d at 240.

As Chief Justice McClure has explained, “Evidence showing the value of the property without improvements and the value of the property with improvements is sufficient to sustain a finding as to the amount of the enhancement value.” Kimsey v. Kimsey, 965 S.W.2d 690, 703 (Tex.App.–El Paso 1998, pet. denied) ; accord Smith, 715 S.W.2d at 157 ; Girard v. Girard, 521 S.W.2d 714, 718 (Tex.Civ.App.–Houston [1st Dist.] 1975, no writ). Professor Leopold presents the method of proof succinctly:

The enhanced value from the improvements made is calculated under the following formula. First, the fair market value of the property in its improved condition is determined as of the date of the dissolution of the marital relationship. Then, a determination is made as to what the fair market value of the property would have been at the date of the dissolution had the improvements not been present on the property. The difference between these two value calculations is the amount of the reimbursement claim.

38 Aloysius A. Leopold, Texas Practice Series: Marital Property and Homesteads § 14.6 (1993).3

In Kimsey, for example, the court of appeals noted that present-day values of real property had increased “due to natural market fluctuations” in addition to the improvements. See 965 S.W.2d at 703. So, to determine the amount of enhanced value attributable to improvements that would be supported by the evidence, the court of appeals subtracted “the full increase in the value of the raw acreage” from the fair market value of the property with improvements. See id.

Here, both Wife and Fischer testified that the property was worth $113,000 in 1990 and $275,000 in 2014. Wife’s and Fischer’s testimony provided the trial court with evidence of the value of the property with the improvements as of the date of the dissolution of the marriage: $275,000.

However, there is no competent evidence of the value of the property without improvements at any time near the dissolution of the marriage. Wife testified that the “enhanced value” of the property was “162,” i.e., $162,000. For this opinion on enhanced value, Wife performed a mathematic computation, subtracting the 1990 fair market value from the 2014 fair market value and concluding that the improvements “are what has increased the value today.” Even viewed in the light most favorable to Wife, Wife’s testimony does not yield a reasonable inference that the fair market value of the property in 2014 without the improvements was $113,000. Even assuming Wife was qualified to testify about the enhanced value as a property owner, this valuation is conclusory and speculative. As we have explained recently:

An owner may not simply echo the phrase “fair market value” and state a number to substantiate the owner’s claim; the property owner must provide the factual basis on which the opinion rests. This burden is not onerous, particularly in light of the resources available today. But, the valuation must be substantiated; a naked assertion of “fair market value” is not sufficient. Even if unchallenged, the property owner’s testimony must support the verdict, and conclusory or speculative statements do not.

DZM, Inc. v. Garren, 467 S.W.3d 700, 703 (Tex.App.–Houston [14th Dist.] 2015, no pet.) (citing Nat. Gas Pipeline Co. of Am. v. Justiss, 397 S.W.3d 150, 159 (Tex.2012) ).

Wife suggests that DZM does not apply because it is not a divorce case, and Wife contends that Mata v. Mata, 710 S.W.2d 756 (Tex.App.–Corpus Christi 1986, no writ), “remains the prevailing law today regarding divorce matters and valuation of property.” Wife’s effort to distinguish Mata and DZM is unavailing because Mata held that a property owner “may testify” about the value of his or her property. 710 S.W.2d at 758. Mata is entirely consistent with DZM and Justiss. See Justiss, 397 S.W.3d at 156 (noting that a property owner is “qualified to testify to property value,” but to be legally sufficient, the testimony still must not be conclusory or speculative). Further, Mata relied on non-divorce cases for its reasoning. See 710 S.W.2d at 758. This court has similarly relied on non-divorce cases when evaluating, in a divorce case, whether an owner’s opinion of value was adequate. See Baker v. Baker, 624 S.W.2d 796, 798–99 (Tex.App.–Houston [14th Dist.] 1981, no writ) (holding that the owner’s testimony about the value of a diamond did not support the jury’s finding).

Wife based her valuation of the property without improvements solely on the property’s value nearly twenty-five years before trial. But the fair market value of the property in 1990 without improvements is not a factual basis for her testimony about the value of the property in 2014 without improvements. Cf. DZM., 467 S.W.3d at 703 (“[E]vidence of the amount paid in the past to purchase property, by itself, is legally insufficient to support a finding as to the property’s market value at a later date.”). Wife’s testimony about the value of Husband’s property without improvements in 2014 is akin to conclusory and speculative testimony about the reduction in value of property after suffering a legal injury. Cf. Justiss, 397 S.W.3d at 159 (collecting cases where evidence of diminished value was legally insufficient; for example, a homeowner testified she lost $60,000 when forced to sell her home, but she failed to explain how she arrived at that conclusion; and an owner testified that his property had suffered a “reduction in value” between $1.8 million and $2.2 million, but there was no basis for his opinion).

This is not a case with evidence of (1) the property’s value shortly before the improvements; (2) a relatively short time period between the date of the improvements and another valuation before trial; and (3) a reimbursement award at a significantly lower amount than the difference between the two valuations. See Zamiatowski v. Zamiatowski, No. 14–13–00478–CV, 2013 WL 1803604, at *3 (Tex.App.–Houston [14th Dist.] Apr. 30, 2013, no pet.) (mem.op.) (affirming reimbursement claim of $55,675 when the property was valued at $76,400 in 2007, a warehouse was constructed in 2008, and the property was valued at $175,000 in 2010; there was “some probative evidence of a difference in fair market value of $98,600 before and after the improvement”); cf. Babaria v. City of Southlake, Tex., No. 02–14–00068–CV, 2016 WL 287523, at *5 (Tex.App.–Fort Worth Feb. 11, 2016, no pet. h.) (mem.op.) (holding that in a condemnation proceeding, comparable sales “occurring within five years before the taking are not too remote to be admissible as evidence of fair market value,” and the expert’s opinion based on those sales was reliable). But see Padon v. Padon, 670 S.W.2d 354 (Tex.App.–San Antonio 1984, no writ) (holding the evidence was insufficient to support a $50,000 reimbursement claim when there was evidence the property was purchased for $89,900 in 1977, improvements were made over the course of four years, and the property was worth $200,000 at the time of trial).

Here, there is evidence that some improvements occurred in 2004 and 2005, but the only estimate of the fair market value before the improvements was based on the property’s value about fifteen years earlier. And, nearly ten years had passed between the time of those improvements and trial. Wife adduced no evidence about when, in the twenty-five year time span, the other improvements were made.

The record shows the property increased in value over time and improvements were made using community funds. But, viewing the evidence in the light most favorable to the trial court‘s ruling, there is no competent evidence that the property’s value would be $113,000 without the improvements. Fischer’s appraisal based on comparable sales twenty-five years earlier is not competent evidence of the present-day market value without improvements.

. . . .

In sum, Wife provided no evidence of a substantive and probative nature to support the trial court‘s finding that the property’s value was enhanced $162,000 by reason of the improvements. See Zagorski, 116 S.W.3d at 321 (party seeking reimbursement must prove the enhanced value attributable to the community expenditures). Lacking evidence of the value of the property without improvements at or near the time of the dissolution of the marriage, the trial court did not have sufficient information to determine that the amount of the reimbursement claim was $162,000. Because there is insufficient evidence of the enhanced value attributable to the community expenditures, we sustain Husband’s third issue.

(emphasis added).