Constructive Fraud: Where Did the Money Go?

 Posted on March 04, 2016 in High Asset Divorce

Constructive fraud is quite common in high net worth divorce cases. Many times, these matters involve long-term marriages which slowly deteriorated over a period of several years, giving the spouses ample opportunity to surreptitiously redirect community funds. There is also a compounding factor; for example, Wife may think little of giving children from a prior marriage a few hundred dollars a month without Husband's knowledge, but over the years, the community estate may lose tens of thousands of dollars.

In decades past, a separate tort lawsuit was about the only option for recovery of these funds. These cases are difficult to file, due to statute of limitations issues, and difficult to win, because of different evidentiary requirements. Moreover, even if they have substantial incomes, many Texans are essentially judgement proof. But the law recently changed, and fraud victims now have a remedy within the divorce procedure itself.

Reconstitution

Section 7 of the Family Code now allows the judge to reconstitute the marital estate by adding money that was fraudulently withdrawn from the community estate. To show constructive fraud, the complaining spouse need not show evidence of intent. Indeed, according to a recent Court of Appeals case, the spouse does not even have to establish details about the financial transactions. Rather, it is sufficient to show that money may be missing, and the burden then shifts to the responding spouse to explain the discrepancy.

To determine whether or not there was fraud, the court may consider the:

• Size of the gift or transfer in proportion to the community estate;
• Relationship between recipient and spouse; and
• Other circumstances involved in the transfer or gift.

The Texas Pattern Jury Instructions define "fraud" as an arbitrary, capricious, or excessive gift or transfer that is unfair to the other spouse.

Remedy Available

A money judgement is not always an appropriate remedy in a high-asset divorce fraud case. Instead, the judge may use the fraud as a basis for a disproportionate split of the community estate.

In these instances, the fraudulently-withdrawn funds are included as an asset even though the money is gone. The victimized spouses then receive a greater share to make up for their share of the lost community property.

Gifts and transfers which are anything less than completely transparent are generally fraudulent. For prompt assistance in this area, contact an aggressive Georgetown high asset divorce attorney. We routinely represent clients in Travis County, Williamson County, and nearby jurisdictions.

Sources:

http://www.statutes.legis.state.tx.us/Docs/FA/htm/FA.7.htm

https://scholar.google.com/scholar_case?case=10136628343915316730&hl=en&as_sdt=6&as_vis=1&oi=scholarr