SEPARATE PROPERTY TRACING

What Is Minimum Sum Balance?

Using the minimum balance sum theory, a party may trace funds on account by proving the balance never dropped below the amount of separate property proven to be in the account. This method, however, has a very narrow application, because rarely will a case involve very limited transactions.

Case Analysis For Minimum Sum Balance

Snider v. Snider, 613 S.W.2d 8, 11 (Tex. App.Dallas 1981, no writ).

Snider v. Snider is a probate case where the deceased husband’s executor and widow was successful in tracing $29,642 of a total account balance of $35,809 as the husband’s separate property. She alleged that a savings account held by the deceased husband prior to marriage was community property. The court, in deciding the characterization of the bank account, looked to the amount of money in the account prior to marriage as well as deposits and withdrawals during marriage. A determination was made by the court that the account was both community and separate in character by tracing the funds into and out of the account and recognizing that the account never dropped below a certain amount. The court used the minimum balance sum approach to tracing.

The balance on account as of the date of marriage, $27, 642, was established by entries in the savings passbook. The entries also indicated subsequent deposits and withdrawals which reduced the balance to $19, 642. An additional deposit of $10,000 of the husband’s separate property was made, increasing the separate property portion of the account to  $29,642. Thereafter, there were several credits and debits to the account, but the balance never fell below $29, 642. The court held these facts sufficient to establish that $29,642.45 of the $35,809.80 in the account at the time of the husband's death was his separate property. The remainder of the account was untraceable to the husband's separate estate and thus was considered community property.

Additionally, on the date of marriage, the husband was the principal shareholder in a corporation that owed the husband $3,228.87. The interest on this debt always  accumulated faster than payments were made. Thus, the balance due on the date of the marriage was "a traceable and identifiable part of the balance on hand at the husband's death." In tracing the bank account, the court charged all withdrawals against the community funds in the account. The remaining separate balance therefore was never reduced by any of the withdrawals. The tracing of the note was a variation on the same theme. All payments were attributed to accrued interest and not unpaid principal.

Coggin v. Coggin , 204 S.W.2d 47, 49 (Tex. Civ. App.Amarillo 1947, no writ).

In Coggin v. Coggin, the wife successfully employed the community-out-first theory to show the separate character of property. The wife owned several tracts of land before the marriage, as well as some producing oil wells from which she received royalties. During the marriage, the couple made several purchases: an automobile, a house, two tracts of land with associated mineral rights, and a $9,000 vendor's lien note. These purchases were made from the joint account of both spouses. Most of the money in the joint account was the wife's separate property, acquired from her oil wells. Virtually none of the money was earned by the husband and about $1,000 per year came from the wife's rental of some grasslands. The community living expenses ranged from $200 to $500 per month. During divorce proceedings, the husband tried unsuccessfully to have the house, mineral rights, and vendor's lien note classified as community property; the automobile was successfully classified as community property.

On appeal, the court considered whether the four items of property were community or separate property. There was evidence showing that the rentals from the grasslands, the only substantial community income, were spent in support of the community expenses. In fact, the expenses far exceeded the community income. The evidence showing that the tracts of land and their mineral rights, the house, and the vendor's lien note were all separate property was examined by the court of appeals, which affirmed the trial court's judgment. The court reasoned no community money was present in the bank account at the time of purchase, thus the three pieces of property were the separate property of the wife. Also, in affirming the trial court's classification of the automobile as community property, the court of appeals determined that there had been a bank loan of $26,800 which was placed in the joint account soon before the automobile was purchased. This meant that the funds used to purchase the car were community property, and the mutation of the funds into the automobile retained the status of community property.

In this case, the court used the community-out-first theory of tracing to determine the character of the funds in the bank account at the time of purchase of these four items of property. This case applies the community-out-first theory to a situation in which a spouse had considerable separate income and there was an excess of community expenses over the community income. The separate income will retain its character as separate property as long as adequate records are kept detailing the account activity.

Horlock v. Horlock, 533 S.W.2d 52, 55 (Tex. Civ. App.--Houston (14th Dist.) 1975, writ dism'd w.o.j.).

In Horlock, the husband owned properties having a net value of approximately  $1,000,000. During the marriage, the husband sold separate real property for approximately $700,000 and received in excess of $200,000 under certain contracts that he had entered into and performed prior to the marriage. The total value of the husband's separate property collected during the marriage was $921,000. The proceeds from the sale of property became commingled with the community property of the parties. The husband used his separate estate as a foundation upon which he built the community's wealth. Utilizing this foundation, the husband established an estate worth between $3,000,000 and $4,000,000. Accordingly, the appellate court held that "the trial court was justified in awarding the husband a separate estate reimbursement."

Prior to the marriage, the husband owned 800 shares of stock in Student Housing, Inc. Student Housing, Inc. then merged with two corporations to form a new entity known as Collegiate Services Corporation. Because of the merger, the husband became the owner of 14,152 shares of Collegiate Services Corporation. The husband and wife later acquired 40 shares of Collegiate Services Corporation.

During trial and on appeal, the wife argued that the husband's shares of CSC stock, although presumed to be community property, were in fact the husband's separate property. Consequently, the wife further argued that if the CSC stock were the husband's separate property, then the community estate was entitled to $100,000 as reimbursement for funds spent to maintain the husband's interest in CSC. The trial court found that the husband had spent separate and community funds totaling approximately $100,000 for the maintenance of the CSC investment. However, the court made no specific findings regarding the separate or community nature of the CSC stock. The question presented on appeal was whether the wife had sustained her burden of overcoming the presumption that the CSC stock was community property. Because the shares were traceable, the stock was found to be the husband's separate property.

Once the characterization of the property had been determined, the burden then shifted to the wife to establish that the community had a right to reimbursement from the husband's separate property estate. "Based upon the presumptions favoring the position of the (wife), the community estate is entitled to a reimbursement from the separate estate of the (husband) in the sum of $100,000 expended during the period of the marriage."

Padon v. Padon, 670 S.W. 2d 354 (Tex.App. 4 Dist) 1984.

In Padon, the evidence elicited at trial showed the following: During the marriage of the parties, Mr. Padon's father died leaving Mr. Padon an amount in excess of $160,000.00. On February 25, 1977, $160,490.00 was deposited in Frost National Bank in San Antonio to open an account styled “R.H. Pat Padon or Carolyn Padon .” Mr. Padon inherited and deposited $160,000.00 into this joint account. In early July, a house was purchased for  $89,900.00, which was paid for by check from that account. The March bank statement of the Padon's account shows no additional deposits from the time of the initial $160,490.00 deposit until March 4, 1977. On March 1, 1977, the statement shows a check cleared the account in the amount of $89,900.00.

Both parties testified that all monies received from all sources during the marriage were subsequently deposited into this account. The March 1977 statement is was the only statement in evidence. The court held that this evidence was sufficient to prove that the house was the husband’s separate property.

Tracing and reimbursement exist as two recognized methods of escaping the effect of the presumption of community property. Here, tracing was impossible, but reimbursement was not. Equity was well served by reimbursing the husband for his initial investment.

Kuehn v. Kuehn, 594 S.W.2d 158 (Tex. Civ. App.Houston (14th Dist.) 1980, no writ).

In Kuehn v. Kuehn, the husband failed in his attempt to use the community-out-first theory of tracing. After marriage, the husband placed some of his separate money into a joint bank account with his wife. Money from this joint account was later used to purchase a house and land during the marriage. During divorce proceedings, the husband claimed that both the house and land were his separate property under the community- out-first theory of tracing separate property.

This claim was fatally flawed, however, because the husband had not produced evidence to demonstrate how much of his separate funds he had deposited into the account, "whether funds from other sources were placed in the account, or what other expenditures were made therefrom." Because he failed to produce clear evidence that no community funds were in the account at the time the withdrawals were made, "the application of (the community-out-first theory) to the facts before (the court) buttress(ed) the presumption that the house and lots were paid for with community funds " The  sole reason that this case was decided in the wife's favor was that the husband failed to establish an essential element of the community-out-first theory: The party wishing to use this theory must present clear and convincing evidence that there were no community funds in the joint account at the time of the purchase.

Welder v. Welder, 794 S.W.2d 420, 426 (Tex. App.Corpus Christi 1990, no writ).

In this case, the trial court awarded to the husband several tracts of land as his separate property, based upon the community-out-first theory of tracing ownership. The husband had inherited oil and gas interests that were indisputably his own separate property. During the marriage, all the money that came from the oil and gas interests was the husband's separate property; the courts consider such income to be compensation for waste. This separate income was placed in the couple's joint account, and records were kept detailing the additions and dispositions of the account. During the marriage, the husband purchased several tracts of land with the funds from the account. After the  marriage ended in divorce, the wife attempted to lay partial claim to the recently acquired tracts of land by claiming that they were community property.

At trial, the judge admitted into evidence summaries of the couple's financial records made by the husband's accountant. The accountant, in drafting the summaries, used the community-out-first presumption to come to the result that the husband owned a majority of the disputed property separately. Almost all of the income that was community income was shown to have been used just as quickly as it was earned for the couple's community expenses. In these summaries, the amount of the bank account comprising separate property was accurately shown at the specific date of each purchase of the disputed property. Thus, the court of appeals agreed with the husband that the community-out-first theory applied, and that the husband had presented clear and convincing evidence showing that the funds in the joint account were his separate property. Consequently, the court had a basis on which it could make an accurate determination of the husband's separate interest in each of the tracts of land.

The importance of this case is that the community-out-first theory may be used either offensively or defensively, and can be an effective estate planning tool. Here, the husband showed the precise amount of separate property in the joint account when withdrawals were made both before and after the purchase of the disputed properties. This evidence allowed the husband to use the presumption that community funds are withdrawn before separate funds, and enabled the court to make an accurate determination of the amount of separate property without surmise or speculation.

Dallas Property Tracing Divorce Lawyers

Our Dallas lawyers specialize in divorce, property division and property tracing. Our staff strives to build strong relationships with our clients in order to appreciate their best interests and help them achieve their family law goals. Whether you're facing the burden of a divorce, battling for custody of your child, excitedly anticipating an adoption, or looking to amicably resolve a dispute, we want to be there with you, clearing the way and lightening the load. With attorneys certified by the Texas Board of Legal Specialization in Family Law and over a decade of experience litigating family law disputes, the Wilson Legal Group is specially equipped to meet your needs and address the particular concerns of divorce property division.