"Fraud on the Community": Why Spouses in Texas Should Not Engage in Financial Waste Before and During a Divorce Suit
In Texas, the "fraud on the community" or "fraud on the spouse" doctrine is a case law created concept based on the theory of constructive fraud. Constructive fraud is the breach of a legal or equitable duty which violates a fiduciary relationship. Spouses owe a fiduciary duty to one another. Consequently, a spouse has a duty of full financial disclosure to the other spouse. Texas courts presume there is constructive fraud when one spouse disposes of the other spouse's one-half interest in community property without the other spouse's knowledge or consent.
Trial courts have wide discretion in divorce litigation and are allowed to take many factors into consideration in making a "just and right" division of community property, including the wasting of community assets. Texas courts believe it is "just and right" to take into account that a spouse not only deprived the community property of assets to the detriment of the other spouse, but may have done so with dishonesty of purpose or intent to deceive. Put another way, a wronged spouse should not suffer simply because the other spouse has depleted the community such that there is not enough left to achieve a "just and right" division. Therefore, a court may award a money judgment to one spouse against the other in order to achieve an equitable division of the community estate. This money judgment is intended to be a means for the wronged spouse to recover the value of his or her share of the community estate lost through the offending spouse's actions. Because the amount of the money judgment is based on the specific value of lost community property, it will never exceed the total value of the community estate.
Ultimately, spouses should not try to be funny with the money before and during divorce litigation. Courts do not take kindly to asset dissipation, especially when children are involved in the pending litigation.
If you are contemplating filing for divorce and would like to discuss any aspect of divorce litigation, please schedule a consultation today. Do not rely on this post as legal advice. This post does not create an attorney-client relationship between the Firm and the reader. Do not act in reliance on the contents of this post without seeking the advice of counsel.