Jeffrey Benjamin Mason v. Keri Cotterman Mason

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-17-00546-CV
Jeffrey Benjamin Mason, Appellant
v.
Keri Cotterman Mason, Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
NO. D-1-FM-16-001306, HONORABLE LORA LIVINGSTON, JUDGE PRESIDING
MEMORANDUM OPINION
Appellant Jeffrey Benjamin Mason appeals from the trial court’s divorce decree
awarding his former wife, Keri Cotterman Mason, a majority of the couple’s community estate.1 In
ten issues, Jeff challenges the trial court’s decision to reconstitute the community estate for certain
“wasteful” expenditures and to reimburse the community estate for funds transferred to a limited
liability company owned and operated by Jeff. For the reasons set forth below, we will affirm the
trial court’s judgment.
BACKGROUND
Jeff and Keri were married in 2010, and Keri filed an original petition for divorce
in 2016. Keri subsequently amended her petition to assert claims for “waste and/or constructive
1
Because the parties share the same surname, we will refer to the parties by their first
names for clarity.
fraud” and for reimbursement. The couple did not have children, and it is undisputed that before
and during the marriage, Jeff was the sole member and manager of a limited liability company,
338 Industries, LLC. The final hearing before the trial court centered on property issues related to
certain expenditures made by Jeff and on payments made by and to 338 Industries.
At the conclusion of the hearing, the trial court signed a divorce decree that granted
the divorce and awarded Keri a larger share of the community estate, 55% to Keri and 45% to Jeff.
In dividing the estate, the trial court first granted Keri’s constructive-fraud claim based on certain
“wasteful” expenditures made by Jeff and, accordingly, reconstituted the community estate by adding
$752,324 to the community estate. The trial court also characterized 338 Industries, LLC as Jeff’s
separate property and reimbursed $283,051 to the community estate from Jeff’s separate estate for
outstanding loans made to 338 Industries. Finally, the trial court awarded Keri her attorney’s fees.
Upon Jeff’s request, the trial court issued findings of fact and conclusions of law.
See Tex. R. Civ. P. 296. In five related and overlapping issues on appeal, Jeff challenges the trial
court’s findings of fact and conclusions of law related to Keri’s constructive-fraud claim. In five
additional issues, Jeff asserts that the evidence is insufficient to support the trial court’s findings of
fact and conclusions of law supporting Keri’s reimbursement claim.
STANDARD OF REVIEW
A trial court in a divorce proceeding is charged with ordering a division of the
community estate in a manner that the court deems “just and right, having due regard for the rights of
each party.” See Tex. Fam. Code § 7.001. The trial court does not have to divide the community
property equally, but the division must be equitable and the record must reflect a reasonable
2
basis for an unequal division of the property. Murff v. Murff, 615 S.W.2d 696, 698 (Tex. 1981);
O’Carolan v. Hopper, 71 S.W.3d 529, 532 (Tex. App.—Austin 2002, no pet.). On appeal, we
review the trial court’s division of marital property for an abuse of discretion. Murff, 615 S.W.2d
at 698. Because trial courts have wide latitude in evaluating claims for reimbursement, we also
review a trial court’s decision concerning a claim for reimbursement for an abuse of discretion.
Penick v. Penick, 783 S.W.2d 194, 198 (Tex. 1998). A trial court abuses its discretion if it “‘act[s]
without reference to any guiding rules or principles,’ such that its ruling [is] arbitrary or unreasonable.”
American Flood Research, Inc. v. Jones, 192 S.W.3d 581, 583 (Tex. 2006) (per curiam).
In family-law cases, the abuse-of-discretion standard overlaps with traditional
standards for reviewing the sufficiency of the evidence. See Zeifman v. Michels, 212 S.W.3d 582,
587 (Tex. App.—Austin 2006, pet. denied). Consequently, legal and factual insufficiency are not
independent grounds of error but are relevant factors in assessing whether the trial court abused
its discretion. Id. at 588. To determine whether there has been an abuse of discretion, we engage
in a two-pronged inquiry, determining whether (1) the trial court had sufficient evidence upon which
to exercise its discretion and (2) the trial court erred in its application of that discretion. Id.
Traditional standards for legal- and factual-sufficiency review come into play with regard to the
first question.2 Id.
2
Under the legal-sufficiency standard, we credit all evidence and inferences favorable to the
trial court’s decision if a reasonable factfinder could, and disregard all evidence to the contrary
unless a reasonable factfinder could not. City of Keller v. Wilson, 168 S.W.3d 802, 828 (Tex. 2005).
Evidence is legally insufficient when (1) there is a complete absence of a vital fact; (2) rules of law
or evidence preclude according weight to the only evidence offered to prove a vital fact; (3) the
evidence offered to prove a vital fact is no more than a scintilla; or (4) the evidence conclusively
establishes the opposite of the vital fact. See id. at 810, 815-16. Under the factual-sufficiency
3
In an appeal from a bench trial in which the trial court entered findings of fact, the
trial court’s findings have the same weight as a jury verdict. Hailey v. Hailey, 176 S.W.3d 374, 383
(Tex. App.—Houston [1st Dist.] 2004, no pet.). Because the trial court acts as the factfinder in a
bench trial, the trial court is the “sole judge of the credibility of the witnesses and the weight to be
given their testimony.” McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986). The trial court
may consider all the facts and circumstances in connection with the testimony of each witness and
accept or reject all or part of that testimony; an appellate court may not substitute its judgment for
the trial court’s assessment of witnesses’ testimony in a bench trial. Hailey, 176 S.W.3d at 383. The
trial court does not abuse its discretion if it bases its decision on conflicting evidence or when
evidence of a probative or substantive character exists to support the decision. Zeifman, 212 S.W.3d
at 587. “The mere fact that a trial court decided an issue in a manner differently than an appellate
court would under similar circumstances does not establish an abuse of discretion.” Id.
ANALYSIS
Constructive Fraud
We turn first to Jeff’s issues concerning the trial court’s determination that he
wasted $752,324 in “community resources” and its decision to reconstitute the community estate
by this amount.
standard, we examine all the evidence in a neutral light and consider whether the trial court’s
decision is so against the great weight and preponderance of the evidence as to be clearly wrong and
manifestly unjust. See Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986).
4
“A fiduciary duty exists between a husband and a wife as to the community property
controlled by each spouse.” Zieba v. Martin, 928 S.W.2d 782, 789 (Tex. App.—Houston [14th
Dist.] 1996, no writ); see Dyer v. Dyer, No 03-16-00753-CV, 2018 Tex. App. LEXIS 4380, at *18
(Tex. App.—Austin June 15, 2018, no pet.) (mem. op.) (quoting same). “Waste occurs when one
spouse, dishonestly or purposefully with the intent to deceive, deprives the community estate of
assets to the detriment of the other spouse.” Giesler v. Giesler, No. 03-08-00734-CV, 2010 Tex.
App. LEXIS 4401, at *10-11 (Tex. App.—Austin June 10, 2010, no pet.) (mem. op.) (citing
Schlueter v. Schlueter, 975 S.W.2d 584, 588 (Tex. 1998)). “A presumption of ‘constructive fraud,’
i.e., waste, arises when one spouse disposes of the other spouse’s interest in community property
without the other’s knowledge or consent.” Puntarelli v. Peterson, 405 S.W.3d 131, 137-38 (Tex.
App.—Houston [1st Dist.] 2013, no pet.); see Cantu v. Cantu, 556 S.W.3d 420, 427 (Tex.
App.—Houston [14th Dist.] 2018, no pet.) (explaining that fraud is presumed whenever one spouse
disposes of community property without other spouse’s knowledge or consent). Once this
presumption of fraud arises, the burden shifts to the disposing spouse to prove that the disposition
of the community property was fair. Cantu, 556 S.W.3d at 427. When the trial court makes a
finding of constructive fraud, it must perform two calculations: the first is the “value by which the
community estate was depleted as a result of the fraud on the community,” and the second is “the
amount of the reconstituted estate.” Id. (quoting Tex. Fam. Code § 7.009(b)). The “reconstituted
estate” is defined as the total value of the community estate that would have existed had a fraud on
the community not occurred. Id. (citing Tex. Fam. Code § 7.009(a)).
With respect to Keri’s claim of constructive fraud, the trial court made the following
relevant findings:
5
During the marriage and during the pendency of the suit for divorce, Jeff Mason
spent funds gambling, traveling, going to hotels in Austin, Texas (where the parties’
primary residence is located) while his wife was away, and frequenting bars
and adult entertainment venues. Some of these expenditures were paid directly by
Jeff Mason’s business. $752,324 of these expenditures were not for legitimate
business expenses, despite how Jeff Mason may have categorized the expenditures
in bookkeeping records, tax filings, and/or testimony. The $752,324 were personal
expenditures that were wasteful. Hence, the payment of those expenses with funds
of Jeff Mason’s separate property was, in fact, a distribution to Jeff Mason, which
Jeff Mason wasted to the detriment of the community.
...
Keri Cotterman Mason did not discover Jeff Mason’s wasteful spending until several
days before filing divorce and thereafter, during the discovery process during
this case.
Jeff Mason’s wasteful spending during the parties’ marriage and during the time that
the divorce was pending and the Travis County Standing Order was in effect, was
done without Keri Cotterman Mason’s knowledge or consent and was in violation
of the Travis County Standing Order.
...
Certain of Jeff Mason’s wasteful expenditures were paid from accounts of 338
Industries, LLC, but the expenditures were in the nature of personal expenditures and
member draws—not business expenses. Jeff Mason controlled the characterization
of such expenditures in the books of 338 Industries, LLC and his characterization is
not determinative of the Court’s ultimate characterization. Member draws are a
distribution and are, therefore, community income. Jeff Mason received the personal
benefit of these expenditures, but they were wasteful of community resources and a
breach of his duties to Keri Mason and the community estate . . . .
On appeal, Jeff does not dispute that 338 Industries paid some expenditures for
gambling, hotels, bars, and adult entertainment, namely strip clubs, nor does Jeff dispute that these
expenditures were incurred and paid for without Keri’s consent. Instead, in two sub-issues, Jeff
asserts that (1) “[t]he trial court’s finding that Jeff wasted ‘community resources’ is both factually
6
unsupported and legally flawed,” and (2) the trial court’s waste award was an abuse of discretion
“because the evidence conclusively established the non-gambling debts were legitimate business
expenses.” In effect, Jeff challenges the trial court’s characterization of the funds used to pay for
the expenditures as community property.
Community property consists of all property, other than separate property, acquired
by either spouse during the marriage. Tex. Fam. Code § 3.002. In turn, separate property owned or
claimed by the spouse before marriage, as well as property acquired during marriage by gift, devise,
or descent, is separate property. Tex. Const. art. XVI, § 15; Tex. Fam. Code § 3.001. All property
possessed by either spouse during or on dissolution of marriage is presumed to be community
property.3 Tex. Fam. Code § 3.003(a). To overcome the community-property presumption, a party
claiming assets as separate property must establish their character by “clear and convincing
evidence.” Id. § 3.003(b). Any doubts as to the proper characterization of property are resolved in
favor of community status. Willett v. Rodriguez, No. 03-16-00084-CV, 2017 Tex. App. LEXIS 5096,
*4 (Tex. App.—Austin June 2, 2017, pet. denied) (mem. op.) (citing Irvin v. Parker, 139 S.W.3d 703,
708 (Tex. App.—Fort Worth 2004, no pet.)).
Because a limited liability company is a separate legal entity, property owned by a
limited liability company is neither the community property nor separate property of its members.
Tex. Bus. Orgs. Code § 101.106(b) (“A member of a limited liability company or an assignee of a
membership interest in a limited liability company does not have an interest in any specific property
3
Consequently, revenue and income gained during the marriage, even when produced
from separate property, are generally considered community property. Richardson v. Richardson,
424 S.W.3d 691, 701 (Tex. App.—El Paso 2014, no pet.); Bush v. Bush, 336 S.W.3d 722, 740 (Tex.
App.—Houston [1st Dist.] 2010, no pet.).
7
of the company.”); see, e.g., Mandell v. Mandell, 310 S.W.3d 531, 539 (Tex. App.—Fort Worth
2010, pet. denied) (explaining that property owned by professional association, like corporate property,
is neither separate property nor community property). However, distributions from the operation of
a limited liability company during marriage are considered community property, even when the
membership interest in the company is owned by one spouse as separate property. In re Marriage
of Hudson, No. 06-18-00011-CV, 2018 Tex. App. LEXIS 7929, at *8 (Tex. App.—Texarkana Sept.
28, 2018, no pet.) (mem. op.); see Lifshutz v. Lifshutz, 199 S.W.3d 9, 27 (Tex. App.—San Antonio
2006, pet. denied) (explaining that distributions from partnership are considered community
property, “regardless of whether the distribution is of income or of an asset”); see also Tex. Bus.
Orgs. Code § 101.203 (“Sharing of Distributions”). Here, Jeff does not dispute, and the evidence
presented at trial establishes, that Jeff spent over $700,000 on strip clubs in Austin, Texas, and
Las Vegas, Nevada; hotel rooms when Keri was out of town and away from their marital home in
Austin; and gambling in Las Vegas. The trial court found that these expenditures were not
“legitimate business expenses” but instead were Jeff’s “personal expenditures.” The trial court
determined that 338 Industries’s payment of those “personal expenditures,” totaling $752,324,
amounted to a “distribution to Jeff,” which he “wasted to the detriment of the community.”
The crux of Jeff’s argument on appeal is that the evidence is insufficient to support
the trial court’s determination that the payments for the expenditures by 338 Industries were
distributions and therefore community property because, in Jeff’s view, the payments were made
directly to the various establishments using Jeff’s 338 Industries company credit card. In support
of his position, Jeff points to evidence in the record showing that the expenditures at issue were
8
treated by 338 Industries and its accountants as bona fide business expenses. For example, Jeff
testified that he incurred $314,740 gambling losses in Las Vegas while on business trips and that he
therefore considered the gambling losses to be “nondeductible business expenses.” The court also
heard from 338 Industries’s accountant, who testified that she deducted all of the non-gambling
expenditures at issue on 338 Industries’s federal tax returns as business expenses based on Jeff’s
characterization of the expenses and that the IRS did not question the expenses when it audited
these returns.
The court also heard evidence, however, that Jeff alone made the expenditures,
including $314,740 in gambling losses, and that Jeff alone made the decision to use 338 Industries’s
credit card as payment for the expenditures. Jeff did not testify, or present any other evidence
suggesting, that 338 Industries in fact benefitted from the payment of his gambling losses or of any
of the other expenditures at issue, and the very nature of the expenditures suggests that they
benefitted Jeff personally. In fact, Jeff eventually conceded at trial that the gambling expenses
should be treated as member draws, and on appeal, he does not explain why the trial court should
have treated the other expenditures (for strip clubs and hotels) any differently.
Upon review of the record, we conclude that the evidence relied on by Jeff, including
evidence that Jeff used a 338 Industries credit card for payment, falls short of establishing that the
expenditures were “legitimate business expenditures.” See Tex. Fam. Code § 3.003(b) (party claiming
property as separate property must rebut community-property presumption); Shields Ltd. P’ship v.
Bradberry, 526 S.W.3d 471, 480 (Tex. 2017) (where party attacks legal sufficiency of adverse
findings on issue on which it bears burden of proof, appellant must show that record conclusively
9
establishes all vital facts in support of issue); Lifshutz, 199 S.W.3d at 18 (when party attacks factual
sufficiency on issue on which it bears burden of proof, appellant must show that finding is “ so
against the great weight and preponderance of the evidence that it is clearly wrong and unjust”).
Moreover, the trial court’s finding that the expenditures paid by 338 Industries “were not legitimate
business expenses” and instead were Jeff’s “personal expenditures” is supported by legally and
factually sufficient evidence. This finding, in turn, supports the trial court’s determination that
payments of the expenditures operated, constructively, as distributions from 338 Industries to Jeff.
See Lifshutz, 199 S.W.3d at 24 (upholding trial court’s finding that direct transfer of stock owned
by husband’s partnership to husband’s corporate entities was, in effect, distribution from partnership
to husband). Because distributions from an LLC are community property and because the undisputed
evidence shows that Keri was unaware of the distributions, the trial court did not abuse its discretion
in concluding that Jeff had committed constructive fraud. Jeff’s issues on appeal challenging the
trial court’s decision on Keri’s claim of waste and constructive fraud are overruled.
Reimbursement
Next, we address Jeff’s challenge to that portion of the judgment reimbursing the
community estate from Jeff’s separate property before disproportionately dividing the community
estate in favor of Keri.
An equitable right to reimbursement “arises when the funds or assets of one estate
are used to benefit and enhance another estate without itself receiving some benefit.” Vallone v.
Vallone, 644 S.W.2d 455, 459 (Tex. 1982). Section 3.402 of the Family Code governs claims
of reimbursement and states that courts shall resolve claims for reimbursement using equitable
10
principles. Tex. Fam. Code § 3.402 (b); see also id. § 7.007 (stating that in divorce decree, court
shall determine right of both spouses “in a claim for reimbursement as provided in [sections 3.40
through 3.410 of the Family Code] and shall apply equitable principles”). A claim for reimbursement
can arise from a variety of expenditures, see id. § 3.402(a) (identifying nine categories of
expenditures included within meaning of “claim for reimbursement”), and may run from community
estate to separate estate, from separate estate to community estate, and from separate estate to
separate estate, Alenz v. Alenz, 101 S.W.3d 648, 655 (Tex. App.—Houston [1st Dist.] 2003, pet.
denied). A party asserting a claim for reimbursement has the burden of pleading and proving the
claim. Vallone, 644 S.W.2d at 459. Reimbursement is not available as a matter of law but lies
within the broad discretion of the trial court. Id.
With respect to Keri’s claim for reimbursement the trial court made the following
findings and conclusions:
The community estate is entitled to reimbursement for $283,051 from Jeff Mason’s
separate estate for loans from the community estate to 338 Industries, LLC and to
fund non-party employee retirement. Jeff Mason’s transfer of $283,051 from the
community estate improved his separate property business. Keri Cotterman Mason’s
request for additional reimbursements is denied.
...
The community estate should be reimbursed by Jeff Mason’s separate estate in an
amount of $283,051. The equities do not justify that this reimbursement should be
off-set.
On appeal, Jeff does not dispute that community funds were transferred to 338
Industries. Instead, in what we discern as three separate arguments, Jeff asserts that the “trial court’s
11
judgment awarding reimbursement is both factually insufficient and contrary to law.” In his first
argument, Jeff asserts that the trial court abused its discretion in granting reimbursement from his
separate estate because 338 Industries is a separate legal entity and because there is no evidence
that his separate estate—as opposed to 338 Industries itself—benefitted from or was enhanced by
the loaned funds. In response, Keri asserts that the trial court’s reimbursement decision is proper
because the undisputed evidence shows that funds were transferred to 338 Industries’s bank account
from the couple’s community estate, an outstanding balance of $283,051 remains in the LLC’s
account, 338 Industries is owned and operated solely by Jeff, and consequently, the community is
entitled to reimbursement from Jeff’s separate estate. To the extent Keri suggests that the community
estate is entitled to recover the funds transferred to 338 Industries from Jeff’s separate estate based
solely on the fact that Jeff is the sole member and manager of 338 Industries, we disagree.
As previously discussed, property owned by a limited liability company is neither the
community property nor the separate property of its members and, as a result, is not subject to award
or division in divorce. See Tex. Bus. Orgs. Code § 101.106(b); Lifshutz, 199 S.W.3d at 27.
Consequently, as Jeff correctly points out, his separate marital estate does not, and cannot, include
property, funds, or assets that belong to 338 Industries. In addition, when the funds were transferred
from Jeff and Keri’s community estate to 338 Industries, the funds lost their community character
and became the property of the LLC. See In re Marriage of Hudson, 2018 Tex. App. LEXIS 7929,
at *8 (explaining that when property is conveyed to business entity, “such as a partnership or limited
liability company, it becomes the property of the entity and loses its separate or community character”
(citing Lifshutz, 199 S.W.3d at 27)). The community estate could not, in this divorce proceeding,
12
recover the outstanding loan directly from 338 Industries, and in the absence of a finding of
constructive fraud, the community estate could not recover the loan from Jeff’s separate estate
based solely on the fact that Jeff is a sole member and manager of 338 Industries.4
The community estate could, however, seek reimbursement of the transferred
funds based on Jeff’s membership interest in 338 Industries. Although LLC members do not hold
ownership interests in LLC property, each member does own a “membership interest” in the LLC,
which is personal property and subject to characterization as community or separate property. Tex.
Bus. Orgs. Code § 101.106(a), (a–1); see id. § 1.002(54) (defining “membership interest”). To the
extent the trial court found that Jeff “owned 338 Industries” before his marriage to Keri and that
338 Industries is his separate property, we construe this as a finding that Jeff’s separate estate
includes his membership interest in 338 Industries, LLC. To prevail on a claim for reimbursement
based on Jeff’s membership interest, Keri was required to prove that Jeff’s membership interest in
338 Industries was “benefitted or enhanced” by the community estate, i.e. by the loans to 338
Industries. See Vallone, 644 S.W.2d at 459; Richardson v. Richardson, 424 S.W.3d 691, 700 (Tex.
4
“In exceptional circumstances, the principles of alter ego and piercing the corporate veil
have been applied to divorce cases under what could be termed ‘reverse piercing.’” Lifshutz v.
Lifshutz, 61 S.W.3d 511, 516 (Tex. App.—San Antonio 2001, pet. denied). When the corporate veil
is pierced in a divorce case, the trial court may characterize assets that otherwise belong to the
corporation as belonging to the community. Id. Although a claim of alter ego is not a per se claim
for reimbursement, it may in some instances, as it would here, have the same effect. The trial court,
however, did not find that 338 Industries operated as Jeff’s alter ego, and although pleaded by Keri,
she has not challenged the trial court’s failure to make a finding of alter ego. We cannot uphold the
trial court’s reimbursement ruling on an alter ego theory. See Echols v. Olivarez, 85 S.W.3d 475,
477 (Tex. App.—Austin 2002, no pet.) (“In an appeal from a bench trial, findings of fact are the
equivalent of jury answers to special issues.”); see also McGalliard v. Kuhlmann, 722 S.W.2d 694,
696-97 (Tex. 1986) (“Unchallenged findings of fact are binding on an appellate court unless the
contrary is established as a matter of law or there is no evidence to support the finding.”).
13
App.—El Paso 2014, no pet.) (“The party claiming reimbursement bears the burden of establishing
that the contribution was made by one marital estate to another, the contribution was reimbursable,
and the value of the contribution.”). On appeal, Jeff challenges the trial court’s finding that his
separate property was benefitted by the transferred funds because, in Jeff’s view, there is no evidence
that his membership interest in 338 Industries became more valuable as a consequence of the loans.
At trial, evidence was presented that after Keri’s petition for divorce was filed,
338 Industries had $54,000 in its bank account, and the parties agreed to transfer $599,000 to 338
Industries from the community estate as loans. Of the loans, $50,000 was repaid to the community
estate, approximately $266,000 was used to fund retirement contributions for Jeff and Keri, and
$33,051 was used to fund non-party employee retirements. Of the remaining funds loaned to 338
Industries, Jeff testified that these funds were transferred back to the community over the next year
in the form of Jeff’s salary. Conversely, Keri testified that Jeff told her that the remaining funds
would be used for “cash flow” in 338 Industries and that she did not consider Jeff’s salary that year
to be a repayment of the debt. Based on the record before it, the trial court could have reasonably
determined that the loaned funds benefitted 338 Industries and, in turn, that Jeff’s separate property,
i.e. his membership interest in 338 Industries, was benefitted indirectly. Viewing the evidence in
the light most favorable to the trial court’s findings, we conclude that the trial court’s determination
that the loans from the community estate benefitted Jeff’s separate property is supported by legally
sufficient evidence, see City of Keller v. Wilson, 168 S.W.3d 802, 810, 815-16 (Tex. 2005) (legal-
sufficiency standard), and is not so weak as to be clearly wrong and manifestly unjust, see Cain v.
Bain, 709 S.W.2d 175, 176 (Tex. 1986) (factual-sufficiency standard).
14
In his second argument, Jeff asserts that even if there is sufficient evidence that his
membership interest somehow benefitted from the transferred funds, there is no evidence that his
membership interest realized $283,051 in enhanced value. Jeff contends that the trial court abused
its discretion in granting Keri’s reimbursement claim because she had the burden to demonstrate the
value by which Jeff’s membership interest was enhanced as a result of the loans, and according to
Jeff, Keri presented no evidence on this issue. Although we agree that Keri did not present evidence
of the amount by which Jeff’s membership interest was enhanced by the loans, we disagree with
Jeff’s assumption that enhanced value is the proper measure of the reimbursement claim in this case.
Under Section 3.402(d), “[r]eimbursement for funds expended by a marital estate
for improvements to another marital estate shall be measured by the enhancement in value to the
benefitted marital estate.” Tex. Fam. Code § 3.402(d); Rogers v. Rogers, 754 S.W.2d 236, 239 (Tex.
App.—Houston [1st Dist.] 1988, no writ). The enhanced value is determined by the difference
between the fair market value of the property before and after the improvements. In re Marriage
of McCoy & Els, 488 S.W.3d 430, 435 (Tex. App.—Houston [14th Dist.] 2016, no pet.). Section
3.402(d) does not apply to all claims for reimbursement, however, but rather only to claims “for
funds expended . . . for improvements to another marital estate.” Barras v. Barras, 396 S.W.3d 154,
175 (Tex. App.—Houston [14th Dist.] 2013, pet. denied) (noting that “[t]he legislature purposefully
included the modifying phrase ‘for improvement to another marital estate’ to limit the type of
reimbursement claim required to be measured by the enhancement in value to the benefitted
estate”). Other reimbursement claims may be measured by the cost to the contributing estate. See
id. at 177. For example, under the “reimbursement” theory, when corporate stock is the separate
15
property of one spouse, any increase in value of that stock during marriage remains the separate
property of the owner spouse. Jensen v. Jensen, 665 S.W.2d 107, 110 (Tex. 1984). When time or
effort expended by both or either spouse contributes to an increase in the value of that corporate
stock, the community’s reimbursement claim is measured by the value of the time and effort beyond
that reasonably necessary to manage and preserve the separate estate for which the community did
not receive adequate compensation. Lifshutz, 199 S.W.3d at 28 (citing Jensen, 665 S.W.2d at 109).
That is, the claim for reimbursement in such cases is measured by the cost of the uncompensated
time and effort to the community and not by the enhancement in value of the stock.
Here, we cannot conclude that the loans to 338 Industries were for “improvements
to another marital estate,” i.e., to Jeff’s membership interest, within the meaning of Section 3.402(d).
See Barras, 396 S.W.3d at 175-76 (concluding that “improvements” in Section 3.402(d) refers to
capital improvements, such as home construction and renovation, and did not include party’s
reimbursement claim for “reduction of principal amount of a debt secured by a lien on real property”);
see also In re Marriage of Donathan, No. 10-16-00014-CV, 2017 Tex. App. LEXIS 7356, at *8
(Tex. App.—Waco Aug. 2, 2017, no pet.) (mem. op.) (concluding that section 3.402(d) did not apply
to reimbursement claim for funds used to pay debt on mobile home). Like reimbursement claims
for uncompensated time and effort expended to the benefit of stock belonging to another marital
estate, a reimbursement claim for funds expended to the benefit of a membership interest belonging
to a separate estate may be measured by the cost of the contribution to the community estate.
See Jensen, 665 S.W.2d at 109. The trial court did not abuse its discretion in concluding that
contribution cost was the proper measure of Keri’s reimbursement claim, and the undisputed
16
evidence is sufficient to support the trial court’s finding that the cost of the loans to the community
estate was $283,051.
Finally, Jeff asserts that even if the loaned funds are generally reimbursable, the trial
court’s decision to reimburse $283,051 to the community estate is, nevertheless, “inequitable and
amounts to an abuse of discretion.” According to Jeff, over the years of the marriage, the community
estate drew significant wages, draws, and retirements from Jeff’s interest in 338 Industries. In
addition, the loans at issue “enabled 338 Industries to continue to operate,” which then allowed for
the community to receive Jeff’s salary of $309,166 and the payment of Jeff’s $414,000 gambling
debt. Therefore, according to Jeff, the trial court’s reimbursement award to the community constitutes
an abuse of discretion because the trial court “ignored significant benefits the community derived
from the 2016 ‘loans’ made to 338 Industries, LLC.”
Under equitable principles, claims for reimbursement may be offset against each other
“if the court determines it to be appropriate.” Tex. Fam. Code § 3.402(b). In addition, “[b]enefits for
the use and enjoyment of property may be offset against a claim for reimbursement for expenditures
to benefit a marital estate.” Id. § 3.402(c). The party seeking an offset to a claim for reimbursement
has the burden of proof with respect to the offset. Id. § 3.402(e). We construe Jeff’s argument on
appeal to be that the trial court’s decision to grant Keri’s reimbursement claim is inequitable because
the court failed to offset the reimbursement claim by “benefits for the use and enjoyment” of his
membership interest received by the community. See id. § 3.402(c).
In its findings of fact and conclusions of law, the trial court concluded that the
evidence was insufficient to support any claim for an offset and that, even if an offset were pleaded
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and supported by evidence, “the equities do not justify making an offset of the claims for waste and
reimbursement.” We agree that the record supports Jeff’s contention that the community received
at least some benefit from Jeff’s membership interest in 338 Industries in the form of subsequent
distributions and draws. However, viewing the evidence in the light most favorable to the trial
court’s judgment, we conclude that the trial court could have reasonably inferred that, as a result of
the loans, 338 Industries would continue to operate after the divorce and that Jeff would continue
to enjoy these same distribution benefits as part of his separate estate.
In evaluating a claim for reimbursement, the court shall determine whether to
recognize the claim and order a division of the claim “in a manner that the court considers just
and right.” Tex. Fam. Code § 7.007(b). “[G]reat latitude must be afforded the trial court in its
application of equitable principles to value a claim for reimbursement.” See Lifshutz, 199 S.W.3d
at 29 (citing In re Marriage of Cassel, No. 07-96-0268-CV, 1997 Tex. App. LEXIS 2641, at *8 (Tex.
App.—Amarillo May 19, 1997, no writ) (not designated for publication)). The trial court must
consider the facts and circumstances and determine what is just, fair, and equitable. Vallone,
644 S.W.2d at 458-59 (citing Penick, 783 S.W.2d at 197). Based on the record before us, and
applying this standard, we cannot conclude that the trial court abused its discretion in concluding that
the equities do not justify an offset against Keri’s claim for reimbursement. We overrule Jeff’s
issues on appeal challenging the trial court’s decision to reimburse the community estate.
CONCLUSION
Having overruled all of appellant’s issues on appeal, we affirm the trial
court’s judgment.
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__________________________________________
Chari L. Kelly, Justice
Before Chief Justice Rose, Justices Goodwin and Kelly
Affirmed
Filed: May 3, 2019
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