Suzanne Marie Thornhill v. William Scott Thornhill

Affirmed in Part, Reversed and Remanded in Part, and Majority and
Concurring and Dissenting Opinions filed April 11, 2023.
In The
Fourteenth Court of Appeals
NO. 14-21-00324-CV
SUZANNE MARIE THORNHILL, Appellant
V.
WILLIAM SCOTT THORNHILL, Appellee
On Appeal from the County Court No. 1
Galveston County, Texas
Trial Court Cause No. 20-FD-0257
OPINION
Suzanne Marie Thornhill appeals the trial court’s final decree of divorce
dissolving her marriage to William Scott Thornhill. In two issues, Suzanne
contends that the trial court erred in (1) characterizing personal injury settlement
proceeds as Scott’s separate property, and (2) awarding Suzanne only two years of
spousal support in light of her alleged permanent disability. Because the trial court
erred in characterizing the settlement proceeds as separate property, we affirm the
final decree in part and reverse and remand in part.
Background
Suzanne and Scott married in September 1998. Scott was the primary
breadwinner for the couple, and Suzanne was primarily a homemaker, although she
occasionally held part-time jobs outside the home. In September 2006, Scott
suffered serious injuries at work that resulted in a lawsuit. Suzanne was a party to
the lawsuit and acted as Scott’s guardian, as he was determined to be incapacitated
at the time. An attorney ad litem was also appointed to protect Scott’s interests in
the case. A settlement agreement was reached in the lawsuit and signed on March
26, 2009.
In signing the settlement agreement on behalf of herself and Scott, Suzanne
agreed to release all claims against the defendants in the lawsuit. In return, the
defendants’ insurers agreed to make certain cash payments at the time of
settlement, as well as monthly payments thereafter for the duration of Scott’s life,
with a minimum of 30 years of such payments guaranteed. The agreement
identified the cash payments as (1) $200,000 to Scott and the law firm representing
the Thornhills, and (2) $1 million to Scott, the specific lawyer representing the
Thornhills, and Texas Mutual Insurance, which had a worker’s compensation lien.
The agreement stated that the “cash payments are to be divided by Plaintiffs as
follows: $50,000.00 to Suzanne Thornhill, individually[ and] $1,150,000.00 for the
benefit of [Scott] Thornhill.”
The monthly payments were also stated to be “[f]or the benefit of” Scott and
were initially set at $3,125 per month with an annual increase of 2 percent. Under
the terms of the agreement, provision for the monthly payments could expressly be
made by purchasing an annuity, which is how the payments were secured at the
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time of the divorce proceedings.
The settlement agreement further provided that “[a]ll sums set forth herein
constitute damages on account of personal physical injuries or sickness, within the
meaning of Section 104(a)(2) of the Internal Revenue Code and physical injuries
or physical sickness within the meaning of Section l30(c) of the Internal Revenue
Code.” And, it made the Thornhills
responsible for paying, satisfying and completely resolving from this
settlement their attorney’s fees, court costs, and case expenses and all
hospital, health care, medical, Medicare/Medicaid, and worker’s
compensation bills, expenses, or liens, if any in a manner so that
neither the Defendants nor the Insurers will be responsible for any
payment or the reimbursement of same.
The trial court in the tort lawsuit thereafter signed a final judgment approving the
settlement agreement.
Suzanne filed a petition for divorce in 2020, and Scott responded with a
counterpetition. Prior to trial, the parties reached a general agreement on the
division of property, except for the proper characterization and division of the
settlement proceeds. Contested issues in the case, including the characterization of
the monthly payments from the annuity, were then tried to the bench. The funds
from the original cash payments apparently had been exhausted by the time of trial.
Suzanne also presented evidence at trial regarding her own medical problems and
requested that the trial court award her spousal maintenance for a period of ten
years pursuant to Texas Family Code section 8.054, in the event that she was not
awarded at least half of the monthly annuity payments.
Among its findings of fact and conclusions of law, the trial court stated that
the monthly annuity payments were “funded exclusively by a personal injury
award to” Scott. In the final divorce decree, the trial court, among other things,
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dissolved the marriage between the parties, confirmed the monthly annuity
payments were Scott’s separate property, and ordered Scott to pay Suzanne spousal
maintenance of $1500 per month for two years.
Characterization of Settlement Proceeds
In her first issue, Suzanne contends the trial court erred in characterizing the
monthly annuity payments as Scott’s separate property rather than community
property. Community property is property, other than separate property, acquired
by either spouse during the marriage. Tex. Fam. Code § 3.002; see also Tex.
Const. art. XVI, § 15. In general, all property possessed by either spouse during or
on dissolution of the marriage is presumed to be community property. See Tex.
Fam. Code § 3.003(a). A spouse claiming separate property must prove the
separate character of the property by clear and convincing evidence. See id. §
3.003(b).
Recovery for personal injuries to the body, including mental pain and
anguish and physical disfigurement, sustained by a spouse during marriage is
considered that spouse’s separate property, but recovery for loss of earning
capacity, medical expenses, and other expenses associated with injury to the
community estate are community property. See id. § 3.001; Sykes v. Sykes, No. 14-
17-00049-CV, 2018 WL 6836897, at *2 (Tex. App.—Houston [14th Dist.] Dec.
27, 2018, no pet.) (mem. op.) (citing Licata v. Licata, 11 S.W.3d 269, 273 (Tex.
App.—Houston [14th Dist.] 1999, pet. denied)). Given the community
presumption, if a spouse who received a personal injury settlement asserts that
some or all of it is that spouse’s separate property, it is that spouse’s burden to
prove by clear and convincing evidence which portion of the settlement is his
separate property. Farmers Tex. Cnty. Mut. Ins. Co. v. Okelberry, 525 S.W.3d 786,
793–94 (Tex. App.—Houston [14th Dist.] 2017, pet. denied); Licata, 11 S.W.3d at
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273.
Here, Scott asserted that the settlement proceeds, or at least the portion
remaining from the annuity, were entirely his separate property. He therefore had
the burden to establish their separate character by clear and convincing evidence.
“Clear and convincing” means the measure or degree of proof that will produce in
the mind of the trier of fact a firm belief or conviction as to the truth of the
allegations sought to be established. E.g., Villalpando v. Villalpando, 480 S.W.3d
801, 806 (Tex. App.—Houston [14th Dist.] 2015, no pet.). Because this standard is
heightened over the usual preponderance of the evidence standard in civil cases,
the standard for appellate review is similarly heightened. See Barras v. Barras, 396
S.W.3d 154, 171 (Tex. App.—Houston [14th Dist.] 2013, pet. denied)
In a legal sufficiency review of a separate property finding, we examine all
the evidence in the light most favorable to the finding to determine whether a
reasonable trier of fact could have formed a firm belief or conviction that its
finding was true. Graves v. Tomlinson, 329 S.W.3d 128, 139 (Tex. App.—Houston
[14th Dist.] 2010, pet. denied); Stavinoha v. Stavinoha, 126 S.W.3d 604, 608 (Tex.
App.—Houston [14th Dist.] 2004, no pet.). We assume the factfinder resolved
disputed facts in favor of its finding if a reasonable factfinder could do so and
disregard all contrary evidence that a reasonable factfinder could have disbelieved.
Stavinoha, 126 S.W.3d at 608. We are not required, however, to disregard
undisputed facts that do not support the finding because that might skew a clear
and convincing analysis. Id.We review the trial court’s conclusions of law de novo. Id. The question is
whether the conclusions of law drawn from the facts are correct. Id. We will
uphold conclusions of law on appeal if the judgment can be sustained on any legal
theory the evidence supports. Id. Because our resolution of the issues in this appeal
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largely turns on the proper construction of the settlement agreement, we note that
settlement agreements are construed according to the general rules of contract
interpretation. See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 178
(Tex. 1997); Advanced Pers. Care, LLC v. Churchill, 437 S.W.3d 41, 44 (Tex.
App.—Houston [14th Dist.] 2014, no pet.). Our primary concern in interpreting a
contract is to ascertain and give effect to the intent of the parties as expressed in
the contract. In re Serv. Corp. Int’l, 355 S.W.3d 655, 661 (Tex. 2011) (orig.
proceeding) (per curiam). To understand that intent, we examine the entire contract
in light of the circumstances present when the contract was entered. Anglo–Dutch
Petroleum Int’l, Inc. v. Greenberg Peden, P.C., 352 S.W.3d 445, 451 (Tex. 2011).
When a contract is unambiguous, its construction is a question of law that we
review de novo. Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011).
Courts considering whether settlement proceeds are separate or community
property typically look first to whether the terms of the settlement allocated the
proceeds to specific elements of damages that may constitute either separate or
community property. For example, the settlement agreement in Licata stated that
“the nature of the injuries in this case are not easily ascertained, and . . . payment
herein is made for physical pain and mental anguish and physical disfigurement
alone,” and the release therein stated “[t]he sum announced herein is being paid
exclusively on the basis of pain, suffering, mental anguish and other intangible
damages.” 11 S.W.3d at 274. Accordingly, we held that the injured spouse had
presented clear and convincing evidence establishing the proceeds were solely her
separate property. See id.; see also Sykes v. Sykes, No. 14-17-00049-CV, 2018 WL
6836897, at *3 (Tex. App.—Houston [14th Dist.] Dec. 27, 2018, no pet.) (mem.
op.) (looking first to settlement agreement to determine nature of personal injury
damages); Cottone v. Cottone, 122 S.W.3d 211, 212 (Tex. App.—Houston [1st
6
Dist.] 2003, no pet.) (“The settlement documents governing the personal injury
award did not identify what portion was for lost wages and medical expenses and
what portion, if any, was for pain and suffering.”).
Here, the settlement agreement provided that the Thornhills were to satisfy
certain obligations from out of the total proceeds, and it earmarked $50,000 in cash
to Suzanne individually and $1,150,000 in cash plus the monthly payments “for the
benefit” of Scott. The settlement agreement did not, however, expressly allocate
any particular amounts as being for certain types of damages. The “for the benefit”
language indicates certain proceeds were to be used for Scott’s benefit, but it does
not indicate that those proceeds were intended as separate property. Indeed, the
proceeds would be for Scott’s benefit whether they were compensation for pain
and suffering, lost wages, medical expenses, or something else. Both Scott and
Suzanne testified that the money received was used during the marriage to benefit
them both. The “for the benefit” language was more likely a reflection that Scott
himself was not signing the settlement agreement.
Nonetheless, Scott makes a couple of textual arguments in support of his
position that the monthly annuity payments—the only remaining settlement
proceeds—are his separate property. First, Scott asserts that the settlement
agreement recognized that payment for certain community property obligations,
such as attorney’s fees, medical expenses, and the worker’s compensation lien,
were to be fully satisfied from the cash payments and not from the monthly annuity
payments. Thus, according to Scott, the monthly annuity payments had to have
been for separate property damages elements, such as pain and suffering. This,
however, is not clear from the actual language of the settlement agreement, which
states only that the attorney’s fees, medical expenses, and lien obligation were to
be satisfied “from this settlement,” a reference that would appear to include both
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the cash payments and the monthly annuity payments.
Scott is correct that the final judgment in the tort suit ordered Suzanne, as
Scott’s guardian, to “pay and satisfy all attorney’s fees, expenses, and liens” out of
the $1,150,000 cash payment for the benefit of Scott. Regardless, even if we accept
that the cash payment was intended to be used to satisfy those community property
obligations, it does not follow that the monthly annuity payments are solely and
necessarily for separate property elements of damages. For one thing, there is no
language in the settlement agreement or the final judgment in the tort suit
suggesting that the monthly annuity payments were not, at least in part,
compensation for Scott’s lost wages, which would, of course, be community
property damages. See, e.g., Cottone, 122 S.W.3d at 212. As Scott himself
testified, he was determined to be incapacitated at the time the settlement
agreement was reached and remained so for approximately ten years. At the time
of trial in the divorce case, he stated that he was still 60 to 70 percent disabled.
There is no indication in the record that the worker’s compensation lien covered all
of Scott’s expected lost wages; in fact, the nature and extent of the lien is scarcely
addressed in the record before us.1
Second, Scott points to the following language in the settlement agreement
that appears to reference the federal income tax consequences of the settlement:
“[a]ll sums set forth herein constitute damages on account of personal physical
injuries or sickness, within the meaning of Section 104(a)(2) of the Internal
Revenue Code and physical injuries or physical sickness within the meaning of
Section l30(c) of the Internal Revenue Code.” According to Scott, the use of the
1
Scott additionally argues that because Suzanne was involved in negotiating the
settlement and signed the settlement agreement, she in effect stipulated that the cash payment
would cover all attorney’s fees, medical expenses, and worker’s compensation liens. Even
assuming that was true, however, it would not convert the monthly annuity payments into Scott’s
separate property.
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terms “personal physical injuries” and “physical injuries” in the passage reflects
that the settlement proceeds were intended to compensate Scott specifically for his
physical injuries and not for any element of damages that would constitute
community property. We first note that this position cuts against Scott’s argument
that the Thornhill’s were obligated to use the cash payments to satisfy certain
community obligations such as medical expenses and liens. But more to the point,
the United States Supreme Court has interpreted the “damages . . . on account of”
language in 26 U.S.C. section 104(a)(2) as including medical expenses and lost
wages awarded in ordinary tort actions, among other things. O’Gilvie v. United
States, 519 U.S. 79, 83–84 (1996); Comm’r v. Schleier, 515 U.S. 323, 329 (1995).2
Although there appear to be fewer cases discussing the meaning of section 130(c),
Scott offers no reason why the “on account of” language therein would not also
include these same damages elements. Because the cited language includes these
community property damages elements, it does not support Scott’s intention that
the proceeds were solely his separate property.
Because a proper construction of the settlement agreement does not establish
that the monthly annuity payments were Scott’s separate property and Scott did not
present any other evidence demonstrating that the monthly annuity payments are
his separate property, Scott failed to meet his burden of proving by clear and
convincing evidence that the monthly annuity payments were his separate property.
See Okelberry, 525 S.W.3d at 793–94; Licata, 11 S.W.3d at 273; see also In re
2
The version of section 104(a)(2) addressed in O’Gilvie and Schleier contained the term
“personal injuries,” omitting the “physical” modifier contained in the current version of the
section. The “physical” modifier was added in 1996 principally to exclude damages for
nonphysical injuries such as emotional distress; the interpretation of the “damages . . . on account
of” language in O’Gilvie and Schleier and the analysis set forth in Schleier still govern cases
under the amended section. See, e.g., Murphy v. I.R.S., 493 F.3d 170, 174–76 (D.C. Cir. 2007);
Rivera v. Baker West, Inc., 430 F.3d 1253, 1256–57 (9th Cir. 2005); Lindsey v. Comm’r, 422
F.3d 684, 687–88 (8th Cir. 2005).
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Marriage of Franklin, No. 07-04-0515-CV, 2006 WL 1680875, at *3 (Tex. App.—
Amarillo June 19, 2006, pet. denied) (mem. op.) (holding husband failed to
establish that annuity received as a result of his personal injuries was not
compensation for lost earning capacity during marriage or medical expenses).
Accordingly, the trial court erred in characterizing those payments as Scott’s
separate property, and we sustain Suzanne’s first issue.
Remaining Issue and Disposition
A trial court’s mischaracterization of property warrants reversal only when it
resulted in harm. See Lynch v. Lynch, 540 S.W.3d 107, 133 (Tex. App.—Houston
[1st Dist.] 2017, pet. denied). Harm from mischaracterization typically manifests in
the division of the marital estate. See id. Here, it was acknowledged at trial that the
monthly annuity payments were a substantial asset compared to the remainder of
the property the Thornhills owned at the time of divorce. Accordingly, it is clear
that the trial court’s mischaracterization of the monthly annuity payments affected
the just and right division of the marital estate. See Evans v. Evans, 14 S.W.3d 343,
346–47 (Tex. App.—Houston [14th Dist.] 2000, no pet.). We must therefore
reverse and remand the portions of the trial court’s decree that characterized the
monthly annuity payments as Scott’s separate property and divided the marital
estate between the parties on that basis.
In her second issue, Suzanne contends that the trial court erred in only
awarding her two years of spousal maintenance instead of indefinite spousal
maintenance. Among other possibilities, under Family Code section 8.051, a trial
court may order spousal maintenance if the spouse seeking maintenance will lack
sufficient property on dissolution of the marriage to provide for the spouse’s
minimum reasonable needs and the spouse is unable to earn sufficient income to
provide for those needs because of an incapacitating physical disability. Tex. Fam.
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Code § 8.051(2)(A). Section 8.054 governs the duration of spousal maintenance
and provides in part that a court awarding maintenance must limit the duration of
the order to the shortest reasonable period that allows the spouse seeking
maintenance to earn sufficient income to provide for their minimum reasonable
needs, unless the ability of the spouse to provide for those needs is substantially or
totally diminished because of physical disability. Id. § 8.054(a)(2)(A).
We first note here that although Suzanne testified she was permanently
disabled, she only requested that the court order Scott to pay spousal maintenance
for ten years, not the indefinite duration that she seeks on appeal. We also note that
Suzanne did not offer a percentage that she was disabled but did acknowledge she
had previously worked, and there was testimony from others that Suzanne had
worked before and could likely work in the future, albeit with limitations.
More importantly for our purposes in this appeal, Suzanne’s request for
spousal maintenance was expressly urged only in the event she did not receive 50
percent of the monthly annuity payments in the division of property. Additionally,
under section 8.051, Suzanne would not be entitled to spousal maintenance if she is
awarded sufficient property to provide for her minimum reasonable needs. See id.
§ 8.051. Because we are reversing and remanding for a new division of property
that includes the monthly annuity payments, we also reverse and remand the trial
court’s spousal maintenance order for a new determination. Accordingly, we need
not address Suzanne’s second issue and overrule it as moot.
Conclusion
We reverse the portions of the trial court’s final decree that confirmed the
monthly annuity payments as Scott’s separate property, divided the marital estate,
and ordered Scott to pay spousal maintenance, and we remand the case to the trial
court for further proceedings limited to a new division of property that includes the
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monthly annuity payments and a new determination on the request for spousal
maintenance. We affirm the remainder of the final decree.
/s/ Frances Bourliot
Justice
Panel consists of Chief Justice Christopher and Justices Bourliot and Spain. (Spain,
J., concurring and dissenting)
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