Originally published by Robert Epstein.
A trial court in a Texas divorce must divide community property in a just and right manner. Property can be somewhat broadly defined as it relates to property division in a divorce case. Many people do not realize that a lease of someone else’s property is subject to division in a divorce, unless the lease is shown to be separate property.
In a recent case, the wife challenged a property division that did not include a recreational lease held by the husband. The wife appealed the property division, arguing error in the trial court’s division of property. She argued the court failed to include a recreational lease in the community estate and that the court unfairly allocated the husband’s tax debt. The court had allocated all of the tax debt to the husband, but the wife argued the court erred in using it to offset the value of the assets awarded to the husband.
At trial, there was evidence the husband signed a written lease for a ranch during the marriage. The husband’s friend owned the property and testified the husband had helped him build or enhance some of the improvements on the property. The owner testified he would sell the ranch to the husband for a significant discount and indicated he would extend the lease to the husband indefinitely as long as he paid the rent.
The wife argued the husband was an owner of the ranch and was hiding his ownership interest from the IRS. The trial court found the husband did not own the ranch. The wife moved for reconsideration, arguing the court should assign value to the lease. The court rejected her argument.
The wife did not argue the husband had an ownership interest in the ranch on appeal. She argued that the leasehold interest should have been included in the property division. A lease of property acquired during marriage is generally subject to division unless it is shown to be separate property by clear and convincing evidence. The ranch lease was executed during the marriage and extended beyond the divorce; therefore it was presumed to be community property. No evidence otherwise was presented. The appeals court found it was not within the trial court’s discretion to find the lease was not community property. The court, however, should have determined if the lease had enough value to affect the division of the estate.
The trial court did not assign any value to the lease, and there was not sufficient evidence presented for it to do so. Community property is generally valued at “market value.” That is, the amount a willing buyer who wants to but has no obligation to buy would pay a willing seller who wants to sell but is not obligated to sell. If there is no market value, the parties may show the property’s actual value to its owner.
There had been evidence at trial of the market value of the ranch itself, but not the value of the lease. The only related evidence was the amount the husband paid for rent, but there was no evidence regarding whether that amount represented the actual value of the lease, or if the husband had possibly received a good deal due to his relationship with the owner. The appeals court also noted it was possible the nearly $200,000 the husband would pay in rent over the 10-year lease term could be greater than the value of the lease. The appeals court found there was insufficient evidence to determine if the lease was a community asset, community debt, or was too inconsequential to have an effect on the property division.
The appeals court noted both parties have a responsibility to provide sufficient evidence regarding the community estate’s value to allow the court to divide the property in a just and right manner. In some cases, courts have held that a party who fails to provide sufficient evidence of property’s value cannot later challenge the trial court’s division of the property on the grounds it had insufficient evidence. The appeals court noted this type of waiver may be appropriate where there was some evidence of the property’s value or where the unvalued property would have little effect on the total division. With no evidence of the lease value and its total omission from the property division, the waiver would not be appropriate here. Without evidence of the value of the lease, the trial court could not achieve a “just and right” property division.
The appeals court affirmed the divorce, but reversed the property division. Because the appeals court reversed and remanded for a new property division, it did not address the challenge regarding the tax liability.
If you are facing a complex high-asset divorce, the skilled Texas divorce attorneys at McClure Law Group can help you fight for a fair property division. Call us at 214.692.8200 to talk about your case.