The Reconstituted Estate
In a previous blogpost, I shared my thoughts on whether a spouse can ever recover money the other spouse spends on a paramour. In this blogpost, I want to explain how a Texas judge goes about dividing the community property after one spouse has breached the fiduciary duty and committed a constructive fraud upon the other spouse.
With this blogpost in one hand and a nice glass of white wine in the other, sit on your back porch, watch the sun set over the horizon, and consider what the Texas legislature has devised. They devised something called “the reconstituted estate.”
Imagine one spouse spending community funds lavishly upon his paramour. How does the wife ever recover the money spent by the husband in breach of his fiduciary duty? The answer comes in the form of the reconstituted estate. The reconstituted estate means the total value of the community property that would exist if an actual or constructive fraud on the community had not occurred. The reconstituted estate only applies to community property. In other words, if the husband spent only his separate property funds on his paramour, there would be no application of the reconstituted estate.
So, once the judge determines that a spouse has committed actual or constructive fraud on the community, the judge would undertake a three-step calculation. Step One requires the judge to calculate the value by which the community estate was depleted as a result of the fraud on the community. What was the amount of community funds spent by the husband on his paramour? What was the loss of investment value of the dollars improperly spent over the period of time in question. In Step Two, the judge adds the answer found in Step One to the value of the community property remaining in the parties’ possession and control—the answer is the “reconstituted estate.” The judge, in Step Three, then divides the answer in Step Two between the parties in a manner that the judge deems “just and right,” fair and equitable.
In making a just and right division of the reconstituted estate, a Texas judge may grant any legal or equitable remedy the judge finds necessary to accomplish a just and right division. So, for example, the judge may award the wronged spouse an appropriate share of the community estate remaining after the actual or constructive fraud on the community. In other words, instead of a 50-50 division, the judge could divide the community 60-40 or 70-30 in favor of the spouse who had been wronged.
Alternatively, the judge might decide to award a money judgment in favor of the wronged spouse against the spouse who committed the actual or constructive fraud on the community. In other words, the judge might divide the community property 50-50 but order the spouse who committed the fraud to pay a sum of money to the wronged spouse.
Another outcome might be a combination of the above-two remedies. That is, the judge might divide the community property disproportionately between the two spouses (60-40 or 70-30, for example) and grant the wronged spouse a sum of money to be paid by the spouse who breached his fiduciary duty and spent community funds on his paramour.
Even when fraud, waste, and reconstituting the estate are discussed in court and testimony is presented and recorded by a court reporter, a judge does not automatically undertake the three-step calculation mentioned above. You must ask for it. If you or your attorney has not asked for a reconstitution of the community estate in your documents filed in court, the judge is not obliged to undertake the calculation and to reconstitute the community estate. Appellate courts around the state of Texas have so stated—if you have not presented the issue clearly and unequivocally to the trial judge, the appellate courts will not resurrect the issue for you either.
If you believe you have a situation that calls for the reconstituting of the community estate and needs to be presented to the judge, hire an attorney who is knowledgeable in family law. This is not an area of the law that is easily handled by do-it-yourselfers. Perhaps now the sun has set and you are ready for a second glass of wine.