Opinion
No. 08-01-00443-CV
December 19, 2003.
Appeal from the 383rd District Court of El Paso County, Texas, (TC# 99CM5942).
John P. Mobbs, Attorney for Appellant.
Ken Slavin, Attorney for Appellee.
Before Panel No. 2: BARAJAS, C.J., McCLURE, and CHEW, JJ.
MEMORANDUM OPINION
Appellant Luis Munoz appeals the property division in his divorce from Appellee Patricia Munoz. On appeal, Appellant raises two issues, in which he contends the trial court erred in mischaracterizing certain property as Appellee's separate property and abused its discretion in concluding that the property division was just and right, irrespective of the characterization of any item of property as either community or separate. We affirm.
BACKGROUND
Luis and Patricia Munoz were married on August 8, 1981. There are two minor children from the marriage. Appellee filed for divorce on September 8, 1999, and Appellant filed a counter-petition. Following a jury trial on the issue of primary custody of the children, the trial court conducted a bench trial in March 2001 to determine the remaining issues of division of property, possession, access, and child support. Appellant's issues on appeal are limited to the trial court's division of property in the divorce case.
At the time of the bench trial, Appellant was an El Paso County probation officer and earned approximately $32,866 annually. Appellee was currently unemployed and receiving $294 per week in unemployment compensation, which she expected to run out in a couple more months. When Appellee initially filed for divorce, she had been working at UTEP as an assistant director of conference services and was also a real estate agent. Prior to her termination at UTEP in August 2000, Appellee had been earning $33,000 annually. Appellee's real estate license expired in November 1999, but she had previously earned $6,000 annually from real estate commissions. Assuming she passed the licensing test, Appellee had a job lined up with a real estate agency and would be paid on a commission basis.
With respect to property division, the parties disputed the characterization of settlement money received in 1995 from a personal injury lawsuit. In January 1994, Appellee was injured in an accident while she was employed with El Paso Natural Gas Company as a conference planner. While conducting a site visit and inspection at the Westin Regina Hotel in Los Cabos, Mexico, Appellee was taken on a tour of the property in a golf cart-type vehicle. During the tour, the driver lost control of the vehicle when the brakes failed. Appellee tried to hang on and stay in the cart, but her leg was being dragged on the pavement. When the driver hit a curb, Appellee was thrown from the vehicle. The cart landed on top of Appellee's leg.
As a result of the accident, Appellee sustained injuries to her head, shoulder, hip, legs, arms, and hands. Appellee's ankle and calf were shredded and pavement burns on her legs were consistent with third-degree burns. Appellee characterized the pain she experienced as a thousand times worse than having a baby. Appellee was transported to El Paso a day or two after the accident. Appellee stayed overnight at an El Paso hospital and then was at home for about five days before doctors determined she needed emergency skin graft surgery. Appellee was in the hospital burn unit for twelve days. Appellee was bedridden for about a month and a half and received workers' compensation benefits for about two years.
In March 1995, Appellee and Appellant filed a personal injury lawsuit against the Westin Hotel and other defendants. In the original petition, the couple alleged that Appellee suffered physical pain and anguish, lost earnings and earning capacity, medical expenses, physical impairment, and disfigurement. The couple also alleged damages for Appellant's loss of consortium and services of his wife. The lawsuit settled in November 1995. The total settlement was for $662,500. After deducting out-of-pocket expenses, attorney's fees, unpaid medical expenses, the workers' compensation lien, and $2,000 in advances, the net amount paid to Appellee and Appellant was $439,064.12. Both Appellee and Appellant signed the release of their claims for the settlement monies. The trial court took notice and Appellee's counsel stipulated that the proceeds were not divided between the parties. The settlement proceeds were initially invested with a local investor, but were subsequently transferred to a California investment firm. The investment accounts were held in both parties' names. At the time of trial, there was $108,145.66 remaining in the investment accounts.
In 1996, Appellee was laid off from the El Paso Natural Gas Company after working for the company for seventeen years. Appellee testified that she thought her lay off was partly due to her injury because anybody who had been hurt or was a health risk was let go. In 1996, Appellee started working as a real estate agent and in August 1998 started working at UTEP.
During 1996, the couple used a portion of the settlement proceeds to purchase a house on Desert Ridge. The couple purchased the home for $120,000 and paid $60,000 for the down payment from the settlement proceeds, which had been transferred to their joint checking account. They owned the house for two and a half years during which time they renovated the property, expanding the house from 1,933 square feet to 4,400 square feet. To renovate the house, $100,000 of the settlement proceeds were used. When the couple owned the Desert Ridge house, monthly mortgage payments were approximately $2,100. From their work incomes, they deposited approximately $4,000 a month into their checking account. Appellee testified that their income did not cover all their living expenses, so every month she used settlement fund monies to cover the mortgage. Appellant conceded that the settlement proceeds were used to supplement monthly expenses.
In September 2000, the couple sold the house for $340,000, but after paying outstanding liens, including a $110,000 home improvement loan, and other sale-related expenses, the remaining proceeds were $137,206. The home sale proceeds were deposited into the couple's joint checking account. At the time of trial, $104,061.07 remained in that account.
Adding the amounts in the California investment account to the home sale proceeds in the checking account, Appellee argued that the $212,206.73 remaining from the settlement fund was her separate property based on the community-out-first theory or alternatively, the court should award her a disproportionate division of the community estate. Appellant asserted that proceeds from the lawsuit were community property and were commingled in the community accounts. Appellant also argued that Appellee had failed to meet her burden proving or tracing the proceeds as her separate property.
In dividing the property in the divorce decree, the trial court determined that the settlement proceeds remaining in the California investment accounts and the home sale proceeds in the checking account were Appellee's separate property. The trial court entered findings of fact and conclusions of law with respect to the characterization and division of property in this case. Appellant now appeals the trial court's division of these assets.
DISCUSSION Characterization of Assets
In Issue One, Appellant contends the trial court erred in characterizing the accounts holding the proceeds from the sale of the family home and the remaining balance of the lawsuit settlement as Appellee's separate property. Specifically, Appellant argues there was no evidence which would allow the trial court to determine which portion of the settlement funds represented compensation for which category of damages alleged in the personal injury suit. Within Issue One, Appellant also asserts that this mischaracterization was harmful error because it made a substantial difference in the overall division of the property, which constitutes an abuse of discretion by the trial court.
In Issue Two, Appellant argues that if this Court concludes that the trial court's holdings preclude finding harmful error, then the trial court abused its discretion by its finding that even if the settlement fund was determined to be community property, a disproportionate division should be awarded to Appellee as a just and right division of the community estate and by the court's conclusion that the property division is just and right irrespective of the characterization of any item of property as either community or separate. Since Appellant's Issues One and Two are related, we will address them together.
Community Property Presumption
Property possessed by either spouse during or on dissolution of marriage is presumed to be community property. TEX.FAM.CODE ANN. § 3.003(a) (Vernon 1998). A spouse claiming certain assets are separate property has the burden to establish their separate character by clear and convincing evidence. See TEX.FAM.CODE ANN. § 3.003(b). A spouse's separate property consists of property owned or claimed before marriage, acquired during marriage by gift, devise, or descent, or recovery for personal injuries sustained by the spouse during marriage, except any recovery for loss of earning capacity during marriage. See TEX.FAM.CODE ANN. § 3.001. Community property consists of the property, other than separate property, acquired by either spouse during marriage. TEX.FAM.CODE ANN. § 3.002.
Standards of Review
In an appeal from a bench trial, we apply the same sufficiency standards when reviewing the trial court's findings of fact as we do when reviewing the evidence supporting the jury's answers to special issues. See Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994); In re Marriage of Becerra, 100 S.W.3d 637, 640 (Tex.App.-Texarkana 2003, no pet.). When the party without the burden of proof suffers an unfavorable finding, the challenge on appeal is one of "no evidence to support the finding." Tate v. Tate, 55 S.W.3d 1, 4 (Tex.App.-El Paso 2000, no pet.). In conducting a legal sufficiency review under the "clear and convincing" standard, the reviewing court examines 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. In re J.F.C., 96 S.W.3d 256, 266 (Tex. 2002); see also TEX.FAM.CODE ANN. § 101.007 (Vernon 2002). The reviewing court must assume that the fact finder resolved disputed facts in favor of its finding if a reasonable fact finder could do so. In re J.F.C., 96 S.W.3d at 266. The court, however, does not disregard all evidence that does not support the finding. Id. Rather, it disregards all evidence that a reasonable fact finder could have disbelieved or found to have been incredible. Id. In reviewing a factual sufficiency challenge under the clear and convincing standard, we must determine whether the evidence is such that a fact finder could reasonable form a firm belief or conviction about the matter in question. In re C.H., 89 S.W.3d 17, 25-6 (Tex. 2002).
Most of the appealable issues in a family law case are evaluated against an abuse of discretion standard, including the issue of property division incident to divorce. See Tate, 55 S.W.3d at 5-6. Where an appellant challenges the sufficiency of evidence to support the trial court's characterization of a particular asset in the property division, he or she must also establish that the characterization error was harmful because the trial court's overall division of property constitutes an abuse of discretion. See id. at 7. The test for whether the trial court abused its discretion is whether the court acted without reference to any guiding rules and principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 242 (Tex. 1985), cert. denied, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986). Where sufficiency review overlaps the abuse of discretion standard, we engage in a two-pronged inquiry: (1) Did the trial court have sufficient information upon which to exercise its discretion; and (2) Did the trial court err in its application of discretion? Lindsey v. Lindsey, 965 S.W.2d 589, 592 (Tex.App.-El Paso 1998, no pet.).
Personal Injury Settlement
In his first issue, Appellant contends that no reasonable fact finder could form a firm belief or conviction that the funds in the California investment account and the sums remaining in the joint checking account, including the home sale proceeds were Appellee's separate property. Specifically, Appellant argues that for tracing purposes, Appellee failed to carry her burden of proving that the above assets were her separate property because there was no evidence specifying which portion of the settlement proceeds were for community property losses and which were separate.
To overcome the community property presumption, the spouse claiming certain property as separate must trace and clearly identify the property claimed to be separate by clear and convincing evidence. McKinley v. McKinley, 496 S.W.2d 540, 543 (Tex. 1973); McElwee v. McElwee, 911 S.W.2d 182, 189 (Tex.App.-Houston [1st Dist.] 1995, writ denied); see Tex.Fam. Code Ann. § 3.003(b). Tracing involves establishing the separate origin of the property through evidence showing how the time and means by which the spouse originally obtained possession of the property. McKinley, 496 S.W.2d at 543; Hilliard v. Hilliard, 725 S.W.2d 722, 723 (Tex.App.-Dallas 1985, no writ). When the evidence shows separate and community property have been so commingled as to defy segregation and identification, the burden is not discharged and the statutory presumption prevails. McKinley, 496 S.W.2d at 543.
Recovery for personal injuries sustained by a spouse is the separate property of that spouse, including damages for disfigurement, physical pain and suffering in the past and in the future. See Licata v. Licata, 11 S.W.3d 269, 273 (Tex.App.-Houston [14th Dist.] 1999, no pet.); Tex.Fam. Code Ann. § 3.001. In addition, damages for mental pain and anguish are separate property. Licata, 11 S.W.3d at 273. However, not all personal injury damages are separate property. See TEX.FAM.CODE ANN. § 3.001. The community estate is entitled to recovery for lost wages, lost earning capacity during the marriage, medical expenses incurred during the marriage, and other expenses associated with injury to the community estate. Licata, 11 S.W.3d at 273; Slaton v. Slaton, 987 S.W.2d 180, 182-83 (Tex.App.-Houston [14th Dist.] 1999, pet. denied). When a spouse receives a personal injury settlement from a lawsuit during marriage, some of which could be separate property and some of which could be community property, it is that spouse's burden to demonstrate which portion of the settlement is his or her separate property. Licata, 11 S.W.3d at 273, citing Kyles v. Kyles, 832 S.W.2d 194, 198 (Tex.App.-Beaumont 1992, no pet.); see also Slaton, 987 S.W.2d at 183. Without clear and convincing evidence showing the recovery is solely for the personal injury of a particular spouse, the spouse does not overcome the presumption that all property received during marriage is community property. Licata, 11 S.W.3d at 273.
In this case, Appellant and Appellee were both plaintiffs in the personal injury lawsuit brought against the Westin Hotel and other defendants. In their petition, they alleged that Appellee suffered physical pain and anguish, lost earnings and earning capacity, medical expenses, physical impairment, and disfigurement. They also alleged damages for Appellant's loss of consortium and services of his wife. The lawsuit settled for $662,500. After deducting out-of-pocket expenses, attorney's fees, unpaid medical expenses, the workers' compensation lien, and $2,000 in advances, Appellee and Appellant were paid $439,064.12. Both spouses signed the release of their claims for the settlement monies. At trial, the trial court took notice and Appellee's counsel stipulated that the proceeds were not divided between the parties. In her appellate brief, Appellee concedes that the settlement agreement did not allocate the recovery between the separate property claims and the community property claims.
On appeal, Appellant argues that for tracing purposes there was no evidence to determine which portion of the settlement funds represented compensation for which category of damages. With respect to the couple's alleged lost earnings and earning capacity and medical expenses, these damages were recoverable by the community estate. See Licata, 11 S.W.3d at 273.
With regard to the personal injury settlement, the trial court found that the settlement was for the separate nature of Appellee's injuries, her pain and suffering, her mental anguish and her disfigured leg. The trial court also found that the remaining sum of the settlement unspent by the parties during marriage was the sole and separate property of Appellee. However, after reviewing the record, we find a lack of clear and convincing evidence to rebut the presumption that some portion of the settlement funds were attributable to Appellee's lost earnings and lost earning capacity which are community estate assets. Since Appellee did not prove what amount of the settlement proceeds were separate or community property, a reasonable trier of fact could not have formed a firm belief or conviction that the net recovery from the settlement was entirely Appellee's separate property. See In re J.F.C., 96 S.W.3d at 266; see also TEX.FAM.CODE ANN. § 101.007. When some portion of a settlement may be for lost wages or lost earning capacity, the spouse receiving the settlement has the burden to show that none of the funds constitute payment for lost wages or lost earning capacity during marriage. Kyles, 832 S.W.2d at 198. In the absence of such evidence, the entire settlement proceeds are properly characterized as community property. Id. at 198-99. Therefore, the trial court erred in its characterization of the settlement fund as Appellee's separate property.
Where the trial court mischaracterizes community property as separate property, the appellant must show harm by proving that because of the mischaracterization, the overall property division constitutes an abuse of discretion. Tate, 55 S.W.3d at 7. The trial court has broad discretion in making a just and right division of the community estate. McElwee, 911 S.W.2d at 189; TEX. FAM.CODE ANN. § 7.001. If the trial court mischaracterizes community property as separate property, then the property is not divided as part of the community estate. McElwee, 911 S.W.2d at 189. If the mischaracterized property has value that would have affected the trial court's just and right division, then that mischaracterization is harmful, requiring remand to the trial court for a just and right division of the property characterized as community property. Id. If, on the other hand, the mischaracterized property had only a de minimis effect on the trial court's just and right division, then the trial court's error is not an abuse of discretion. Id.
In this case, the trial court made the following pertinent finding of fact:
Nevertheless, even if such settlement fund was determined to be community property, under a just and right division of assets, I find that a disproportionate division of this so called `community or commingled' estates should be awarded to PATRICIA MUNOZ as a just and right division of the community estate, factoring in the needs and best interests of the children, the fact that the personal injury claim was based primarily on the separate injuries suffered by PATRICIA MUNOZ that significantly enhanced and added to the marital estate, the nature of the property involved, my award of $35,000.00 from the settlement fund to LUIS MUNOZ and my award to LUIS MUNOZ of the entire community interest in his Texas County and District Retirement funds.
The trial court also made the following conclusion of law:
The division of the property of Petitioner and Respondent effected by the final judgment is just and right, having due regard for the rights of each party and the children of the marriage, irrespective of the characterization of any item of property as either community or separate.
In his second issue, Appellant argues that if the trial court's holdings preclude this Court from finding that the mischaracterization was reversible error, then these holdings constitute an abuse of discretion because they represent the trial court's refusal to conform to guiding rules and principles governing division of property. Specifically, Appellant contends that governing law requires a trial court to determine the character of marital property as either separate or community property before attempting to divide the estate. In so arguing, Appellant directs this Court's attention to Cooper v. Cooper, 513 S.W.2d 229 (Tex.Civ.App-Houston [1st Dist.] 1974, no writ), in which the court states, "the starting point in developing a case where the question of division of property is contested is the task of establishing the nature of the property to be divided as separate or as community." Cooper, 513 S.W.2d at 232; see also Allen v. Allen, 704 S.W.2d 600, 603 (Tex.App.-Fort Worth 1986, no writ), citing Cooper v. Cooper; Reiss v. Reiss, 40 S.W.3d 605, 615 (Tex.App.-Houston [1st Dist.] 2001), rev'd on other grounds, 40 S.W.3d 605 (Tex. 2003), citing Cooper v. Cooper. Appellant contends the trial court's holdings establish that it made its decision without regard to this guiding rule and principle and instead, divided the property a certain way to achieve a certain result, regardless of any law that might govern the property division. We disagree with this contention.
In this case, the trial court entered a finding in which it determined that if the settlement fund was community property, under a just and right division of the property, Appellee should be awarded a disproportionate division of the community estate. The trial court has broad discretion in the division of property incident to divorce. See Tate, 55 S.W.3d at 5-6. In the exercise of this discretion, community property need not be equally divided. Murff v. Murff, 615 S.W.2d 696, 698-99 (Tex. 1981); Tate, 55 S.W.3d at 10. In making a division of property, the trial court may consider various non-exclusive factors, including a disparity of incomes or of earning capacities, the spouses' capacities and abilities, education, relative physical conditions, relative financial condition and obligations, education, size of separate estates, and the nature of the property. See Murff, 615 S.W.2d at 699; Sprick v. Sprick, 25 S.W.3d 7, 14 (Tex.App.-El Paso 1999, no pet.). In making its determination, the trial court considered the following factors: the needs and best interests of the children; the fact that the personal injury claims was based primarily on the separate injuries suffered by Appellee that significantly enhanced and added to the marital estate; the nature of the property involved; its award of $35,000 from the settlement fund to Appellant; and its award to Appellant of the entire community interest in his Texas County and District Retirement funds. It is apparent that the trial court did not merely make its decision to achieve a certain result, but rather considered various factors in deciding to divide the community property disproportionately in this case.
Within his first issue, Appellant argues that awarding a disproportionate division of the community property would be an abuse of discretion by the trial court. We understand Appellant to be arguing that the trial court abused its discretion in making the disputed finding discussed above because the evidence is insufficient to support the finding.
In Appellee's amended original petition for divorce, she requested that she be awarded a disproportionate share of the parties' estate for numerous reasons, including disparity of earning power of the spouses, needs of the children, and the nature of the property involved in the division. By the final divorce decree, Appellant was awarded certain community property which included: (1) household furnishings in his possession valued at $23,000; (2) bank account with a minimal balance; (3) Texas County and District retirement plan in which Appellant contributed $35,000 over fourteen years employment; (4) deferred compensation plan valued at $5,325; (5) three motor vehicles valued at $13,775 collectively; (6) a baby grand piano valued at $10,000; and (7) $35,000 from Appellee's separate property. Appellee was awarded the following community property: (1) household furnishings in her possession valued at $6,000; (2) bank account with a minimal balance; (3) savings account with a balance of $2,000; (4) real property located at 2005 Trawood, El Paso, Texas valued at $120,000; (5) retirement plans valued collectively at $51,556.39; (6) a motor vehicle valued at $12,150; and (7) account receivable for Appellee's sister valued at $7,000. In its findings, the trial court found that only $212,206.73 remained from the settlement fund and awarded this amount to Appellee as her separate property. However, the trial court also found that even if the settlement fund was community property, a just and right division required awarding the amount to Appellee as a disproportionate division.
We observe with great concern, the trial court's award from Appellee's "separate property" to Appellant in the division of the marital estate. While the trial court has wide discretion in dividing community property in a divorce action, it cannot divest one spouse of separate property and award it to the other spouse. See Cameron v. Cameron, 641 S.W.2d 210, 213 (Tex. 1982); Eggemeyer v. Eggemeyer, 554 S.W.2d 137, 139 (Tex. 1977); see also TEX.CONST. art. XVI, § 15. This award, however, has not been challenged on appeal by either party.
At the time of trial in March 2001, Appellee had been unemployed since August 2000 and was receiving $294 per week in unemployment compensation, which she expected would end in a couple more months. Appellant was employed as a probation officer and earned approximately $32,866 annually. In the final divorce decree, Appellee was appointed primary joint managing conservator of the two minor children and Appellant was ordered to pay child support of $544 per month and given visitation rights. Appellant was also required to provide health insurance for the children, with each party to pay one-half of all uninsured health care expenses.
In 1995, the parties received a net recovery of $439,064.12 for settlement of the personal injury lawsuit arising from injuries Appellee sustained in the accident at the Westin Hotel in Los Cabos, Mexico while employed for El Paso Natural Gas Company. At the bench trial for the divorce, Appellee testified that she suffered extensive physical injury to her head, shoulder, hip, legs, arms, and hands, which required an emergency skin graft surgery, a hospital stay, a month and a half out of work. Appellee described the pain she experienced as a thousand times worse than having a baby. Of the monies received from the settlement only $212,206.73 remained at the time of trial in March 2001. While Appellee was employed, the couple deposited approximately $4,000 a month into their checking account. Appellee testified that their income did not cover all their living expenses and Appellant conceded that the settlement proceeds were used to supplement monthly expenses. From the evidence at the bench trial, personal injury settlement clearly was primarily the result of injuries suffered by Appellee and significantly enhanced and added to the marital estate of the parties.
After reviewing the evidence, we find that there was a reasonable basis for awarding an unequal division of the property in favor of Appellee. Since the trial court had sufficient information to exercise its discretion and did not err in exercising that discretion in awarding a disproportionate division to Appellee, we conclude the trial court did not abuse its discretion in concluding that the property division was just and right. Issues One and Two are overruled.
For the reasons stated above, we affirm the trial court's judgment.