in the Matter of the Marriage of Tamela Jo Franklin and Robert Earl Franklin and in the Interest of Makenzie Chase Franklin, a Child ( 2006 )


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  •                                   NO. 07-04-0515-CV
    IN THE COURT OF APPEALS
    FOR THE SEVENTH DISTRICT OF TEXAS
    AT AMARILLO
    PANEL E
    JUNE 19, 2006
    ______________________________
    IN THE MATTER OF THE MARRIAGE OF
    TAMELA JO FRANKLIN AND ROBERT EARL FRANKLIN
    AND IN THE INTEREST OF M.C.F., A CHILD
    _________________________________
    FROM THE 286TH DISTRICT COURT OF HOCKLEY COUNTY;
    NO. 03-12-19404; HONORABLE HOWARD PHELAN, JUDGE
    _______________________________
    Before REAVIS and CAMPBELL, JJ., and BOYD, S.J.1
    MEMORANDUM OPINION
    This appeal concerns the characterization of an annuity issued as part of a
    settlement of a spouse’s personal injury suit during marriage. The trial court determined
    the annuity was community property subject to division at divorce. We affirm.
    Most of the relevant facts in this case are undisputed. Tamela Jo and Robert Earl
    Franklin were married in 1979. They had two children, one of whom had turned 18 before
    the divorce. Robert had a stable job as a welder making $26,250 a year. Tamela was
    1
    John T. Boyd, Chief Justice (Ret.), Seventh Court of Appeals, sitting by
    assignment.
    employed as a nurse earning a similar amount. In 1997 Robert suffered a serious heart
    condition necessitating valve replacement surgery and ongoing care. Robert’s heart
    problems were attributed to his use of the drug combination fen/phen, and as one of
    twenty-nine plaintiffs he brought a personal injury suit in 1999. Tamela was not a party to
    the suit. A petition in the personal injury suit was introduced in the divorce proceeding. It
    sought recovery for past and future physical pain and mental anguish, disfigurement and
    medical expenses.
    Robert’s suit was terminated by a settlement agreement about August 2000. Parts
    of the settlement agreement also appear in the record. In exchange for his release of all
    his current and future claims Robert received an initial payment of $523,203.43 and
    periodic payments through an annuity issued by American General Assignment
    Corporation. The annuity provided for guaranteed monthly payments of $5000 for five
    years, increasing to $7838 for Robert’s lifetime but for twenty-five years certain, six
    additional payments ranging between $20,000 and $250,000, and semiannual payments
    of $10,000 and $12,500 for the benefit of the parties’ children through their college-age
    years.2
    The couple separated in November 2003 and Tamela filed a petition for divorce the
    following month. The case was tried without a jury in June 2004 where Tamela and Robert
    2
    The trial court’s findings of fact state that the annuity carried minimum guaranteed
    payments of $3,141,400. The settlement agreement and annuity provided for Robert’s
    designation of a beneficiary for the guaranteed payments in the event of his death before
    their completion.
    2
    were the only witnesses. Their testimony focused on three main areas: the grounds for
    divorce,3 the personal injury suit, and disposition of the settlement proceeds.
    The evidence of Robert’s income, injuries and total disability recited above was
    undisputed. Tamela testified she had taken a job with lower pay because it would provide
    health insurance for Robert and allow her to spend more time caring for him and the
    children. She also testified to her participation in the settlement discussions in the
    personal injury case and her belief that the recovery was to compensate them jointly.
    Robert testified to his belief the settlement was for his claims only.
    The evidence concerning disposition of the settlement funds showed the couple had
    no significant assets before the settlement. They had little or no equity in their house and
    insubstantial personal property. The initial payment was placed in a joint money market
    account at a bank. Monthly annuity payments were placed in another joint account in the
    same bank. Funds from both accounts were used to purchase, remodel and furnish a
    home, pay off debts, and purchase vehicles for members of the family. They were also
    used to pay living and medical expenses. Tamela testified that she believed all of Robert’s
    medical bills from his heart condition through the time of trial had been paid. Robert
    testified all but “about $2,000" of his medical expenses had been paid out of the settlement
    proceeds.
    3
    The divorce decree dissolved the marriage on the ground of adultery. Robert
    acknowledged he had fathered two children by another woman during the marriage.
    3
    The trial court rendered judgment terminating the marriage and naming Tamela
    managing conservator of the minor child. The trial court found the annuity was community
    property because it consisted of commingled funds and Robert failed to identify it as his
    separate property by clear and convincing evidence. The decree awarded to Tamela the
    home, personal property in her possession, and forty percent of the annuity. It awarded
    Robert vehicles and personal property in his possession and sixty percent of the annuity.4
    The trial court rendered findings of fact and conclusions of law supporting its decree.
    Robert’s two issues on appeal challenge the trial court’s characterization of the
    annuity as community property and its imposition on him of the burden to establish the
    annuity as his separate property. We initially address the second issue.
    Robert agrees we must begin with the presumption that property possessed by
    either spouse on dissolution of marriage is community property. Tex. Fam. Code Ann.
    § 3.003(a) (Vernon 1998). It is well established that a vested right to future payments can
    be community property subject to division. See Shanks v. Treadway, 
    110 S.W.3d 444
    , 446
    (Tex. 2003) (pension plan); Cearley v. Cearley, 
    544 S.W.2d 661
    , 662 (Tex. 1976) (same).
    To overcome the presumption of community property, a spouse must identify his separate
    property by clear and convincing evidence, by tracing if necessary. Tex. Fam. Code Ann.
    § 3.003(b); Tarver v. Tarver, 
    394 S.W.2d 780
    , 783 (Tex. 1965); Licata v. Licata, 
    11 S.W.3d 269
    , 272-73 (Tex.App.--Houston [14th Dist.] 1999, pet. denied). Clear and convincing is
    4
    The semiannual annuity payments designated for the benefit of their children were
    excepted. Tamela was given control over the payments designated for one of the children,
    and Robert given control over those for the other child.
    4
    the degree of evidence necessary to "produce in the mind of the trier of fact a firm belief
    or conviction about the allegations sought to be established." 
    Tarver, 394 S.W.2d at 783
    .
    A spouse’s separate property consists of property (1) owned before marriage, (2)
    acquired during marriage by gift, devise or descent, and (3) “the recovery for personal
    injuries sustained by the spouse during marriage, except for any loss of earning capacity
    during marriage.” Tex. Fam. Code Ann. § 3.001 (Vernon 1998). When the property
    consists of recovery for personal injuries, courts have recognized a second exception
    applicable to amounts recovered for medical expenses. Graham v. Franco, 
    488 S.W.2d 390
    , 396 (Tex. 1972); 
    Licata, 11 S.W.3d at 273
    .
    Robert’s second issue turns on differing views of Family Code section 3.001(3). As
    we perceive Robert’s position, he believes that statute required him only to show the
    property at issue consisted of a recovery for personal injuries. On meeting that burden, the
    burden to show what portion of the recovery was for lost earning capacity or medical
    expenses shifted to Tamela. Tamela contends section 3.001(3) required Robert to bear
    the burden to identify what amount of the recovery was for his pain and suffering and what
    amount was for lost earning capacity during marriage and medical expenses.
    Robert correctly cites Osborn v. Osborn, 
    961 S.W.2d 408
    (Tex.App.–Houston [1st
    Dist.] 1997, pet. denied), for the proposition that no presumption of community property
    applies to a potential recovery for personal injuries. Osborn, though, dealt with a potential
    recovery. 
    Id. at 414.
    At the time of the Osborn parties’ divorce, their personal injury
    lawsuit had not been tried or settled. 
    Id. at 413.
    En route to its holding that the trial court
    5
    erred by treating the entirety of the claims asserted in their personal injury suit as
    community property, the court noted that the husband Lon Osborn’s potential recovery for
    his personal injuries was his separate property under both the Family Code and case law
    (citing Graham v. 
    Franco, 488 S.W.2d at 396
    ), noted that other potential recoveries
    (medical expenses, e.g.) in the parties’ suit would constitute community property and finally
    noted that Sara Osborn’s claim for damages for loss of consortium was her separate
    property. 
    Id. at 414.
    The court further observed that until the case was tried or settled, the
    parties’ estimates of the dollar amounts or percentages of the recovery attributable to the
    various claims would be entirely speculative. 
    Id. at 415.
    It concluded, “Once the case is
    tried, the jury’s answers will determine the amounts to be awarded for each type of injury.
    If the case is settled, Sara, as one of the plaintiffs, can participate in the allocation of
    damages to the different claims for damages.” 
    Id. Osborn is
    not inconsistent with other case law establishing that a spouse who claims
    property as separate under section 3.001(3) bears the burden to establish its separate
    character in the same manner as that claimed as separate under sections 3.001(1) or (2).
    See Cottone v. Cottone, 
    122 S.W.3d 211
    , 213 (Tex.App.--Houston [1st Dist.] 2003, no
    pet.); 
    Licata, 11 S.W.3d at 272
    ; Slaton v. Slaton, 
    987 S.W.2d 180
    , 183 (Tex.App.–Houston
    [14th Dist.] 1999, pet. denied); Kyles v. Kyles, 
    832 S.W.2d 194
    , 199 (Tex.App.–Beaumont
    1992, no writ) (all applying presumption of community property to personal injury
    recoveries). Unlike the potential recovery in Osborn, we deal here with an asset acquired
    during marriage from the settlement of a lawsuit in which both Robert’s separate property
    claims and community property claims were asserted and settled. The trial court here
    6
    properly placed on Robert the burden to show that the annuity he claimed as separate
    property was obtained as a result of his personal injuries and was not compensation for
    lost earning capacity during marriage or medical expenses. We overrule Robert’s second
    issue.
    In his first issue, Robert argues the trial court erred in characterizing the annuity
    resulting from the settlement agreement as community property. Courts are barred by our
    state constitution from divesting a spouse of separate property when dividing their property
    on divorce. Eggemeyer v. Eggemeyer, 
    554 S.W.2d 137
    , 139-42 (Tex. 1977).
    Courts have recognized more than one method by which a party can trace and
    identify the amounts of a personal injury recovery belonging to the community and
    separate estates. See Dale Joseph Gilsinger, Annotation, Spouse’s Cause of Action for
    Negligent Personal Injury, or Proceeds Therefrom as Separate or Community Property, 
    80 A.L.R. 5th 533
    (2000). If the recovery is obtained through a settlement and the settlement
    agreement allocates amounts to specific elements of damages, those allocations may be
    sufficient to overcome the community property presumption. 
    Licata, 11 S.W.3d at 274
    .
    The same rationale is applicable to allocations established by jury answers or findings of
    fact supporting a judgment. See 
    Osborn, 961 S.W.2d at 415
    . The parties in a divorce
    proceeding can also stipulate the amounts of a personal injury settlement attributable to
    various elements of damages. See 
    Slaton, 987 S.W.2d at 183
    n.1. In Slaton the parties
    stipulated what portions of a personal injury settlement were recovery for damages to the
    community estate. The spouses then presented evidence of their individual damages
    7
    resulting from the personal injury to determine the recovery belonging to their separate
    estates. 
    Id. It is
    clear that the annuity in dispute here was issued as recovery for Robert’s
    personal injuries. The parties here also agree the settlement included recovery for loss of
    earning capacity and medical expenses. Robert does not contend that language in the
    settlement documents addresses the allocation of the settlement among the damage
    claims he asserted. Nonetheless, pointing to the presumption that community funds are
    withdrawn first from a commingled fund,5 Robert argues “the evidence reflects,
    conclusively, that all community interest in the fund was withdrawn and expended prior to
    the divorce proceeding,” so the remainder of the annuity is part of his separate estate.
    To identify the community interest in the settlement fund, Robert relies on the
    testimony that all his actual medical expenses incurred during the marriage had been paid.
    That evidence may permit an inference of the value of the past and future medical expense
    damages that Robert sought in his petition in the personal injury suit. But that evidence
    says little or nothing about the amount, or the proportion of the total settlement, for which
    the medical expense claim was settled. See Gleich v. Bongio, 
    99 S.W.2d 881
    , 883 (Tex.
    5
    Under that presumption, when an account includes both separate and community
    funds, we presume the separate funds “sink to the bottom” and that community funds are
    withdrawn first. Hill v. Hill, 
    971 S.W.2d 153
    , 158 (Tex.App.–Amarillo 1998, no pet.).
    Where the balance did not fall below the amount shown as separate, the spouse has
    adequately identified the remaining funds as separate property. Smith v. Smith, 
    22 S.W.3d 140
    , 146 (Tex.App.–Houston [14th Dist.] 2000, no pet.); Sibley v. Sibley, 
    286 S.W.2d 657
    ,
    659 (Tex.Civ.App.--Dallas 1955, writ dism’d w.o.j.). We express no opinion on the
    application of the community-out-first presumption on these facts.
    8
    1937) (ownership of marital property proportionate to consideration supplied by separate
    and community estates).
    Although Tamela does not challenge Robert’s calculation of the value of his claim
    for damages for loss of earning capacity during the marriage, his argument concerning the
    community interest in the recovery resulting from settlement of that claim suffers from the
    same weakness. The value Robert placed on the claim at trial of his divorce does not
    demonstrate the amount for which he settled it some four years before.
    The record does not reflect clear and convincing evidence of the allocation of
    Robert’s settlement among the various elements of damages he asserted. The trial court
    did not err in finding that Robert did not overcome the presumption that the remaining
    payments due under the annuity were community property. We overrule his first issue and
    affirm the judgment of the trial court.
    James T. Campbell
    Justice
    9