in the Matter of the Marriage of Tammy Marie Norton v. Gary Wayne Norton ( 2010 )

NO. 07-08-0469-CV
IN THE COURT OF APPEALS
FOR THE SEVENTH DISTRICT OF TEXAS
AT AMARILLO
PANEL C
JULY 19, 2010
______________________________
GARY WAYNE NORTON, APPELLANT
V.
TAMMY MARIE NORTON, APPELLEE
_________________________________
FROM COUNTY COURT AT LAW NO. 2 OF RANDALL COUNTY;
NO. 5632-L-2 ; HONORABLE RONNIE WALKER, JUDGE
_______________________________
Before QUINN, C.J., and HANCOCK and PIRTLE, JJ.
MEMORANDUM OPINION
A First Amended Final Decree of Divorce was entered by the trial court dissolving
the marriage of Appellant, Gary Wayne Norton, and Appellee, Tammy Marie Norton,
and dividing their marital property. By two issues, Gary complains the trial court abused
its discretion in finding that (1) he did not adequately trace his separate property into
funds from which he discharged a debt on the community property marital residence
and (2) the discharged debt was an unsecured debt for purposes of determining
whether his separate estate was entitled to an economic contribution claim from the
community estate under section 3.402 of the Texas Family Code. We reverse the
judgment of the trial court, in part, reform the judgment, and affirm the trial court's
judgment as reformed. Tex. R. App. P. 43.2(c).
Background Facts
Gary and Tammy were married on May 13, 1994. In December 2005, they
purchased a home in Amarillo by paying $5,000 down on the purchase price of
$153,000, with the owner, Willa J. Thomas, carrying the balance of the purchase price
under the terms of a contract for deed. In May 2007, Gary and Tammy separated and
on May 6th Tammy filed for divorce. Gary remained in the home and continued to make
payments on the contract for deed. In June 2007, Gary sold a farm he had inherited
from his mother for a net proceed of $246,008.12. On July 3, 2007, he deposited the
proceeds from the sale into a newly opened account with Herring Bank, bearing account
number 5860709. On December 18, 2007, via a check drawn on that account, he paid
off the balance of the purchase price of the marital residence and received a warranty
deed from the seller.
Thereafter, Gary filed a counter-petition seeking reimbursement and economic
contribution for funds expended from his separate estate for the benefit of the marital
estate arising from the payment of the balance due on the community property marital
2
residence. Tex. Fam. Code Ann. § 3.402(a) (Vernon Supp. 2009).1 Gary maintained
that the full payment was from his separate property, whereas Tammy contended that
the account had lost its separate property character due to commingling of community
funds. At the final hearing, Gary and Tammy testified and offered various exhibits in
support of their respective positions. At the conclusion of the hearing, the trial court
found that (1) Gary failed to trace, by clear and convincing evidence, his separate
property funds from the Herring Bank account to the payoff on the marital residence and
(2) even if sufficiently traced, the economic contribution statute did not apply because
the contract for deed was not a debt secured by a lien as contemplated by section
3.402(a)(3)(B) of the Texas Family Code.
Other issues regarding the division of the community estate having been
resolved, the trial court awarded each party an undivided one-half interest in the marital
residence. In addition, the trial court granted Gary the right to purchase Tammy's
interest in the property by paying her $79,463.50 (one-half of the equity value of the
marital residence), and failing such a buyout, the property would be sold and the
proceeds divided equally.
1
Economic contribution is the dollar amount expended on behalf of a marital estate. See Act of May 22,
2001, 77th Leg., R.S., ch. 838, § 2, Tex. Gen. Laws 1679, 1680-81, amended by Act of May 29, 2009,
81st Leg., R,S., ch. 768, § 3, 2009 Tex. Gen. Laws 1950, 1951 (now titled "Claim for Reimbursement;
Offsets." Sections 3.401, 3.403, 3.406(c), 3.407, and 3.408 of the Family Code have been repealed. See
Act of May 29, 2009, 81st Leg., R.S., ch. 768, § 11(3), 2009 Tex. Gen. Laws 1950, 1953. However, we
apply the statutes in effect when Tammy filed for divorce in May 2007.
3
Per Gary's request, the trial court filed Findings of Fact and Conclusions of Law.2
As relevant to Gary's complaints, the trial court made the following findings:
4. The value of the property at 6701 Calumet, Amarillo, Texas is
$158,927.
5. The debt described in the Contract for Deed in connection with the
purchase of the property at 6701 Calumet is unsecured.
***
7. Pertaining to husband's reimbursement claim in connection with the
subject debt pertaining to the 6701 Calumet property, husband did not
overcome the community property presumption pertaining to the property
used to pay the unsecured debt.
(a) Since husband seeks the reimbursement of his separate
estate pertaining to the payment of the subject debt in
connection with the 6701 Calumet property, husband must
prove by clear and convincing evidence that separate
property was used to pay such debt.
(b) Husband did not trace and clearly identify that sum of
$136,917.31, or a specific part thereof was separate
property.
(c) The Herring Bank account from which the check in the
sum of $136,917.31 was written was co-mingled.
(d) No bank records, or other such documentation was
offered or admitted into evidence in connection with the
status of the subject account at the Herring Bank after the
date of inception (7-3-07), to the date that the check in the
sum of $136,917.31 was signed (12-18-07).
(e) The court is unable to determine the specific application
of the payment of the $136,917.31 debt; e.g., how much
2
Tex. R. Civ. P. 296.
4
went to principal, interest, taxes, repairs, closing costs, or
any other aspects of such debt.
Standard of Review-Findings of Fact
Findings of fact entered in a case tried to the bench have the same force and
dignity as a jury=s verdict upon questions. Anderson v. City of Seven Points, 806
S.W.2d 791, 794 (Tex. 1991); City of Clute v. City of Lake Jackson, 559 S.W.2d 391,
395 (Tex.Civ.App.--Houston [14th Dist.] 1977, writ ref=d n.r.e.). However, conclusions of
law are always reviewable de novo and the findings are not conclusive when a complete
statement of facts appears in the record if the contrary is established as a matter of law
or if there is no evidence to support the findings. Middleton v. Kawasaki Steel Corp.,
687 S.W.2d 42, 44 (Tex.App.BHouston [14th Dist.] 1985), writ ref=d n.r.e., 699 S.W.2d
199 (Tex. 1985) (per curiam).
In our analysis, we will review Gary's contentions in a logical rather than
sequential order, beginning with his second issue.
I. Finding of Fact 5 - Unsecured Status of Debt
In 2005, when Gary and Tammy purchased the marital residence located at 6701
Calumet, they entered into a Contract for Deed and paid $5,000 down on the purchase
price of $153,000. The owner, Willa J. Thomas, carried the balance payable in monthly
installments of $1,708.57 for ten years. The monthly payment included $278.33 for
taxes and $107.49 for insurance. The contract provided that a fully executed Warranty
5
Deed would be issued upon final payment of the entire amount due. The economic
contribution statute in effect at the time of the filing of the petition for divorce imposed an
equitable lien on property of a marital estate for economic contribution in that property
by another marital estate arising from a reduction of the principal amount of a debt
"secured by a lien" on that property. See Act of May 29, 2009, 81st Leg., R,S., ch. 768,
§ 3, 2009 Tex. Gen. Laws 1950, 1951 (now titled "Claim for Reimbursement; Offsets").
Regarding Gary's claim for economic contribution, the trial court ruled as follows:
Clearly, this house was not done properly. The Court noticed right off, as
the attorneys are well aware, that there is no lien on this house, which is
highly unusual. The house was purchased, and even though the seller, I
guess, in effect financed a portion of it -- although there is nothing in these
instruments that show the lien in connection with that, just a reference to it
in the so-called contract for deed -- that because of that, the specific
statutory provision in the Texas Family Code, Section 3.401, claims for
economic contribution and reimbursement, and 3.402, the requirements
stated therein are not met. Specifically, statutory economic contribution
only applies to debt, and only applies to debt that is secured by a lien.
There is no lien in these papers, so this is unsecured debt.
(Emphasis added).
In support of his contention that there was a lien on the property supporting his
claim for economic contribution, Gary relies on section 24.002(8) of the Texas Business
and Commerce Code Annotated (Vernon 2007),3 and section 5.081 of the Texas
3
"Lien" means a charge against or an interest in property to secure payment of a debt or performance of
an obligation, and includes a security interest created by agreement, a judicial lien obtained by legal or
equitable process or proceedings, a common-law lien, or a statutory lien.
6
Property Code Annotated (Vernon Supp. 2009).4 He argues that the Contract for Deed
entered into for the purchase of the marital residence is an instrument for security for
debts on real property akin to a lien. Tammy's position is that the Contract for Deed
accomplished nothing more than an "equitable right" to performance under the contract,
and no lien was created. We agree with Gary.
A contract for deed is an agreement by a seller to deliver a deed to property once
certain conditions have been met. Graves v. Diehl, 958 S.W.2d 468, 470 (Tex.App.--
Houston [14th Dist.] 1997, no pet.). The seller is not obliged to deliver legal title to the
property until the purchaser pays the purchase price in full. Id. at 471. The legal effect
of the contract is the same as that of a deed with a retained vendor's lien. Ward v.
Malone, 115 S.W.3d 267, 271 (Tex.App.--Corpus Christi 2003, pet. denied), citing
Bucher v. Employers Casualty Co., 409 S.W.2d 583, 584 (Tex.Civ.App.--Fort Worth
1966, no writ) (noting that under a contract for sale, the purchaser becomes full
beneficial or equitable owner and the seller holds a bare legal title, more in the nature of
a security title to guarantee payment of the purchase price . . . .") Paramount title is in
the purchaser and the seller retains a vendor's lien. Bucher, 409 S.W.2d at 584-85.
Notwithstanding Finding of Fact 5, the record in the underlying case establishes
that the seller, Ms. Thomas, retained a vendor's lien in the marital property as a matter
4
Section 5.081 describes how a purchaser may convert a property interest under an executory contract
into recorded, legal title.
7
of law. Therefore, the trial court abused its discretion in finding that the debt described
in the contract for deed executed in connection with the purchase of the property at
6701 Calumet was an unsecured debt to which the economic contribution statute did
not apply. We sustain issue two.
II. Finding of Fact 7 - Tracing
We now consider Gary’s first issue. It is undisputed that Gary's separate
property included a farm he inherited from his mother in 2001. Evidence in the form of a
settlement statement dated June 29, 2007, established that he sold the farm in June
2007 for a net proceed of $246,008.12. At the final divorce hearing, Gary provided
documentation that he opened a new account, bearing number 5860709 at Herring
Bank on July 3, 2007, with a deposit of that exact sum and a designation of "SINGLE
PARTY ACCOUNT WITH 'P.O.D' (Payable on Death)." Also admitted into evidence
was a copy of a check from the Herring Bank account dated December 18, 2007, in the
amount of $136,917.31 made out to Willa J. Thomas as a payoff on the balance of the
purchase price of the marital residence located at 6701 Calumet. Those two facts alone
establish prima facie evidence that the payoff was made, at least in part, from Gary's
separate property funds. The question then becomes, based on Tammy's allegation of
commingling of community funds, how much, if any, of that payoff did come from Gary's
separate property funds?
8
With respect to that issue, Tammy does not dispute the separate property nature
of the proceeds from the sale of the farm that Gary inherited from his mother or the
tracing of those funds into the Herring Bank. Instead, she contends that the
presumption of community property and the depositing of community property funds into
that account require the trial court to conclude that those sums were community
property because Gary failed to adequately trace his separate property.
In that regard, Gary testified that approximately $6,000 in community funds from
employment and from payment on a note owed to him were deposited into the Herring
Bank account. While Tammy does not claim additional deposits, she does contend that
the separate property character of the payoff was not sufficiently traced because Gary
did not provide supporting documentation of other transactions from the Herring Bank
account from the date of inception to the date of payment of the debt. She concludes
that the commingled funds defy resegregation and identification.
A party may bring a claim for reimbursement of payments made by one spouse's
separate estate to the community estate. Alsenz v. Alsenz, 101 S.W.3d 648, 651-52
(Tex.App.--Houston [1st Dist.] 2003, pet. denied). The party seeking reimbursement
has the burden of pleading and proving that the expenditures were made and that they
are reimbursable. Vallone v. Vallone, 644 S.W.2d 455, 459 (Tex. 1982).
There is a statutory presumption that all property possessed by either spouse
upon dissolution of the marriage is community property. See Tex. Fam. Code Ann. §
9
3.003(a) (Vernon 2006). See also Tarver v. Tarver, 394 S.W.2d 780, 783 (Tex. 1965).
The degree of proof necessary to overcome the presumption is clear and convincing
evidence. Tex. Fam. Code Ann. § 3.003(b) (Vernon 2006). Clear and convincing
evidence is that measure or degree of proof which 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.
Id. at § 101.007. The proof must weigh more heavily than merely the greater weight of
the credible evidence, but the evidence need not be unequivocal or undisputed. Boyd
v. Boyd, 131 S.W.3d 605, 611 (Tex.App.--Fort Worth 2004, no pet.).
To overcome the community presumption, the party asserting separate
ownership must clearly trace the original separate property into the particular assets on
hand during the marriage. Cockerham v. Cockerham, 527 S.W.2d 162, 167 (Tex.
1975). Tracing involves establishing the separate origin of the property through
evidence showing the time and means by which the spouse originally obtained
possession of the property. Moroch v. Collins, 174 S.W.3d 849, 856-57 (Tex.App.--
Dallas 2005, pet. denied). The burden of tracing is a difficult, but not impossible, burden
to sustain. Boyd, 131 S.W.3d at 612. Mere testimony that property was purchased
with separate funds, without any tracing of the funds, is insufficient to rebut the
community presumption. Id. The burden is not discharged and the statutory
presumption prevails if the evidence shows that the separate and community property
defy resegregation and identification. Tarver, 394 S.W.2d at 783. However, when
separate property is traced, the statutory presumption is dispelled. Estate of Hanau v.
10
Hanau, 730 S.W.2d 663, 667 (Tex. 1987). Any doubt as to the character of property
should be resolved in favor of the community estate. Boyd, 131 S.W.3d at 612. When
separate and community property are commingled in a single bank account, we
presume the community funds are drawn out first, before separate funds are withdrawn,
and where there are sufficient funds at all times to cover the separate property balance
in the account at the time of the divorce, we presume the balance remains separate
property. Smith v. Smith, 22 S.W.3d 140, 146 (Tex.App.--Houston [14th Dist.] 2000, no
pet.).
Gary established, by testimony and documentation, the separate origin of the
funds deposited in the Herring Bank account. He also established that the sum of
$136,917.31, from that account, was used to discharge the debt on the community
residence located at 6701 Calumet. The fact that $6,000 of community funds were
deposited into that account does not defy resegregation and identification. Providing
the community with the full benefit of the presumption that community funds were
withdrawn as a part of that payoff, we conclude Gary provided clear and convincing
evidence that not less than $130,917.31 ($136,917.31 - $6,000.00) was from his
separate property funds. See Smith, 22 S.W.3d at 146 (presuming community funds
are drawn out first). Thus, the trial court abused its discretion in finding that Gary did
not trace his separate property funds by clear and convincing evidence. Issue one is
sustained.
11
III. Calculation of Appellant's Economic Contribution Under § 3.403(b) of the
Texas Family Code5
Tab 9 in the index of Gary's brief contains a calculation of his economic
contribution per the formula provided in section 3.403(b) of the Texas Family Code.
Gary calculates his separate property contribution to be $136,917.31; however, as set
forth above, that figure is overstated by the sum of $6,000. Accordingly, we deduct
$6,000 from $136,917.31 and conclude that Gary's claim for economic contribution
should be limited to $130,917.31.
Conclusion
In that portion of the decree dealing with the sale of the marital residence, the
trial court granted Gary the right to purchase Tammy's interest for one-half of the
community's equity interest in the property, or $79,463.50 ((fair market value minus
Gary's economic contribution claim) ÷ 2 or ($158,927 - $ 0) ÷ 2 = $79,463.50). Because
the trial court erroneously concluded that the debt in question was not secured by the
property, it undervalued the amount of Gary's economic contribution claim, causing it to
miscalculate the buy-out price. Therefore, the trial court's First Amended Final Decree
of Divorce is reversed, in part, and reformed to provide that Gary shall have the right to
purchase Tammy's interest in the community residence for $14,004.85 ((fair market
5
A claim for economic contribution is determined by the formula set forth in section 3.403 of the Family
Code, since repealed by Act of May 29, 2009, 81st Leg., R.S., ch. 768, § 11(3), 2009 Tex. Gen. Laws
1950, 1953.
12
value minus Gary's economic contribution claim) ÷ 2 or ($158,927 - $130,917.31) ÷ 2 =
$14,004.85), and in all other respects the judgment is affirmed.
Patrick A. Pirtle
Justice
13