Briefs

By Tom Noble

6116 N. Central Expressway, Suite 922, LB 72, Dallas, Texas 75206

214-692-1888; fax: 692-8577; tnoble28@hotmail.com; www.tnoble.com

Thursday, September 10, 2009

Killing EC: Solution or Symptom?

Looking back on yesteryear:

Client : He made a lot of money during the marriage, and we put virtually all of it into "our house". So what if he owned it before we got married? He told all of the neighbors during his frequent drink sloshing that it was OUR HOUSE. He told his own mother that he wanted to fix the place up for me. And, who do you think cleaned the toilets? Who gave up her job and waited for contractors who never showed up on time? Who picked out the granite countertops and the Jacuzzi tub? Now, he tells me that the house is his SEPARATE PROPERTY, that I don't get a dime!? Please!

Lawyer : You have what in Texas is known as a claim for reimbursement.

Client : Whew! Then, we can at least make him compensate me for half of the value of the improvements and the amount we paid down the mortgage. After all, 20 years of mortgage payments is not exactly cash-for-clunkers. Right?

Lawyer : Not exactly. Although you have a claim for reimbursement, it is offset by your use and enjoyment of the property. In other words, the house has tripled in value during the marriage, but, best I can tell, you may get zip. Hard to say, but that's my best guess.

This was the problem. The legislature tried to solve this problem first by creating something called an "equitable interest". That evolved into a similar concept, which came to be known as "economic contribution" (EC).

EC guaranteed the wife in the example above that she had a definite claim for a definite amount. It applied not only to houses but other situations in which people used community funds to (a) pay down secured debts acquired prior to the marriage or (b) improve separate property. The concept was to apportion the appreciation in the property much like we apportion retirement benefits in plans begun before marriage and in which contributions are made during the marriage. Toby Goodman, the state legislator who sponsored the legislation put it like this:

While the formula for measuring the economic contributions may appear at first glance to be quite complicated, in fact its application is relatively simple and straightforward, especially when contrasted with the complexity of the doctrine of reimbursement. Basically, the amount of the claim is calculated by dividing the total economic contribution by the total equity in the property and multiplying that percentage by the equity at the time of divorce or death.

As every family lawyer knows, the problem with reimbursement claims is that they are "equitable". That means, essentially, that a trial judge can do whatever he or she wants to do about them. If you have a reimbursement claim for $3 million, the court may award you $3 million or nada. To make it even worse, a judge has to hear all of the facts of your case before making a determination; there is no way to find out what you are going to get until you spend a bunch of money for a room full of lawyers and a trial. To complicate the problem further, you have to consider an offset for "use and enjoyment" of the property. The consistent net result is a relatively complex problem with a very unpredictable outcome. Before EC, if you had a case with a substantial reimbursement claim, you were more likely than not going to end up at the courthouse. Cases involving reimbursement claims for separate homesteads were an exception because lawyers representing wives like the one in the scenario above knew that prior cases indicated that they were losers (the cases, that is; nothing personal, ladies).

EC was an attempt to improve our system for dividing mixed estates. It was not a perfect solution, but it did provide relative certitude. And, yet, you never heard such wails from the family bar. "It's too complicated!" That was the most common complaint that I heard. "It's unconstitutional!" That was another one. But, lawyers get paid to deal with complicated problems every day, many of which make EC look like 2+2. And, despite several cases that were tried and appealed, no court every declared the EC statute unconstitutional. Still, we family lawyers, working primarily through our new lobbying groups, killed EC. In our attempts to avoid complexity, we traded the certainty of an EC claim for the uncertainty of reimbursement. Surely, this will cause fewer settlements and more trials. Is that really what people want?

If the constitutional concerns with EC stemmed from the fact that the court had to secure an EC claim with a lien[1], those concerns are still there because our new and improved reimbursement statute also provides for a lien to secure the claim.[2] The offset for use and enjoyment of a separate property residence is now gone, but similar offsets for other types of property remain, which makes little sense to me.

The death of EC not only assures that the "good old days" for trial lawyers are back; our failure to solve the problem of apportioning appreciation of separate property is a symptom of a larger problem. As Richard Orsinger and Scott Downing have been preaching for years, the community property system in Texas is riddled with brain teasers that even our best and brightest cannot solve. Repealing EC will only replace one set of problems with another, and fundamental theoretical problems remain. Isn't it time to completely overhaul the community property system?

[1] I have heard various versions of the argument that EC was unconstitutional, none of which I have fully understood. The "lien on homestead" argumentsounded best to me, but the EC statute expressly addressed that problem.

[2] The killers must think that the new statute avoids any constitutional challenge because it says that the court "may" impose a lien, while the EC statute said that the court "shall" impose a lien. I suppose that once a court actually imposes a lien, we will find out.