Texas Divorce FAQ: What is Fraud on the Community?

Understanding Fraud on the Community

Divorce can be an incredibly fraught process. Unfortunately, the situation's intensity can lead some people to make poor choices, like intentionally hiding or reducing assets subject to property division. In Texas, these circumstances are called "fraud on the community."

Under Texas Family Code Section 7.009, fraud on the community refers to the mishandling of the community estate by one spouse to the detriment of the other. As explained in this statute, when fraud on the community is uncovered, the courts will legally reconstitute the marital estate as part of the property division process.

The Distinction Between Actual and Constructive Fraud

The Texas Family Code categorizes fraud into two types—actual and constructive. This differentiation is vital to classifying the intent and outcome of the alleged incorrect handling of community property.

Actual Fraud

This occurs when one spouse deliberately hides or diverts assets away from the community estate, typically to deprive the other spouse of their rightful share.

Examples include:

  • Stashing away money in a hidden bank account.
  • Secretly withdrawing funds and transferring them to a friend or a relative.
  • Deliberately undervaluing or omitting assets during the divorce process.

Constructive Fraud

This involves situations where there might not be an intent to deceive, but actions or mishandlings lead to the detriment of the community estate. Constructive fraud often looks like a breach of fiduciary duty.

Examples include:

  • Misapplying funds for gambling or personal indulgences without the other spouse’s consent.
  • Making poor investment choices that significantly deplete the community property's value.
  • Unilaterally deciding to gift or loan a large sum of money from the community estate without informing or getting the other spouse's consent.

Reconstitution of the Estate After Fraud

After determining that fraud on the community has occurred, Texas courts have the authority to reconstitute the marital estate to ensure an equitable division of community assets during a divorce. This process is designed to nullify the effects of the fraudulent activities on the victimized party, restoring them to the financial position they would have been in had the fraud not occurred.

To accomplish this, the courts first assess the value of the assets concealed, wasted, or misappropriated. Then, they may order a variety of remedies to compensate the wronged spouse, such as:

  • Valuing the missing or undervalued assets at their actual market value for division purposes.
  • Awarding a more significant portion of the remaining community property to the wronged spouse.
  • Ordering the spouse who committed fraud to pay a money judgment to the wronged spouse, equivalent to the value of the hidden or wasted assets.

The goal of reconstituting the estate is not only to rectify the financial imbalance caused by the fraud but also to deter spouses from engaging in such deceptive practices in the first place.

What to Do If You Suspect Fraud on the Community

Taking immediate action is imperative if you believe your spouse misappropriated community funds, dissipated assets, or hidden assets during your marriage or divorce proceedings. The first step is to contact an experienced family law attorney (like ours at Law Firm of Johnson & Gaskill PLLC) who understands the intricacies of Texas divorce law and fraud on the community cases.

An attorney can offer invaluable assistance in several ways:

  • Asset tracing and identification
  • Legal strategy and representation
  • Negotiations and settlements
  • Court orders and other remedies

At Law Firm of Johnson & Gaskill PLLC, we understand how frustrating and scary it can be to realize that your former spouse has attempted to defraud you of what is rightfully yours. We are well-versed in these complex issues and are ready to guide you in seeking legal remedies. We are also prepared to help those wrongfully accused of fraud on the community.

Contact us today to discuss how we can assist you in navigating this challenging situation.

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