Duncan v. United States, 16310.

Decision Date01 October 1957
Docket NumberNo. 16310.,16310.
Citation247 F.2d 845
PartiesElizabeth Terry DUNCAN and The State National Bank of El Paso, Independent Executors of The Estate of Ernest Allen Duncan, Deceased, Appellants, v. UNITED STATES of America, Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

COPYRIGHT MATERIAL OMITTED

Eugene T. Edwards, El Paso, Tex., for appellant.

C. Moxley Featherston and Lee A. Jackson, Attys., Dept. of Justice, Washington, D. C., Charles K. Rice, Asst. Atty. Gen., Dept. of Justice, and Holvey Williams, Asst. U. S. Atty., El Paso, Tex., for appellee. Hilbert P. Zarky, Atty., Dept. of Justice, Washington, D. C., Russell B. Wine, U. S. Atty., San Antonio, Tex., for the United States.

Before RIVES, JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

The problem here is whether the following items in the Estate of Dr. Duncan:

                  Item I.   16 stocks purchased principally through1 the
                            Hutton & Co. account                              $73,268.54
                  Item II.  Credit balance Hutton & Co. account                 1,783.97
                  Item III. State National Bank, El Paso, balance account
                            in name of E. A. Duncan                             6,636.33
                                                                              __________
                                                                              $81,688.84
                

should be treated as the separate property of the decedent or as community property of decedent and his surviving widow. The Commissioner determined that each was separate property. In the Estate's suit for refund, 28 U.S.C.A. § 1346(a) (1), the Court, without a jury on formal findings and conclusions, upheld the Government's contention of separate property.

As the nature of the property interest of the decedent, separate or community, under Texas law determines the impact of the Federal estate tax, Hopkins v. Bacon, 282 U.S. 122, 51 S.Ct. 62, 75 L.Ed. 249; Lang v. Commissioner, 304 U.S. 264, 267, 58 S.Ct. 880, 82 L.Ed. 1331, the controversy rages around the immemorial statutes2 and considerable body of Texas law which, without a doubt, favors the community and puts on one asserting a contention of separate property in husband or wife a heavy burden.

The Estate's case was simply made. And, with a candid forthrightness, it insists that to the extent the record does not, or cannot, indicate the facts as to the origin of the money which produced Items I, II and III, the presumption operates to make it all community even though, without contradiction and established as an absolute fact, community income during the three years (1947, 1948, 1949) of this short three-year marriage available3 for investment was only $16,737.19. The result would be that, with neither showing nor purpose of showing circumstances from which gifts of the husband's separate property to the community could be inferred, the application of the presumption not only turns the sow's ear into a silk purse, but by alchemist's wizardry, fills it with gold by making the maximum of all community funds $16,737.19 turn into4 $81,688.84.

The situation, of course, does call for the initial application of the presumption at least insofar as the stocks in Item I, the balance in Item II is due wholly or partly to payments made through the bank account (Item III). Dr. Duncan had several bank accounts, but it is undisputed that the Item III account was used for the deposit of all professional and personal income and earnings received by him whether of or from his separate estate or the community. It is equally admitted that expenditures for living and household expense were paid out of this account by periodic checks drawn on it and deposited to Mrs. Duncan's checking account in another bank. And, of great importance here, all deposits of cash in the Hutton account were made by checks drawn on this account, Item III.

While this does indeed raise a substantial burden, the Texas law, by word and action, recognizes that the presumption can be, and is here, overcome.

Texas law is emphatic, for "The presumption that property purchased during the marriage is community property is very cogent, and can only be repelled by clear and conclusive proof that it was with the individual money or property of one of the partners. Where the property has not been preserved in specie or in kind, but * * * has undergone mutations and changes, it is indispensable, to maintain its separate character, that it be clearly and indisputably traced and identified," Chapman v. Allen, 15 Tex. 278, 284. With equal emphasis, for property acquired during the marriage presumed to belong to the community, the burden of "proving that it is the separate property of either is on the party asserting it. * * * in order to show that property purchased during the marriage is the separate property of one of the spouses, the fund with which such property was acquired must be clearly shown to have been the separate property of such person * * *," Morris v. Hastings, 70 Tex. 26, 29, 7 S.W. 649, 651. Harkness v. McQueen, Tex. Civ.App., 232 S.W.2d 629, 633; Robb v. Robb, Tex.Civ.App., 41 S.W. 92, 95; Edelstein v. Brown, Tex.Civ.App., 95 S.W. 1126, 1130, affirmed 100 Tex. 403, 100 S.W. 129; Ervin v. Ervin, 60 Tex.Civ. App. 537, 128 S.W. 1139, writ of error dismissed; Thomas v. Thomas, Tex.Civ. App., 277 S.W. 210, 212, writ of error dismissed; Finley v. Pafford, Tex.Civ. App., 104 S.W.2d 163, 164, writ of error dismissed; Hardee v. Vincent, 136 Tex. 99, 147 S.W.2d 1072, 1073; Lindemood v. Evans, Tex.Civ.App., 166 S.W.2d 774, 775, writ of error refused; Walker-Smith Co. v. Coker, Tex.Civ.App., 176 S.W.2d 1002, 1007, error refused, want merit; Gibson v. Gibson, Tex.Civ.App., 202 S.W.2d 288, 289.

The act of mixing or commingling separate and community property may have a substantial effect upon the resulting property. For, "It is a well established rule * * * that where the husband or wife permits his or her separate property to become so commingled with community property that it cannot be identified, the separate property so commingled becomes community property * * *," Taylor v. Suloch Oil Co., Tex.Civ.App., 141 S.W.2d 657, 660, writ of error dismissed, judgment correct; Edelstein v. Brown, Tex.Civ.App., supra. This is particularly true of commingled bank accounts since, "Generally speaking, it is the law that a bank account consisting of separate and community funds commingled in such a manner that neither can be distinguished from the other must be regarded as a community account," Smith v. Buss, 135 Tex. 566, 144 S.W.2d 529, 532; Phillips v. Vitemb, 5 Cir., 235 F.2d 11. Where the property goes through changes or is exchanged or sold and thus used in the acquisition of other property, the proof of origin of the funds must be "clear and conclusive," Love v. Robertson, 7 Tex. 6, 11, for it is "* * * a case in which it was necessary to trace the means through mutations and changes, * * * this should have been done `clearly and indisputably' (Chapman v. Allen, 15 Tex. 278, 283). The means invested should have been traced back to the separate estate, not through indefinite channels and unknown changes, but connectedly and plainly," Schmeltz v. Garey, 49 Tex. 49, 61. (Emphasis supplied.)

The presumption, while strong, is yet a disputable one and subject to being rebutted if adequate proof is made. This recognized in reverse fashion for unless there is satisfactory proof "* * as to how much separate and how much community funds were used in the purchase of a stock * * * it cannot be determined that there is * * * any separate interest in them whatever * * *," Smith v. Bailey, 66 Tex. 553, 554, 1 S.W. 627, 628; Hardee v. Vincent, 136 Tex. 99, 147 S.W.2d 1072, 1074. "Applying these principles to the present case, we think the plaintiffs below should have shown, with greater certainty, how much of the proceeds of her original stock was used in the purchase of the goods levied on. She should further have more clearly shown how much of these proceeds were her separate property, and how much were profits, or community estate of herself and husband," Epperson v. Jones, 65 Tex. 425, 429. "The * * * separate property may undergo changes and yet retain its separate character; but, where * * * separate property has undergone mutations and changes, in order to hold it as * * * separate estate the spouse must then be able to trace and identify it in its changed condition, and, if it is not all shown to be her separate property, the wife, in order to protect it from her husband's creditors must be able to prove how much is separate and how much is community * *," Walker-Smith Co. v. Coker, supra; Schwethelm v. Schwethelm, Tex.Civ. App., 1 S.W.2d 911; Finley v. Pafford, supra.

And Phillips v. Vitemb, 5 Cir., 235 F.2d 11, reflects these principles. Where, as in Phillips v. Vitemb, supra, there was no showing of a maximum community fund beyond which, in fact, no community estate could exist, the acts of deposits and partial withdrawals were treated as a commingling and the withdrawals as presumptively community. But it was not there held or stated that the presumptive community character of withdrawals would continue when on satisfactory proof, it was demonstrated positively that there was absolutely no community funds, or proceeds, or income from which the so-called presumptive community interest could come.

And that is what was done here in several ways. First, the income tax returns of decedent, and for the years during marriage, his wife, as well, showed all of his and their earnings and receipts. And in the analysis which we make all of this is treated as belonging to the community. And this, even though a part of it was demonstrated on the face of the returns and other papers to be gains from proceeds of the sale of his premarital stocks, and there was no deduction for admittedly living expenses paid out of this fund and account and which are presumptively...

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  • Burlingham v. Burlingham
    • United States
    • Supreme Court of New Mexico
    • March 29, 1963
    ...with community property that it cannot be identified, the separate property so commingled becomes community property. Duncan v. United States (5 C.C.A.1957), 247 F.2d 845. Under Art. 4624a, Sec. 1, supra, it may be that transmutation of community property into separate property of the spous......
  • Estate of Bright v. U.S.
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    ...precisely what property is transferred. Morgan v. Commissioner, 309 U.S. 78, 60 S.Ct. 424, 84 L.Ed. 585 (1940); Duncan v. United States, 247 F.2d 845 (5th Cir. 1957). Both parties agree that, under Texas law, the stock at issue was the community property of Mr. and Mrs. Bright during her li......
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    ...used at the time of purchase to acquire it. See, e. g., Freedman v. United States, 382 F. 2d 742 (5th Cir. 1967); Duncan v. United States, 247 F.2d 845 (5th Cir. 1957); Gleich v. Bongio, 128 Tex. 606, 99 S.W.2d 881, 883 (1937); Baize v. Baize, 460 S.W.2d 255 (Tex.Civ.App. — Eastland 1970, n......
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    • United States District Courts. 5th Circuit. United States District Court of Eastern District Texas
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    ...Wilson v. Wilson, 145 Tex. 607, 201 S.W. 2d 226; Burke v. Burke, Tex.Civ.App., 309 S.W.2d 247 (No writ history); and Duncan v. United States, 5 Cir., 247 F.2d 845. Where a husband or wife permits his or her separate property to be so commingled with community property that it cannot be iden......
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