Jensen v. Jensen

• Decision Date: 19 February 1982
• Docket Number: No. 1503,1503
• Citation: 629 S.W.2d 222
• Parties: Berlene Parks JENSEN, Appellant, v. Robert Lee JENSEN, Appellee.
• Court: Texas Court of Appeals

Page 222

629 S.W.2d 222

Berlene Parks JENSEN, Appellant, v. Robert Lee JENSEN, Appellee.

No. 1503.

Court of Appeals of Texas, Tyler.

Feb. 19, 1982.

Rehearing Denied March 25, 1982.

James D. Blume, John Albach, Albach, Gutow, & Blume, Dallas, for appellant.

Jack Pew, Jr., Jackson, Walker, Winstead, Cantwell & Miller, Dallas, for appellee.

McKAY, Justice.

This appeal is from a division of property in a divorce. Appellant, Burlene Parks Jensen, appeals the award to appellee, Robert Lee Jensen, of the enhancement in value of his separate property stock. We reverse and remand with instructions.

On March 20, 1975, prior to marrying appellant, Mr. Jensen formed RLJ Printing Company, Inc. (RLJ) to acquire Newspaper Enterprises, Inc. (Newspaper Enterprises). RLJ, a closely held corporation, ¹ issued 100,000 shares of stock, and Mr. Jensen purchased 48,455 of these shares as his separate property. In addition to his outright ownership of 48,455 shares, appellee acts as trustee for 2,000 additional shares. Thus, he controls a majority of the shares of RLJ. Mr. Jensen is chairman of the board and president of RLJ and chairman of the board of Newspaper Enterprises. On July 21, 1975, after appellee purchased the RLJ shares, appellant and appellee married. As we will discuss in detail later, during their marriage the value of shares of RLJ stock appreciated greatly. Almost four years later, on June 3, 1979, they separated.

Mrs. Jensen petitioned for divorce from Mr. Jensen, alleged insupportability as grounds, and requested a division of the estate of the parties. Mr. Jensen cross-petitioned for divorce and answered that the trial court was not permitted to award Mrs. Jensen any of his separate property; alternatively, he pleaded that no factual, legal or equitable basis existed to award Mrs. Jensen any of his separate property.

Trial was to the court. The only controversies at trial related to Mrs. Jensen's claim to an interest in the enhancement in value of the shares of RLJ stock acquired by Mr. Jensen prior to their marriage. The court, on May 31, 1980, granted the divorce, found that the increased value of the RLJ shares was Mr. Jensen's separate property, divided the property, and filed the following findings of fact and conclusions of law:

FINDINGS OF FACT

1. The RLJ Printing Co., Inc. was created by Respondent before the marriage of the parties.

2. RLJ Printing Co., Inc. acquired the stock of Newspaper Enterprises, Inc., 64 days before the marriage of the parties in a unique business opportunity.

3. RLJ Printing Co., Inc. is not an alter ego of the Respondent.

4. RLJ Printing Co., Inc. was not created in fraud of the rights of the community estate.

5. The salary paid Respondent has been adequate and reasonable.

6. The dividends paid Respondent have been adequate and reasonable.

7. The bonuses paid Respondent have been adequate and reasonable.

8. Respondent was the key man in the operation of RLJ Printing Co., Inc.

9. The successful operations of RLJ Printing Co., Inc., were primarily due to the time, toil and effort of Respondent.

CONCLUSIONS OF LAW

1. The community was not the equitable owner of any shares of RLJ Printing Co., Inc.

2. The community was not entitled to receive the value of the appreciation in shares of RLJ Printing Co., Inc. that was due to the time, toil and effort of Respondent. ²

Mrs. Jensen brings two points of error. Her first point is that the trial court erroneously concluded the community was not entitled to receive the value of the appreciation of RLJ stock. She contends the community is entitled to receive the benefits of the time, toil, and effort of members of the community, and that, therefore, the enhancement in value of the RLJ stock is community property. We agree with appellant and sustain her first point of error.

The foundation of the Texas community property system is that whatever is acquired by the effort of the husband and wife is their common property. DeBlane v. Hugh Lynch & Company, 23 Tex. 25, 29 (1859). In Texas, the time, talent, and industry of either spouse is wholly owned by the community. If one spouse's separate property is increased because of the time, talent, and industry of either spouse, exceeding that required to preserve the separate property, then the increase becomes community property. Tarver v. Tarver, 394 S.W.2d 780, 786 (Tex.1965); Norris v. Vaughan, 152 Tex. 491, 260 S.W.2d 676, 682 (1953); Marriage of York, 613 S.W.2d 764, 770 (Tex.Civ.App.-Amarillo 1981, no writ). Although the Texas Supreme Court apparently has not specifically addressed the characterization and disposition on divorce of the enhancement in value of separate corporate shares, the weight of authority indicates that "an increase in the value of the corporate stock ... should be attributable to and become a part of the community estate, if the increase in value is a result of the time, effort, and talent of the community...." O. Speer, Texas Family Law § 15:50 at 115 (5th ed. 1975); See Logan v. Logan, 112 S.W.2d 515, 525 (Tex.Civ.App.-Amarillo 1937, writ dism'd); Comment, The Effect of Community Time, Talent, and Industry Upon Separate Property 22 Baylor L.Rev. 527, 542 (1970).

Mr. Jensen purchased RLJ shares at an average price per share of $1.56. All valuations indicate that shares of RLJ stock have increased greatly in value. At the time of trial, the book value of the stock was $14.14 per share. Appellant's expert witness testified that the value per share was $25.77, and appellee's expert witness stated that each RLJ share was worth $13.78.

Mr. Jensen testified that he spent "a good 90%" of his work time running RLJ and Newspaper Enterprises during the parties' marriage. Although testimony was presented that inflation accounted for an unspecified portion of the increased value the trial court found, and Mr. Jensen in his brief agrees, that the success of RLJ was primarily due to his time, toil, and effort. We believe, therefore, that the appreciation in value of the shares of RLJ stock is a community asset.

Appellee relies on Scofield v. Weiss, 131 F.2d 631 (5th Cir. 1942); Faulkner v. Faulkner, 582 S.W.2d 639 (Tex.Civ.App.-Dallas 1979, no writ); Johnson v. First National Bank of Forth Worth, 306 S.W.2d 927 (Tex.Civ.App.-Fort Worth 1957, no writ), and Fain v. Fain, 93 S.W.2d 1226 (Tex.Civ.App.-Fort Worth 1936, writ dism'd). We believe that Scofield v. Weiss, supra, is distinguishable. It is a gift tax case, and its holding, although supposedly based upon Texas law, relies upon Beals v. Fotenot, 111 F.2d 956 (5th Cir. 1940), a case arising in Louisiana under a Louisiana statute. We think that Johnson v. First National Bank of Fort Worth, supra, is not in point with the facts here inasmuch as there the increase in value was not due to the time, effort and talent of the community. Moreover, we do not feel that Fain v. Fain, supra, and Faulkner v. Faulkner, supra, directly address the issue involved here.

Mrs. Jensen's second point of error is that the court erred in making findings of fact five and seven that the salary and bonuses paid Mr. Jensen were adequate and reasonable because the evidence conclusively establishes they were inadequate and unreasonable. These findings relate to appellant's assertion that the community may be entitled to the difference between income actually received by Mr. Jensen and the income the community would have received had Mr. Jensen been fully compensated. Since we have decided that the enhancement in value of RLJ shares is community, we need not address appellant's second point of error.

Although appellant raises no specific point of error that the trial court abused its discretion in awarding the enhanced value of the RLJ corporate shares to Mr. Jensen, she does argue that the trial court's mischaracterization of the RLJ stock increase in value is an abuse of discretion requiring reversal. We will, therefore, address the issue of whether the trial court abused its discretion as a result of its mischaracterization. Rule 418, Tex.R.Civ.P.; Duerer v. G. B. Mueller, Inc., 516 S.W.2d 221, 222 n. 1 (Tex.Civ.App.-Austin 1974, no writ).

Section 3.63 of the Texas Family Code (Vernon Supp.1981) requires the trial court to "order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party...." The phrase "estate of the parties" refers to community property. Eggemeyer v. Eggemeyer, 554 S.W.2d 137, 139 (Tex.1977). Mrs. Jensen correctly complains that the trial court mischaracterized community property as separate property, but she must also "show the trial court would have made a different division if the property had been properly characterized." Smith v. Smith, 620 S.W.2d 619, 625 (Tex.Civ.App.-Dallas 1981, no writ). As Judge Guittard reasoned in Smith v. Smith, supra, any other rule would presume harm from a trial court's error of law. This result would clearly contravene Rule 434, Tex.R.Civ.P.

In dividing community property, the trial court may consider all ...