Smith v. Smith

• Decision Date: 20 February 1981
• Docket Number: No. 20426,20426
• Citation: 620 S.W.2d 619
• Parties: James O. SMITH, Appellant, v. Linda M. SMITH, Appellee.
• Court: Texas Court of Appeals

Page 619

620 S.W.2d 619

James O. SMITH, Appellant, v. Linda M. SMITH, Appellee.

No. 20426.

Court of Civil Appeals of Texas, Dallas.

Feb. 20, 1981.

On Motion for Rehearing April 16, 1981.

Bryan D. Hamric, Kraus, Semon & Assoc., Dallas, for appellant.

Mary D. McKnight, McKnight & Fouts, Dallas, for appellee.

Before GUITTARD, C. J., and ROBERTSON and CARVER, JJ.

GUITTARD, Chief Justice.

James O. Smith complains of the property division in the divorce decree between him and Linda M. Smith. The principal dispute concerns a one-half interest in 550 acres of unimproved rural real estate, formerly owned by Linda's mother, which the trial court awarded to Linda. James contends that the property is community and should be divided equally. We agree that the property is community, but we hold that under the circumstances, the court had discretion to award it to Linda. Also, we find no reversible error in the admission of evidence or in the award of an attorney's fee to Linda. Consequently, we affirm.

The property in question, which the parties refer to as a "ranch," was originally owned by Linda's grandfather, and later passed to her mother, Margaret Henderson. In 1973, Mrs. Henderson was hospitalized with a heart condition. On July 20 of that year, she executed two deeds. The first conveys to her two daughters, Linda Smith and Madeline Westbrook, an undivided five percent interest in the ranch property for a recited consideration of "ten dollars and other consideration paid." Linda's interest under this deed is conceded to be her separate property. The second deed conveys to James and Linda and to Madeline Westbrook and her husband an undivided ninety-five percent interest in the same property. It recites a consideration of ten dollars paid and other valuable consideration in consideration of the execution and delivery by the grantees of a promissory note for $181,378.75, with interest at five percent per annum, with monthly payments of principal and interest in the amount of $973.67. This deed reserves a vendor's lien. The grantees also signed a deed of trust to secure the note recited in the deed.

Linda testified that she and her sister made payments of interest in the amount of approximately $700 per month until 1976, and that Mrs. Henderson had "gifted back" the principal payments due in 1974, 1975 and 1976. Apparently, this incongruous expression was intended to mean that Mrs. Henderson forgave these payments. Linda testified that Mrs. Henderson also made a gift of $30,000 in 1976. Although Linda said that all of these gifts had been credited on the note, they are not supported by any documentary evidence. Linda further testified that in 1976, when her mother was divorced, the note was reamortized to provide monthly payments of both principal and interest aggregating $700, the same amount that the interest payments alone had been previously. After this arrangement, Linda made her share of payments of both principal and interest at the rate of $350 per month. These payments, she said, were made out of her personal bank account in which her separate royalty checks had been deposited, and the royalties were enough to cover the payments to her mother. She admitted, however, that this account also contained commissions she had earned during the marriage as a real estate broker. No attempt was made to trace each check written on this bank account to a deposit of her separate royalty funds.

Linda also testified, over objection, that the conveyances in 1973 were made because of her mother's poor health and were put in The trial court made the following findings of fact, none of which are attacked on this appeal as without support in the evidence:

the names of the four grantees rather than in the names of Linda and her sister, "so that the gift back could be made $3,000 per year per person and Mother could gift back twelve thousand a year rather than, say, just six thousand to the two of us." The "gifts back" ceased in 1976, when the $30,000 gift was made.

7. That Petitioner's grandfather, WILLIAM MOSES, was a man of substantial means;

8. That prior to his death, WILLIAM MOSES transferred a tract of real property known as the Old William Moses Ranch to Petitioner's mother MAXINE HENDERSON;

9. That in 1973, MAXINE HENDERSON suffered a heart attack and her family did not expect her to recover;

10. That during the mother's illness, the Old Wiliam Moses Ranch was transferred to LINDA MARGARET SMITH, MADELINE WESTBROOK, and their husbands;

11. That no loans were taken out by JAMES OTIS SMITH and LINDA MARGARET SMITH in connection with the transfer, no down payments made, and no principal amount paid on the note for a period of three years;

12. That the intention of all parties to the transfer was that MAXINE HENDERSON was to "gift back" and forgive the entire principal amount of the note;

13. That by placing all four names on the deed and on the note, MAXINE HENDERSON was able to make tax free "gifts" each year on the note in the amount of $12,000.00, rather than only $6,000.00;

14. That gifts back were made by MAXINE HENDERSON in the amount of $12,000.00 in 1974; $12,000.00 in 1975; and $42,000.00 in 1976, using both the $12,000.00 exemption and the $30,000.00 lifetime exemption at that time;

15. That as of 1976, no payments had been made on the principal of the note;

16. That in 1976, MAXINE HENDERSON was divorced, her financial situation changed, and the note reamortized;

17. That subsequent to 1976, $350.00 in monthly payments were made monthly by LINDA MARGARET SMITH to her mother, MAXINE HENDERSON, on the ranch;

18. That at the time the original note was signed, JAMES OTIS SMITH earned approximately $20,000.00 per year;

19. That payments to MAXINE HENDERSON were to be made from funds received from LINDA MARGARET SMITH'S separate oil royalties;

20. That LINDA MARGARET SMITH maintained a bank account in her own name into which she deposited the oil royalties along with her earnings which were community;

21. That the oil royalties were the extra money in the SMITH family budget from which payments to MAXINE HENDERSON were consistently made;

22. That at no time since the signing of the original note had JAMES OTIS SMITH been responsible for making a payment on the ranch;

23. That JAMES OTIS SMITH had an antagonistic relationship with MAXINE HENDERSON and was not a logical object of her bounty;

24. That no improvements have been made on the ranch by the parties;

25. That JAMES OTIS SMITH is presently employed in North Dakota earning slightly in excess of $30,000.00 annually;

26. That LINDA MARGARET SMITH is not employed and is presently in Based on these findings, the judge concluded that James took an undivided one-fourth interest in the ranch as constructive trustee for Linda and that the transfer was not a sale but a testamentary transfer in anticipation of death.

her second year at Perkins School of Theology.

In support of the trial court's order awarding the ranch to her and otherwise dividing the community equally (except allowing an attorney's fee, which will be discussed later), Linda contends that the ranch was her separate property because it was, in effect, given to her and her sister in 1973, and the "gifts back," were the method by which the gift was accomplished to avoid scrutiny by the Internal Revenue Service.

We cannot agree. Linda's own testimony negates any gift of the entire ranch in 1973. Later, her mother may have given her and her sister a total of $66,000 to be applied on the note, but these gifts were entirely voluntary and could have been discontinued at any time, as they were in 1976, leaving the grantees obligated for the balance of the note. Linda's payments of both principal and interest in the amount of $350 per month after 1976 further indicate her recognition of a continuing obligation. We conclude that both the 1973 deed covering a 95% interest in the property and the deed of trust of the same interest are evidence of a sale rather than a gift and that nothing in Linda's testimony, even if fully believed and accepted, would rebut the presumption of a sale arising from the provisions of these documents. Consequently, we conclude that the interest conveyed to James and Linda by the 1973 deed became at that time community property and remained community property at the time of trial.

We are not persuaded, however, that the court erred in awarding the property to Linda. Under section 3.63 of the Texas Family Code (Vernon 1975), the court was required 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." Under this statute, the trial court is not required to make an equal division of community assets, but has a wide discretion which will be disturbed only when abuse of discretion is shown. Cockerham v. Cockerham, 527 S.W.2d 162, 173 (Tex.1975); Bell v. Bell, 513 S.W.2d 20, 22 (Tex.1974). In exercising its discretion, the court may consider all the circumstances of the parties. Merrell v. Merrell, 527 S.W.2d 250, 255 (Tex.Civ.App. Tyler 1975, writ ref'd n. r. e.). Among the factors which may be considered are differences in earning capacity and business opportunities, probable future need for support, and the benefits an innocent spouse would have received from continuation of the marriage. Bokhoven v. Bokhoven, 559 S.W.2d 142, 144 (Tex.Civ.App. Tyler 1977, no writ); Cooper v. Cooper, 513 S.W.2d 229, 233 (Tex.Civ.App. Houston (1st Dist.) 1974, no writ). Recently, the supreme court has held that the court may also consider the fault of a party in breaking up the marriage and an obligation assumed by one of the spouses to support a physically handicapped adult child. Young v. Young, 609 S.W.2d 758 (Tex.1980).

In view of the wide discretion recognized by the above authorities, we conclude that the trial court could properly consider, among other factors, the long...