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Fraud on the Community

Fraud on the Community

“Fraud on the community” is, in general terms, improper conduct by a spouse to the detriment of the community estate. Fraud on the community exists when a spouse wrongfully transfers property out of the community estate, and wrongfully wastes or depletes community funds or property.

A new law went into effect in Texas on September 1, 2011 that provides greater relief to a spouse who is victimized by the perpetration of a fraud on the community by the other spouse. Before this new law went into effect, a spouse’s remedy for the other spouse’s fraud on the community was generally limited to asking the Court to take the fraud into account in exercising its broad discretion in making a “just and right” division of the community estate in a divorce suit.

Under the new law, which is codified in Section 7.009 of the Texas Family Code, if the trier of fact (usually the judge) determines that a spouse has committed actual or constructive fraud on the community, the Court shall (i) calculate the value by which the community estate was depleted as a result of the fraud on the community and calculate the amount of the reconstituted estate and (ii) divide the value of the reconstituted estate between the parties in a manner the Court deems just and right. “Reconstituted estate” means the total value of the community estate that would exist if an actual or constructive fraud on the community had not occurred.

In making a just and right division of the reconstituted estate, the Court may grant any legal or equitable relief necessary to accomplish a just and right division, including (i) awarding to the wronged spouse an appropriate share of the community estate remaining after the actual or constructive fraud on the community; (ii) awarding a money judgment in favor of the wronged spouse against the spouse who committed the actual or constructive fraud on the community; or (iii) awarding to the wronged spouse both a money judgment and an appropriate share of the community estate.

The new “fraud on the community” statute applies to a divorce suit pending on or filed after September 1, 2011, and will hopefully provide a more meaningful recovery to an innocent spouse who has suffered as a result of the other spouse’s fraudulent conduct.
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