in the Matter of the Marriage of Jeremy Allen Royal and Adria Rene Royal and in the Interest of a Minor Child

NO. 07-02-0251-CV

IN THE COURT OF APPEALS

FOR THE SEVENTH DISTRICT OF TEXAS

AT AMARILLO

PANEL E

JUNE 3, 2003

______________________________

IN THE MATTER OF THE MARRIAGE OF JEREMY ALLEN
ROYAL AND ADRIA RENE ROYAL AND IN THE INTEREST
OF COURTNEY CHEYENNE ROYAL, A MINOR CHILD

_________________________________

FROM THE COUNTY COURT AT LAW NO. 2 OF LUBBOCK COUNTY;

NO. 2001-515,444; HONORABLE DRUE FARMER, JUDGE

_______________________________

Before REAVIS and CAMPBELL, JJ., and BOYD, S.J.1

OPINION

In three points of error, appellant Jeremy Allen Royal (Jeremy) challenges the

property division made by the trial court in dissolving his marriage to appellee Adria Rene

Royal (Adria). He does not challenge the portion of the trial court’s judgment dissolving the

marriage. In each of his points, Jeremy complains of the trial court’s division of the

1
John T. Boyd, Chief Justice (Ret.), Seventh Court of Appeals, sitting by assignment.
Tex. Gov’t Code Ann. §75.002(a)(1) (Vernon Supp. 2003).
couple’s home, which comprised the bulk of their community estate. Finding no reversible

error in the trial court’s property division, we affirm the judgment of the trial court.

The parties were married in August 1994 and had a child in 1995. In 1996, they

purchased a house in Lubbock. The details of that purchase will be later discussed in

detail below. In October 2001, Jeremy filed suit for divorce, alleging that the marriage had

become insupportable because of discord between the parties. Adria answered the suit

and included a cross petition seeking divorce. Each of the parties asked to be named

managing conservator of their daughter.

After a bench trial, the trial court dissolved the marriage and appointed Jeremy and

Adria as joint managing conservators of their daughter. The court found that the house

was community property, but Jeremy was entitled to reimbursement for separate property

contributions toward the purchase of the house. It ordered the sale of the house and that

the proceeds be divided as follows: $20,000 to be used to pay the outstanding mortgage

on the house, $12,850 to be paid to Jeremy as reimbursement for his separate property

contributions, and the remainder to be divided between the parties. The thrust of Jeremy’s

appellate challenge is directed at that portion of the property division declaring him to only

be entitled to $12,850 reimbursement.

The trial evidence was that in 1996, the parties sought financial assistance from

Jeremy’s grandparents, Charles and Margaret Kay, to purchase their house. The Kays

agreed to help and, on May 11, 1996, provided Jeremy with a $5,000 check which was

used as an earnest money deposit. The check was signed by Margaret Kay and Charles

2
Kay testified it was intended as a gift to Jeremy. On May 28, 1996, the day the deal was

closed, the parties executed a promissory note in the amount of $60,000 in favor of

Charles, which was additionally secured by a deed of trust. The note bore interest at the

rate of five percent per annum and provided that only interest would be paid through

January 5, 2000, at which time a new note would be executed. Failure to execute a new

note at that time would make the entire balance due.

The “settlement statement” made at the closing of the house purchase shows that

of the $73,503 required to complete the purchase price, $7,850 was paid in cash, $5,000

came from the earnest money deposit, $60,000 advanced by the Kays, and $653 was

credited to cover outstanding taxes on the property. When the deal was closed, $67,850

was paid by Charles by a check made payable to Norwest Bank.2

On January 2, 2001, Jeremy and Adria executed a renewal note in the amount of

$20,000 to the Kays. The renewal note made reference to the original note in the amount

of $60,000 and its original maturity date of January 5, 2000, and referred to an unpaid

balance of $20,000 principal and interest on the original note. The same day that the

renewal note was executed, the Kays assigned it to Aaron Royal, another of their

grandchildren.

At trial, Charles averred that the note and its assignment were part of a plan to

reduce his estate for tax purposes through gifts to his grandchildren. He testified that the

2
The Bank’s only involvement was as the issuer of a cashier’s check in the amount
of the Kays’ check to it.

3
$40,000 reduction in the house note was the result of gifts to Jeremy of $10,000 from

himself and $10,000 from his wife to Jeremy in 2000 and, in 2001, each of them made

another such gift. He said the transfer of the $20,000 note to Aaron was a gift to him to

equalize the gifts from the Kays to their grandchildren.3 Jeremy also introduced a

December 29, 2000 letter to Charles from his attorney stating that making the gifts in this

way would allow them to be made tax free. Charles averred that was his intent in making

the transactions.

The trial court filed findings of fact and conclusions of law. As relevant here, the

judge found: (number 11) there was no evidence that on January 2, 2001, Charles had

“any intention other than forgiveness of $40,000 [debt] to both [Jeremy and Adria],” and

(number 17) there was no evidence that the $40,000 debt forgiveness was “part of what

[Jeremy] claims as his ‘separate’ estate.” The court made the following conclusions of law:

(number 1) the house was community property, (number 2) the house was acquired by

assuming community debt, and (number 3) the $40,000 debt forgiveness by the Kays was

a gift to both Jeremy and Adria as community property and never became part of Jeremy’s

separate estate (citing Section 3.403 of the Texas Family Code (Vernon Supp. 2003)).

Section 7.01 of the Family Code requires a court to order a division of the parties’

community estate in a divorce proceeding “in a manner that the court deems just and right.”

Whether that was accomplished is the controlling question to be decided by us in reviewing

a property division in a divorce case. Rafferty v. Finstad, 903 S.W.2d 374, 376 (Tex.

3
Charles testified that they had previously given another $20,000 to Aaron.

4
App.–Houston [1st Dist.] 1995, writ denied). In conducting our review, we must remember

that the trial court is afforded wide discretion in dividing the marital estate and its decision

will not be disturbed unless a clear abuse of that discretion is shown. Jacobs v. Jacobs,

687 S.W.2d 731, 733 (Tex. 1985); Murff v. Murff, 615 S.W.2d 696, 698 (Tex. 1981).

In this appeal, neither party argues the division of other community property affects,

or is so intertwined with the division of the house proceeds so as to require consideration

of other aspects of the property division. Our review, then, will be limited to the question

actually presented, namely, whether the trial court erred in its division of the house

proceeds.

In his first point, Jeremy challenges the sufficiency of the evidence to support the

trial court finding that the Kays’ debt forgiveness was a gift to the community, or a gift to

Jeremy and Adria equally, rather than a gift to him as his separate property. His second

and third points are non-substantive variations on the first point challenging the failure to

characterize the gift as his separate property and the failure to grant his claim for economic

contribution to the community estate. Because of their similarity, we will consider all the

points together.

A factual sufficiency challenge to the trial court’s findings of fact is reviewed under

the same legal standards as factual sufficiency challenges to jury verdicts. Ortiz v. Jones,

917 S.W.2d 770, 772 (Tex. 1996). In our review, we weigh all of the evidence and the

findings may only be overturned if they are so against the great weight and preponderance

5
of the evidence as to be clearly wrong and unjust. Id. We review the trial court’s

conclusions of law de novo as legal questions. Piazza v. City of Granger, 909 S.W.2d 529,

532 (Tex. App.–Austin 1995, no writ). A conclusion of law will not be reversed unless it is

erroneous as a matter of law. Id.

It is well established that property acquired by gift is the separate property of the

donee. Tex. Fam. Code Ann. § 3.001(2) (Vernon 1998). When separate property is used

to enhance the value of the community estate, including the reduction of community debt,

the spouse whose separate property was used has an equitable right of reimbursement.

Tex. Fam. Code Ann. § 3.403 (Vernon Supp. 2003); Penick v. Penick, 783 S.W.2d 194,

196 (Tex. 1988). A right of reimbursement is not a property right, but is an equitable claim

within the discretion of the trial court in making a just and right division of the community

estate. Beard v. Beard, 49 S.W.3d 40, 56 (Tex.App.–Waco 2001, pet. denied). The

parties agree that the house was purchased with the $12,850 cash payment and the

execution of the $60,000 purchase money note. They also agree that the Kays made gifts

of $40,000 by crediting the $60,000 note with that much. They disagree as to whom the

$40,000 gifts were made.

In support of his position that the entire $40,000 was a series of gifts to him, Jeremy

cites the trial evidence that the Kays knew there were problems in the marriage that existed

before the gifts were made, as well as Charles’s unequivocal testimony that he intended

the gifts to be made to Jeremy individually. He also notes the absence of any testimony

that Charles had any other intent as well as the inference that the transaction was a gift

6
because Jeremy was the Kay’s grandson and what he describes as the “natural bounty of

their affection.” Jeremy also argues that Adria’s testimony that she “assumed” half of the

gifts were to her is no actual evidence of the Kays’ intent.

Adria argues that Jeremy failed to prove by clear and convincing evidence that the

gifts from the Kays were his separate property. She also argues that the evidence on the

question was conflicting and the trial court’s resolution that the gifts were to both parties

equally was within the bounds of its discretion as the trier of fact. She also cites her

testimony that Charles never informed them that the $40,000 debt reduction was intended

as a gift to Jeremy alone. She additionally notes that there is an absence of any written

evidence of Charles’s intent or of any gift to Jeremy in 2000.

In our discussion of Jeremy’s points, we initially note that we do not agree with Adria

that Section 3.03 of the Family Code places the burden on Jeremy to establish by clear

and convincing evidence that the gifts from the Kays were his separate property. Section

3.03 establishes that there is a presumption that property possessed by spouses at the

time of a dissolution of marriage is community property and, to overcome that presumption,

a party must establish its separate property nature by clear and convincing evidence. Tex.

Fam. Code Ann. § 3.003 (Vernon 1998). The gifts with which we are concerned do not fall

within the classification of “property possessed . . . during or on dissolution of marriage.”

The property in question is the parties’ house, which both agree is community property.

To the degree each party claimed an equitable right of reimbursement because of

7
contributions reducing the debt on the house, they bore the burden of establishing their

respective claims. Tex. Fam. Code Ann. § 3.403 (Vernon Supp. 2003).

Jeremy specifically challenges the trial court findings of fact numbers 11, 16 and 17.

In its finding of fact 11, the trial court found that on January 2, 2001, “there is nothing in the

record to indicate [Mr. Kay had] any intention other than the forgiveness of $40,000 to both

[Jeremy] and [Adria].” We agree with Jeremy that Charles’s testimony is some evidence

that he did not intend the debt forgiveness to be a gift to both parties equally. However,

that was not the only evidence on the issue and in its capacity as finder of fact, the trial

judge was not required to accept Charles’s testimony as dispositive of the case. See

McGalliard v. Kuhlmann, 722 S.W.2d 694, 697 (Tex. 1986).

Finding 16 was that there was no evidence that Jeremy “contributed anything” or

had advance notice of Charles’s intent to forgive $40,000 of the couple’s debt. We do not

perceive how this finding is reversibly material to the trial court’s division of the property.

Tex. R. App. P. 44.1(a).

In its finding 17, the trial court found that “there is no evidence that any part of the

$40,000 forgiven [sic] of the note was ever part of [Jeremy’s] ‘separate’ estate.”4 This

finding is in error. First, Charles’s testimony that he had given gifts to Jeremy was not so

weak as to be a mere surmise or suspicion of a fact; thus, it constituted some evidence of

a separate property gift. Second, the finding is contrary to Texas law. As Jeremy points

4
This finding is mirrored in conclusion of law 5.

8
out, Texas courts consistently hold that gifts to spouses jointly are not community property,

rather, each spouse takes half of the gift as their separate property. See, e.g., Dutton v.

Dutton, 18 S.W.3d 849, 852 (Tex. App.–Eastland 2000, pet. denied); McLemore v.

McLemore, 641 S.W.2d 395, 397 (Tex. App.–Tyler 1982, no writ). See also 26 U.S.C. §

2503(b)(1) (excluding from gift taxes the first $10,000 of gifts made to any person during

a calender year) (emphasis added). That state of the law also requires us to sustain

Jeremy’s challenge to the trial court’s conclusion of law 3, which mirrored finding of fact 17.

We next consider the $12,850 awarded to Jeremy as “reimbursement” for his

separate property contribution. It is well established that when separate property is used

to acquire property during marriage and title is taken in the names of both spouses, the

spouse who contributed the separate property is presumed to have made a gift of half of

the separate funds to the other spouse unless rebutted by evidence clearly establishing

that there was no intention to make a gift. Cockerham v. Cockerham, 537 S.W.2d 162,

168 (Tex. 1975); In re Marriage of Thurmond, 888 S.W.2d 269, 273 (Tex.App.–Amarillo

1994, writ denied). The presumption of gift arises because it is not possible for a spouse

to make a gift to the community estate. Id. at 273, n.1. There is no evidence in this record

that Jeremy did not intend to make a gift.

As we noted in Thurmond, the use of separate property in the acquisition of

community property, as opposed to merely enhancing the value of the community property,

gives the contributing spouse equitable title to the extent the contribution was not a gift to

the other spouse. Id. at 273. Thus, Jeremy’s $12,850 was not an economic contribution

9
under Section 3.401 of the Family Code. Id. However, Adria did not argue to the trial court

nor does she contend here that the trial court erred in its characterization of this amount,

neither does she contend that the $12,850 award divested her of separate property. That

being true, any error in making this award has been waived. Tex. R. App. P. 33.1.

Our holding that the challenged findings of fact are not supported by the record does

not end our task. This is true because if the trial court’s holding is correct on any theory

applicable to the case, it must be affirmed. In re Marriage of Braddock, 64 S.W.3d 581,

585 (Tex. App.–Texarkana 2001, no pet.).

Reiterated, Jeremy argues the evidence establishes the $40,000 debt forgiveness

resulted from a series of gifts from the Kays, while Adria contends the evidence shows the

gifts were made to her and Jeremy equally, making the trial court’s equal division of the

proceeds from the sale of the house appropriate.

Adria correctly notes that a party seeking to prove a gift must establish three

elements: 1) intent to make a gift; 2) delivery of the property; and 3) acceptance of the

property. In re Estate of Hamill, 866 S.W.2d 339, 344 (Tex. App.–Amarillo 1983, no writ).

See also Akin v. Akin, 649 S.W.2d 700, 703 (Tex. App.–Fort Worth 1983, writ ref’d n.r.e.)

(gift must be “fully executed by delivery” to be effective). Charles Kay’s testimony of his

intent in and of itself is not sufficient to establish the gifts. Here, there is no evidence of

the delivery of any gift to Jeremy in 2000. The only evidence of delivery and acceptance

is the renewal note executed by the parties in January 2001.

10
 Jeremy has not shown any exception to the delivery requirement that would justify

the trial court to give effect to Charles’s stated intent by recognizing the January 2001 gifts

as having been made in 2000. While federal tax law does not govern the character of

these gifts, it is worth noting that 26 U.S.C. § 2503 excludes the first $10,000 of gifts made

by a person “during the calender year.” It contains no mechanism to deem a gift made in

one year as having been made in a prior year. Compare, 26 U.S.C. § 219(f)(3) (allowing

contributions to individual retirement accounts made before April 15 to be designated as

having been made during the prior year). The record before us does not permit any other

conclusion than the $40,000 gifts were made in 2001.

The evidence concerning the Kays’ intent was conflicting. Adria’s testimony

controverted that of Charles that he told both parties that he and his wife were making gifts

to Jeremy alone. Moreover, in addition to Charles’s testimony of his intent to make gifts,

the record contains uncontroverted evidence of his intent to avoid gift taxes. Although the

record does not expressly show whether the Kays paid gift taxes on their gifts, from

Charles’s testimony that he treated the gifts as consisting of $20,000 given in 2000 and

$20,000 given in 2001, it is a reasonable surmise that he viewed the gifts as falling within

the $10,000 per year exemptions.

Given Charles’s intent to avoid gift taxes, and the evidence establishing that the

whole $40,000 was given in 2001, the trial court could have reasonably concluded that the

Kays’ gifts were to both Jeremy and Adria. Moreover, equity does not support Jeremy’s

argument that the trial court was obligated to resolve the conflicting evidence in favor of

11
finding all of the Kays’ gifts were to him alone. To do so would be to permit Jeremy and

the Kays to utilize Adria’s gift tax exemption at the time of the gifts, but to preclude her from

benefitting from those gifts upon the dissolution of the marriage.

Our holding that the gifts consisted of $20,000 to each spouse as their separate

property does not require a reformation of the court’s decree to expressly provide that each

of the parties had a $20,000 right of reimbursement in the proceeds from the house. The

decretal provision that those proceeds be equally divided sufficiently protects each party’s

reimbursement claims.

Finally, we address Jeremy’s claim that he was divested of his separate property

because the trial court required the expenses of the house sale be deducted before the

remainder be paid to the parties. That is so, he argues, because the economic

contribution, § 3.403 of the Family Code, granted him an “equitable lien” securing his

interest in the property. We disagree. Jeremy failed to cite any authority for the

proposition that a separate property interest must be recovered before any sale costs.

Additionally, an equitable lien authorized by Family Code § 3.403 is just that, a lien. It is

not a property interest, separate or otherwise, and the legislature specifically provided no

property interest was created by the subchapter authorizing equitable liens for economic

contribution. See § 3.404(b). Without a separate property interest arising from Jeremy’s

claim for economic contribution, there can be no prohibited divestiture.

12
 In summary, for the foregoing reasons, each of Jeremy’s points are overruled and

the judgment of the trial court is affirmed.

John T. Boyd
Senior Justice

13