Opinion
Civil Action No. 3:00-CV-2028-D
September 10, 2002
MEMORANDUM OPINION AND ORDER
Plaintiff Hexin E. McPhee ("McPhee") moves the court to reconsider its memorandum opinion and order holding that he failed to prove by clear and convincing evidence that the residence ("Residence") against which the Internal Revenue Service ("IRS") affixed a tax lien that secured the recovery of unpaid income taxes owed by his former wife was his separate property. See McPhee v. IRS, 2002 WL 1477433 (N.D. Tex. July 5, 2002) (Fitzwater, J.). The court denies the motion.
I
McPhee maintains that, in its reconciliation analysis, the court erred in its application of cases like Cox v. Mailander, 178 S.W. 1012 (Tex.Civ.App. 1915, writ ref'd). He contends that Cox is distinguishable on its facts. The court disagrees with the assertion that it misapplied Texas law and therefore denies reconsideration on this basis.
II A
McPhee principally argues that the court failed to give proper effect to the 1948 amendment to Tex. Const. Ann. art. 16, § 15 (amended 1980, 1987, 1999) and to Tex. Fam. Code Ann. § 4.102 (Vernon 1998). He points to a passage from Ellis v. Ellis, 225 S.W.2d 216 (Tex.Civ.App. 1949, no writ), in which the court noted that "[t]he provisions of the amendment of Article 16, Section 15, of the Texas Constitution, Vernon's Ann. St., adopted November 2, 1948, are not applicable to this case." Id. at 219. From this statement he argues that reconciliation cases decided before the 1948 amendment, and on which this court relied in deciding against him, do not control.
Article 16, § 15 was amended in 1999 in a manner that does not apply to the present case. The version adopted in 1948 stated:
All property, both real and personal, of the wife, owned or claimed by her before marriage, and that acquired afterward by gift, devise or descent, shall be the separate property of the wife; and laws shall be passed more clearly defining the rights of the wife, in relation as well to her separate property as that held in common with her husband; provided that husband and wife, without prejudice to pre-existing creditors, may from time to time by written instrument as if the wife were a feme sole partition between themselves in severalty or into equal undivided interests all or any part of their existing community property, or exchange between themselves the community interest of one spouse in any property for the community interest of the other spouse in other community property, whereupon the portion or interest set aside to each spouse shall be and constitute a part of the separate property of such spouse.
This Amendment is self-operative, but laws may be passed prescribing requirements as to the form and manner of execution of such instruments, and providing for their recordation, and for such other reasonable requirements not inconsistent herewith as the Legislature may from time to time consider proper with relation to the subject of this Amendment. Should the Legislature pass an Act dealing with the subject of this Amendment and prescribing requirements as to the form and manner of the execution of such instruments and providing for their recordation and other reasonable requirements not inconsistent herewith and anticipatory hereto, such Act shall not be invalid by reason of its anticipatory character and shall take effect just as though this Constitutional Amendment was in effect when the Act was passed.
Tex. Const. Ann. art. 16, § 15 (amended 1980, 1987, 1999).
Section 4.102, entitled "Partition or Exchange of Community Property," provides:
At any time, the spouses may partition or exchange between themselves any part of their community property, then existing or to be acquired, as the spouses may desire. Property or a property interest transferred to a spouse by a partition or exchange agreement becomes that spouse's separate property.
The court will assume arguendo on reconsideration that the rights of spouses to partition their community property effected by the 1948 amendment to Tex. Const. art. 16, § 15 and provided for by Texas statute require the court to modify' its reasoning and to address a basis for partitioning property that would not be subject to annulment based on reconciliation. Even so, for the reasons that follow, the court holds that McPhee has failed to prove by clear and convincing evidence that he acquired the Residence with his separate property funds or otherwise to show that it was his separate property.
The United States appears to complain that McPhee should have raised these arguments initially rather than for the first time on motion for reconsideration. See Resp. at 2. Although the court agrees, in the interest of justice, and because it can do so based on the trial evidence already presented, the court will address McPhee's contention.
The court sets out in this memorandum opinion and order additional findings of fact and conclusions of law in support of its holding on reconsideration.
B
To place the court's decision on reconsideration in proper context, it will begin by reiterating some of the legal analysis set out in McPhee. See McPhee, 2002 WL 1477433, at *3-*4 "Any property acquired during marriage is presumed to be community property in the absence of clear and convincing evidence to the contrary." Dutton v. Dutton, 18 S.W.3d 849, 852 (Tex.App. 2000, pet. denied) (citing Tex. Fam. Code Ann. § 3.003 (Vernon 1998)). "In order to rebut the community property presumption, the party claiming separate property must trace and identify the property claimed as separate property by clear and convincing evidence." Celso v. Celso, 864 S.W.2d 652, 654 (Tex.App. 1993, no writ). "Tracing involves establishing the separate origin of the property through evidence showing the time and means by which the spouse originally obtained possession of the property. Separate property will retain its character through a series of exchanges so long as the party asserting separate ownership can overcome the presumption of community property by tracing the assets on hand during the marriage back to property that, because of its time and manner of acquisition, is separate in character." Id. (citations omitted). Texas law generally, and the Texas Family Code in particular, provide that "`[c]lear and convincing evidence' means the measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established." Tex. Fam. Code Ann. § 101.007 (Vernon 1996); see State v. Addington, 588 S.W.2d 569, 570 (Tex. 1979) (per curiam). "This is an intermediate standard, falling between the preponderance standard of ordinary civil proceedings and the reasonable doubt standard of criminal proceedings." Addington, 588 S.W.2d at 570.
Under the "quasi-community property" statute, Tex. Fam. Code Ann. § 7.002 (Vernon Supp. 2002), "property that would be classified as community property if the spouses had resided in Texas at the time of its acquisition is classified as community property on divorce in Texas regardless of the characterization of the property in the state of its acquisition." Dawson-Austin v. Austin, 920 S.W.2d 776, 789 (Tex.App. 1996) (addressing precursor § 3.63(b)), rev'd on other grounds, 968 S.W.2d 319 (Tex. 1998).
C
Under Article 16, § 15 of the Texas Constitution and § 4.102 of the Texas Family Code, McPhee and his wife, Debra, could have partitioned their community property then existing or to be acquired. Applying the "quasi-community property" statute, Tex. Fam. Code § 7.002, the court determines whether they complied with Tex. Fam. Code Ann. § 4.104 (Vernon 1998). Section 4.104 provides that "[a] partition or exchange agreement must be in writing and signed by both parties." "Absent a specific reference to a partition or language indicating that such a division was intended, Texas courts have refused to uphold transactions between spouses as partitions." Byrnes v. Byrnes, 19 S.W.3d 556, 559 (Tex.App. 2000, no pet.).
0f course, although "[t]here is extensive common-law precedent empowering a husband and wife to effect a division of their property on permanent separation[,]" Patino v. Patino, 687 S.W.2d 799, 801 (Tex.App. 1985, no writ), the court held in its earlier decision that McPhee and Debra annulled their agreement by reconciling, see McPhee, 2002 WL 1477433, at *5 ("Their reconciliation in 1994 and 1995 annulled the Separation Agreement.").
The only written agreement introduced in evidence at trial that could conceivably qualify as a partition agreement is the so-called California separation agreement ("Separation Agreement") (PX 1), dated November 3, 1987 and approved by the California Superior Court on November 6, 1987. The Separation Agreement — which is entitled "Stipulation and Order" — provides: IT IS HEREBY STIPULATED by and between the parties hereto as follows:
1. The Order to Show Cause hearing set for November 9, 1987, shall be taken off calendar.
2. The restraining order against Respondent, Hexin McPhee, and American S[a]vings and Loan re CD account#349-5566-6 shall remain in full force and effect until the maturity date, to wit: December 21, 1987.
3. On December 21, 1987, American Savings and Loan shall immediately divide the funds in CD Account #349-5566-6 precisely in half. One-half of said funds shall be put in the name of Hexin McPhee in another similar 90 day CD account. The other one-half of said funds shall be paid to Debra McPhee in the form of a cashier's check and mailed to Debra McPhee in care of her attorneys. Evidence that American Savings and Loan has complied shall be sent to the attorneys for Petitioner, to wit: Pelletier, Supanic Gill, Attorneys at Law[,] 21600 Oxnard St., Suite 2000, Woodland Hills, CA 91367.
4. Petitioner shall have sole legal and physical custody of the minor children, DEBRIEL McPHEE, born 9-22-79 and DENISE McPHEE, born 8-14-85. Respondent shall have frequent reasonable visitation to be agreed to between the parties. Respondent shall give Petitioner 24 hours notice of his intent to exercise visitation.
5. The parties shall continue to co-habit in the family residence, in separate bedrooms. Each party shall contribute an equal amount to the payment of all living expenses, the mortgage, bills, child care, etc. until such time as the parties live in separate residences.
6. When the parties start living in separate residences, Respondent shall immediately pay Petitioner $225.00 per month per child, for a total of $450.00 per month, payable one-half (1/2) on the 1st and one-half (1/2) on the 15th of each and every month.
7. The parties are restrained from transferring, encumbering, hypothecating, concealing or in any way disposing of any property, real or personal, whether community, quasi-community, or separate, except in the usual course of business or for the necessities of life.
8. Each party shall notify the other of any proposed extraordinary expenditures.
9. Both parties are restrained and enjoined f[ro]m cashing, borrowing against, canceling, transferring, disposing of, or changing the beneficiaries of any insurance or other coverage including life, health, automobile, and disability held for the benefit of the parties or their minor children.
10. Neither party shall incur any debts or liabilities for which the other may be held responsible, other than in the ordinary course of business or for the necessities of life.
11. The parties are restrained from annoying, harassing, molesting, disturbing or in any other manner causing pain or discomfort to the other either physical or emotional.
12. The parties are restrained from removing the minor children from the jurisdiction of the court without the written consent of the other party or a court order.
PX1.
Assuming that the Separation Agreement qualifies as a partition agreement, cf. Byrnes, 19 S.W.3d at 559, it is quite narrow in scope. In fact, it does not address at all the partition of property acquired in the future. And it partitions only a single item of existing property: one certificate of deposit. Id. ¶ 3. Read as a whole, the Separation Agreement appears more concerned with restricting conveyances of property than with partitioning property. Compare id. ¶¶ 7-9 with id. ¶ 6 3. Accordingly, the court holds that McPhee has failed to prove by clear and convincing evidence that he and Debra partitioned their community property in such a manner that he acquired the Residence with his separate property.
In view of this analysis, for purposes only of its alternative holding on reconsideration, the court modifies its finding that McPhee made the $2,500 earnest money payment for the Residence "from his separate property personal checking account." McPhee, 2002 WL 1477433, at *2. In McPhee the court held that because McPhee and Debra reconciled in 1994 and 1995, this annulled the Separation Agreement and, as a consequence, the $2,500 that McPhee used to make the earnest money deposit on the Residence was community property. Id. at *5. Under the court's alternative reasoning, McPhee failed, by clear and convincing evidence, to trace the proceeds of his personal checking account from a separate property origin under the terms of a partition agreement, and he therefore failed to prove by clear and convincing evidence that he made the earnest money payment from his separate property.
III
McPhee also argues that the court has not accorded full faith and credit to the Separation Agreement. The court disagrees. After giving it effect, the court has then applied either Texas law that annuls after reconciliation common law post-nuptial agreements that partition community property, see McPhee, 2002 WL 1477433, at *4-*5, or on motion for reconsideration has applied Texas law concerning the requirements for partitioning community property.* * *
Accordingly, McPhee's motion to reconsider is denied. For the additional reasons set out, the court adheres to its conclusion that McPhee has failed to prove by clear and convincing evidence that the Residence was his separate property. The court will decide in due course the remaining issue concerning the extent of the IRS' lien rights in the Residence.