Fraudulent Transfer of Sole Management Property

This is a case of an interesting idea that didn't work. The community estate owned all the shares in the husband's machine shop. When the wife filed for divorce, the husband transferred 49% of the stock to an employee. The parties entered into a mediated settlement agreement that reserved for trial the issue whether the stock transfer had been fraudulent.

Texas community property law is clear that all property acquired during marriage is community property. Absent exceptions not applicable here, this is true even when the property is titled in the name of only one of the spouses. In this case, the husband held title to all the stock.

At trial - which the Eastland Court of Appeals described as "basically a swearing match between [the husband] and [the employee] on the one hand and [the wife] on the other" - the husband and the employee claimed that the husband transferred the stock to the employee so that the employee would not quit. No money changed hands. The wife agreed that there had been some discussion about giving the employee some of the stock but not 49% of it. The trial court found that the stock transfer was "grossly unfair to the community estate."

The interesting idea? Texas Family Code § 3.102 explains that "each spouse has the sole management, control, and disposition of the community property that the spouse would have owned if single." To paraphrase Texas Family Code § 3.104, a third person who purchases sole management community property from the sole-management spouse takes the property as against the other spouse unless there is fraud involved. The husband argued to the court that section 3.104 authorized him to transfer the stock without the wife's consent.

The court would have none of the husband's argument: "We do not agree that Section 3.104 authorized him to act without [the wife's] consent. As a director, [the wife] was entitled to participate in a decision of this magnitude affecting [the company]. She was entitled to be consulted before [the husband] conveyed almost one-half of their principal company for no consideration."

At the end of its opinion, the court remarked: "This divorce needs to be concluded." Wright v. Wright, No. 11-07-00169-CV (Tex. App. - Eastland Mar. 26, 2009).