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In a recent case out of the Austin court of appeals, the Court found that no legal authority supported the husband’s claim that delivery of a gift could be made retroactive to an earlier date.  

Facts:

Long before the marriage, Wife’s grandparents started a family-owned and -operated manufacturing Business. It was incorporated and issued 100 shares of stock. The Business’s records were informally kept. During the marriage the Business was struggling and in debt. Husband was a computer programmer with a background in design. He worked for a plumbing and air conditioning contractor for $250,000 a year. Wife encouraged Husband to work at her family’s Business with her parents to help them improve the Business. Husband personally researched Texas property laws regarding community and separate property and learned that gifts were considered separate property. After discussing the situation with “lots of lawyer friends” and “lots of friends who had divorced,” he told Wife that he would work at her family’s Business only if 50% of the stock was his separate property. He did not recall whether he discussed his legal research with Wife. Subsequently, Husband agreed with Wife’s parents that he would work for the company on the condition that he be given 50 shares of stock as his separate property. Wife’s parents agreed but because Wife’s grandparents were still living, the parents did not own 50 shares of stock to transfer at that time.

The agreement was written and signed by Wife’s parents and by Husband. Wife’s parents testified that the agreement to transfer 50 shares to Husband was contingent on his working for the Business and successfully turning the Business around. They testified that they had no intention to cut Wife out of the Business and never saw the transfer as a “gift.” Husband began working at the Business for less than a third of his prior salary, and the Business became profitable again within 2 years. Within a year after starting work, Wife’s grandmother died, which meant Wife’s parents had enough stock to transfer 50 shares to Husband, but no formal transfer of stock occurred until the end of that year (10 months later). Nevertheless, gift tax returns and the Business tax return prepared the following tax year showed the transfer effective the day after Wife’s grandmother’s death. Seven months after the Grandmother’s death (before the formal transfer of sock), the Business was converted to a limited partnership, and the partnership agreement showed that Husband had a 50% partnership interest. After hearing testimony, the trial court determined that the transfer was not a gift but was in consideration for Husband’s improving the company. Thus, the interest was community property. Husband appealed, arguing that the trial court erred in finding the transfer of stocks was community property.

The appellate court affirmed the lower court’s ruling because all the testimony at trial showed that the transfer was dependent on Husband working at the Business, improving its performance, and increasing its profits. He accepted the position for a substantial decrease in salary on the basis that he would work to improve the Business in exchange for an ownership interest. Thus, the evidence suggested the transfer was consideration and not a gratuitous gift. Additionally, a gift requires delivery, and it was undisputed that no formal transfer took place for ten months. Although a partnership agreement can have a retroactive date, Husband cited no law stating a gift could be made retroactive to an earlier date. There was no delivery at the time of the agreement.

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