      TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN


                                        NO. 03-12-00177-CV



                                  Danette Marilou Pappas, Appellant

                                                  v.

                                  William Michael Pappas, Appellee


      FROM THE DISTRICT COURT OF BELL COUNTY, 169TH JUDICIAL DISTRICT
         NO. 236,404-C, HONORABLE GORDON G. ADAMS, JUDGE PRESIDING



                             MEMORANDUM OPINION


               Danette Marilou Pappas and William Michael Pappas filed a petition and

counter-petition for divorce. Following a bench trial, the trial court granted the divorce and divided

the couple’s property and debts. In five issues on appeal, Danette1 challenges the trial court’s

division of property. We will reverse the judgment and remand the cause to the trial court for a new

division of the marital estate.


                                          BACKGROUND

               Danette and Michael were married on July 24, 1992. No children were born during

the marriage. On May 27, 2009, Danette filed for divorce. Shortly thereafter, Michael filed a

counter-petition for divorce. Both parties requested an equal division of the community estate. After


       1
        For clarity, we will identify appellant by her first name and appellee by his middle name,
by which he identifies himself.
a bench trial, the trial court granted the parties’ petitions for divorce, awarded Danette real and

personal property valued at $596,665.95, and awarded Michael real and personal property valued

at $603,829.66. On appeal, Danette asserts that the trial court made several errors in valuing the

property in the marital estate, which she says resulted in a division of the estate that is so

disproportionate as to be manifestly unjust. She contends the trial court abused its discretion by

(1) declining to recognize a community-property claim for economic contribution related to a

rental-storage business known as “Northwest Hills,” which Michael owned and operated in a

partnership with his father, (2) disregarding expert testimony concerning the value of the community

interest in Northwest Hills, (3) failing to dispose of a community interest in the real property on

which Michael co-owned and operated a business known as “Best Way Carpet,” (4) failing to

dispose of community funds Michael earned after divorce proceedings were initiated, and (5) finding

that she wasted community assets.


                                    STANDARD OF REVIEW

               A trial court has broad discretion in dividing the marital estate, and we presume the

trial court exercised its discretion properly. Murff v. Murff, 615 S.W.2d 696, 698-99 (Tex. 1981).

In dividing the community estate, the trial court must order a division of the property that it deems

just and right, having due regard for the rights of each party. Tex. Fam. Code Ann. § 7.001 (West

2006). The division of the community estate need not be equal, but it should be equitable.

O’Carolan v. Hopper, 71 S.W.3d 529, 532 (Tex. App.—Austin 2002, no pet.). Trial courts have

broad discretion and are permitted to consider a variety of factors in making a just and right division

of property. Murff, 615 S.W.2d at 698-99; see also Schlueter v. Schlueter, 975 S.W.2d 584, 589

                                                  2
(Tex. 1998). An appellate court will correct the trial court’s division of marital property only

when a clear abuse of discretion has been established. Murff, 615 S.W.2d at 698; Bell v. Bell,

513 S.W.2d 20, 22 (Tex. 1974). A clear abuse of discretion is shown if the division of property is

manifestly unjust. See Mann v. Mann, 607 S.W.2d 243, 245 (Tex. 1980). “The party attacking the

property division bears the heavy burden of showing that the trial court’s property division was not

just and right.” Pletcher v. Goetz, 9 S.W.3d 442, 445 (Tex. App.—Fort Worth 1999, pet. denied).

                Under an abuse-of-discretion standard in a family-law case, legal and factual

insufficiency are not independent grounds for reversal but are instead relevant factors in assessing

whether the trial court abused its discretion. Doyle v. Doyle, 955 S.W.2d 478, 479 (Tex.

App.—Austin 1997, no pet.). To determine whether the trial court abused its discretion due to

legally or factually insufficient evidence to support its decision, we engage in a two-pronged inquiry,

considering (1) whether the trial court had sufficient evidence on which to exercise its discretion,

and (2) whether it erred in its application of that discretion. Zeifman v. Michels, 212 S.W.3d 582,

587 (Tex. App.—Austin 2006, pet. denied). Under the first prong, we apply the traditional

evidence-sufficiency standards and then proceed to determine whether, under the second prong, the

trial court’s decision was arbitrary or unreasonable. Id. Errors in valuation require reversal only

when the errors make the property division so disproportionate as to constitute an abuse of

discretion. See Grossnickle v. Grossnickle, 935 S.W.2d 830, 851 (Tex. App.—Texarkana 1996, writ

denied). If there is reversible error that materially affects the trial court’s “just and right” division

of property, we must remand the entire community estate for a new division of property. Jacobs

v. Jacobs, 687 S.W.2d 731, 733 (Tex. 1985).



                                                   3
               In this case, the trial court acted as the fact-finder and is, therefore, the sole judge of

the witnesses’ credibility. See Murff, 615 S.W.2d at 700. As such, the court was free to consider

all the facts and circumstances in connection with the testimony of each witness and accept or reject

all or part of that testimony, and we may not substitute our judgment for the trial court’s assessment

of the witnesses’ testimony. See In re W.E.R., 669 S.W.2d 716, 716-17 (Tex. 1984).


                                           DISCUSSION

               Danette requested an equal division of the marital estate, and the trial court awarded

her 49.7% of the estate, as valued by the court. On appeal, Danette contends that the trial court

dramatically undervalued the estate due to several errors and omissions. Broadly stated, the issues

on appeal pertain to valuation of claims related to real property used by the Northwest Hills storage

business (appellate issues one and two), disposition of real property on which Best Way Carpet

operated its business (appellate issue three), and disposition of the funds in each party’s possession

after divorce proceedings were initiated (appellate issues three and four). She contends the

cumulative effect of the trial court’s errors resulted in a division of the marital estate that was not

just and right (appellate issue five). We will address these issues in turn.


Northwest Hills Storage Business

               Northwest Hills is a rental-storage business that operates on several lots in three

different blocks of the Milestone Planned Development—Blocks 1, 7, and 8—which were acquired

and improved at different times over an extended period of years, both before and during the

marriage. In the proceedings below, the parties did not dispute that Michael’s interest in the



                                                   4
Northwest Hills partnership began before he married Danette and was formalized in a written

partnership agreement executed shortly before the marriage, but they did dispute the extent of

Michael’s ownership interest in the business.2 They also disputed whether some of the real property

used in the business should be characterized as partnership property, separate property, or

community property. Chronologically, Michael obtained an interest in the lots in the following

order, Block 8, Block 1, and Block 7. With respect to Block 8, Danette does not dispute the trial

court’s finding that it is Michael’s separate property, but she asserts that the court erred in denying

her economic-contribution claim on behalf of the community with regard to improvements made to

that property after the marriage. With respect to Blocks 1 and 7, she contends the trial court

significantly undervalued the community’s interest.


        Block 8:

                In her first issue, Danette asserts that the trial court erred in denying her

economic-contribution claim regarding post-marriage improvements to Block 8. The lots in

Block 8 were purchased in 1989 by Michael and his father. Block 8 has six buildings—A, B, C, D,

E, and F—that were built with funds Michael and his father borrowed from a third-party lender prior

to Michael and Danette’s marriage. Construction on one of the buildings was completed before they




        2
          At trial, several witnesses testified that the business started as a general partnership, which
was rolled into a limited liability corporation in 1994. The limited liability corporation was later
dissolved, but the general partnership remained intact. Although the partnership agreement specified
that the partners had equal ownership interests, Michael and his father testified that Michael held
only a 49% interest. Danette relied extensively on the original partnership agreement executed in
May 1992 as governing the terms of the partnership and, in particular, the extent of Michael’s
ownership interest in the business.

                                                   5
married, but the remaining units were completed after marriage. The foregoing facts are undisputed.

There is also some evidence that Michael and his father either took out additional construction loans

or extended the existing loans after the marriage, but it is undisputed that all of the construction

loans were discharged by the partnership after the marriage with rental proceeds that were retained

by the partnership.

               In the proceedings below, Michael testified that he contributed his share of Block 8

to the Northwest Hills partnership, in which he claims a separate-property ownership interest based

on its formation prior to the marriage. Danette asserted that Block 8 is not partnership property but

rather is Michael’s separate property because it was purchased in his name rather than the

partnership’s name. The trial court found, and Danette acknowledges, that the lots in Block 8 are

Michael’s separate property. Danette contends, however, that the community estate has a mandatory

economic-contribution claim in the amount of $330,547 because the construction loans were

discharged during the marriage. Danette maintains that the construction loans were personal loans

rather than loans to the partnership because they were taken in the names of Michael and his father.

Consequently, she asserts, any payments on the loans by the partnership were effectively

distributions of partnership profits, which would be community income. See, e.g., Lifshutz

v. Lifshutz, 199 S.W.3d 9, 27 (Tex. App.—San Antonio 2006, pet. denied) (“[S]ince partnership

property does not retain a separate character, distributions from the partnership are considered

community property, regardless of whether the distribution is of income or of an asset.”).

               The trial court neither required Michael’s separate estate to repay a claim for

economic contribution nor expressly included an economic-contribution claim in the marital estate.



                                                 6
Instead, the court found that “[Danette’s] claims for reimbursement and economic contribution are

not supported by credible evidence; in any event, those claims are resolved as a part of the Court’s

just and right division of the community estate.” On appeal, Danette contends that the evidence

establishes all of the essential elements of the statutory economic-contribution formula and that the

trial court was required to recognize the economic-contribution claim as a community asset subject

to just and right division. In Michael’s view, the trial court properly declined to recognize

an economic-contribution claim on behalf of the community estate because (1) Danette’s

expert admitted that he did not have all the information needed to properly calculate an

economic-contribution claim under the applicable law; (2) there is sufficient evidence that the debt

was extinguished by partnership property—income from rental units retained for the present or

reasonably anticipated needs of the business—rather than community property; and (3) any

economic-contribution claim would be offset by the trial court’s finding that Danette wasted

community assets.     Alternatively, Michael contends that Danette was compensated for any

economic-contribution claim by the trial court’s order that Michael pay her $158,807.89, which he

says is slightly less than half of the economic-contribution claim Danette alleged on behalf of the

community. We hold that the trial court did not abuse its discretion in declining to recognize an

economic-contribution claim on behalf of the community because the trial court could reasonably

have determined that Danette’s expert failed to provide credible evidence of an essential component

of the statutory economic-contribution formula.3




       3
         For purposes of our analysis, we assume without deciding that the community, rather than
the partnership, discharged the debt on the construction loans.

                                                 7
               The law applicable at the time the parties filed their divorce petitions provided that

“[a] marital estate that makes an economic contribution to property owned by another marital

estate has a claim for economic contribution [against] the benefitted estate.” Act of May 28, 2003,

78th Leg., R.S., ch. 230, § 1, 2003 Tex. Gen. Laws 1056, 1056, repealed by Act of May 19, 2009,

81st Leg., R.S., ch. 768, § 11(3), 2009 Tex. Gen. Laws 1950, 1953 (former family code section

3.403). The law also provided that, in a divorce decree, “the court shall determine the rights of both

spouses in a claim for economic contribution . . . and in a manner that the court considers just and

right having due regard for the rights of each party and any children of the marriage shall . . . order

a division of a claim for economic contribution of the community marital estate to the separate

marital estate of one of the spouses . . . .” Act of May 18, 2001, 77th Leg., R.S., ch. 838, § 5,

2001 Tex. Gen. Laws 1679, 1683-84, amended by Act of May 29, 2009, 81st Leg., R.S., ch. 768, § 7,

2009 Tex. Gen. Laws 1950, 1952 (former family code section 7.007).4

               Former section 3.403 of the family code provides a mandatory formula for

determining the amount of an economic-contribution claim in favor of one marital estate against

another. Applying the formula provided in former section 3.403, the amount of the community’s

economic-contribution claim would be equal to the product of the equity in Michael’s separate

property on the date of divorce (“Equity 2”) multiplied by a fraction in which the numerator is the

economic contribution to Michael’s separate property by the community estate (“Community

Contributions”) and the denominator is an amount equal to the sum of the Community Contributions,


       4
          The family code sections relevant to economic-contribution claims that were in effect at
the time the original divorce petition was filed have since been repealed but remain controlling for
purposes of this appeal.

                                                  8
the equity in Michael’s separate property as of the date of the first contribution by the community

estate (“Equity 1”), and any additional economic contribution by the husband’s separate estate after

the community’s first contribution to the estate (“Separate Estate Contribution”). See Act of May

28, 2003, 78th Leg., R.S., ch. 230, § 1, 2003 Tex. Gen. Laws 1056, 1056 (repealed 2009) (former

Family Code section 3.403(b), (b–1)(2)). This is mathematically represented as: Economic

Contribution = Equity 2 x (Community Contributions/(Community Contributions + Equity 1

+ Separate Property Contribution)). See id. A spouse seeking economic contribution must bring

forth sufficient evidence for the fact-finder to determine the enhancement value to the benefitted

estate under this formula. Hailey v. Hailey, 176 S.W.3d 374, 388 (Tex. App.—Houston [1st Dist.]

2004, no pet.).

                  The trial court’s findings of fact and conclusions of law do not specify the particular

deficiency in Danette’s evidence, but her burden on appeal is to establish the economic-contribution

claim as a matter of law or to point to evidence that significantly preponderates against the trial

court’s contrary conclusion. We conclude that Danette has not met this heavy burden because the

trial court could have concluded that, even assuming that economic contributions were made by the

community estate, there was insufficient evidence to determine the equity in Michael’s separate

property as of the date of the first contribution by the community estate—the Equity 1 component

of the statutory formula. Danette’s expert testified that he did not know how much equity Michael

had in Block 8 at the time the community estate made its first contribution (i.e., making payment on

the construction loans). He further testified, however, that it was reasonable to conclude that

Michael’s equity at that time was the same as it was when he purchased the property—essentially,



                                                    9
the $12,076 down-payment—because it was reasonable to conclude that the property had not

increased in value during the nearly three years between the time Michael and his father purchased

the property and the time the community made its first payment on the construction loans. The sole

basis for the expert’s conclusion that the property had not increased in value was that property

valuations are often determined using comparable sales within a three-year period.

               We hold that the trial court could reasonably have disregarded the expert’s opinion

as not credible. As the trier of fact, it was within the trial court’s province to do so. See City of

Keller v. Wilson, 168 S.W.3d 802, 819-20 (Tex. 2005) (observing that fact-finder is sole judge of

witnesses’ credibility and weight to give to their testimony and may choose to believe one witness

and disbelieve another, including uncontroverted expert testimony unless expert testimony is

required). In this case, the trial court could reasonably have determined that the value of Michael’s

equity in the property nearly three years earlier was not a sufficient proxy for the Equity 1 component

of the statutory formula, contrary to the expert witness’s opinion. In addition to the fact-finder’s

general prerogative in evaluating the credibility of witnesses, there are several reasons why the trial

court could have so concluded: (1) the fair market value of the property three years earlier was too

remote to be a credible proxy for the fair market value of the property at the time of the community’s

first contribution, (2) the expert provided no market information to justify his conclusion that the

property had not likely increased in value, (3) the expert failed to address the likelihood of an

increase in equity through reductions in the amount of the purchase lien during the three-year period,




                                                  10
even though the note was due to be paid off shortly after Michael and Danette married,5 and (4) the

expert failed to consider Michael’s equity in the value of improvements constructed prior to the

marriage. See Act of May 18, 2001, 77th Leg., ch. 838, § 2, 2001 Tex. Gen. Laws 1679, 1680,

repealed by Act of May 19, 2009, 81st Leg., R.S., ch. 768, §11(2), 2009 Tex. Gen. Laws 1950, 1953

(former family code section 3.401) (“‘Equity’ means . . . the amount computed by subtracting from

the fair market value of the property as of a specific date the amount of a lawful lien specific to the

property on that same date.”); see also Garner, Bryan A., A Dictionary of Modern Legal Usage at

322 (2d ed. 1995) (defining “equity” as “[t]he amount by which the value of a property or an interest

in property exceeds secured claims or liens . . . ‘the value, above all secured claims against the

property, that can be realized from the sale of the property for the benefit of the unsecured

creditors.’”). Accordingly, we hold that the court did not abuse its discretion in declining to

recognize an economic-contribution claim in favor of the community estate. We overrule Danette’s

first appellate issue.


        Blocks 1 and 7

                In her second issue, Danette asserts that the trial court significantly undervalued the

community’s interest in Blocks 1 and 7. The principal issues at trial concerning Blocks 1 and 7 were




        5
          The terms of the promissory note provided that “[t]he principal of this note is due and
payable in thirty-six (36) consecutive monthly installments” with “[t]he first installment [] due and
payable on or before November 15, 1989, and one installment [] due and payable on or before the
15th day of each succeeding month thereafter until fully paid . . . .” The final installment was due
on October 15, 1992. In calculating the community’s economic-contribution claim, Danette’s expert
did not include any increase in equity to the property resulting from payment of this note, and there
is no evidence that the note was amended or that Michael and his father were in default.

                                                  11
(1) whether the lots in these blocks were community property or partnership property, (2) the extent

of Michael’s ownership interest in the partnership, and (3) the value of the property and the business.

                The lots in Block 1 were purchased in 1998, and the deed identifies the purchasers

as Michael, Danette, and Michael’s parents. Block 1 has three buildings—G, H, and I—that were

constructed using funds borrowed by Michael, Danette, and Michael’s parents. Michael’s father

provided uncontroverted testimony that (1) the lots in Block 1 were acquired for use by the

partnership, (2) the funds to purchase the property came from storage-unit rental income retained by

the partnership, (3) the construction loans were paid by the partnership from retained rental income,

and (4) the property was used by the partnership exclusively and treated as partnership property on

tax returns.

                Michael’s father purchased the lots in Block 7 several years before he formed the

partnership with Michael. There are two buildings on that property—buildings 415 and 515—which

existed when Michael’s father purchased the property. In 2003 Michael purchased a 49% interest

in this property with a $150,000 seller-financed note payable to his father. Each month, the

partnership distributed $1,500 to Michael, and Michael used this distribution to pay down the note

to his father. At the time of trial, there was approximately $58,000 remaining unpaid on the note.

The foregoing facts are undisputed. Michael and his father testified that Michael purchased an

interest in Block 7 in order to bring it into the partnership. Michael’s father testified that, prior to

that time, he had kept two sets of accounting books—one for the Northwest Hills partnership and

one for the rental units in buildings 415 and 515, which he alone owned. When it became difficult




                                                  12
for him to operate the businesses separately, he suggested that Michael buy into Block 7 so they

could consolidate the accounting books.

               Michael’s expert valued Northwest Hills—including all the lots in Blocks 1, 7, and

8—at $2.22 million using the income-capitalization approach; however, he did not allocate value

to the business by building or by block. Danette’s expert, also using the income-capitalization

method, valued Northwest Hills—including all the lots in Blocks 1, 7, and 8—at $2.23 million and

assigned values of $1,134,989 to the buildings in Block 1, $411,357 to the buildings in Block 7, and

$683,654 to the buildings in Block 8.

               Using a cost approach to valuation, both Michael’s and Danette’s experts valued the

business as follows:


               Building G (Block 1)                          $363,850

               Buildings H & I (Block 1)                     $483,700

               Building 415 (Block 7)                        $162,200

               Building 515 (Block 7)                        $145,000

               Buildings A-F (Block 8)                       $510,550

               Misc. Improvements6                           $125,000

               Land (152,547 sq. ft.)                        $122,000

                       TOTAL VALUE:                          $1,912,300




       6
          The miscellaneous improvements were specified as the “as-is” value of asphalt and
concrete paving, fencing, gates, signage, security camera system, landscaping, and sprinkler system.

                                                13
The only difference between the experts’ valuations of the property under the cost approach was how

to allocate the cost of miscellaneous improvements and land. Michael’s expert provided no

allocation, but Danette’s expert said that both components of value should be allocated among the

buildings based on their value. Essentially, the experts agreed on the overall value of the business

and the component elements of valuation under both the income-capitalization and cost approaches

to valuation.

                The principal dispute between the experts centered on the applicability and extent of

discounts to be applied to Michael’s interest in the business. The main issue was whether Michael

in fact holds an interest in Northwest Hills that is properly characterized as “non-controlling.” Both

Michael and his father testified that Michael holds only a 49% ownership interest in Northwest Hills.

Partnership and individual tax returns and other documents admitted at trial confirm this division,

as did the transaction involving Michael’s purchase of a 49% interest in Block 7. However, the

written partnership agreement, which was executed in May 1992, states that the partnership is owned

equally by Michael and his father. Danette’s expert testified that the value of the partnership should

not be discounted because Michael and his father hold equal ownership interests. He stated that an

equal, undivided ownership interest requires no adjustment or discount while a majority interest

carries a premium value and a minority interest has a reduced value due to lack of control.7

Michael’s expert disagreed, testifying that the value of Michael’s share in Northwest Hills must




       7
           Curiously, Danette’s expert applied a 10% discount for lack of liquidity to Michael’s
interest in Best Way Carpet even though it was undisputed that Michael is an equal owner in
that business and even though Best Way Carpet does not appear to be any more illiquid than
Northwest Hills.

                                                 14
be reduced by 40% to reflect lack of marketability/liquidity regardless of whether Michael has a

49% undivided interest or is an equal owner. He stated that, in either case, a 40% deduction for lack

of marketability/liquidity would be appropriate because a 50% ownership interest is still properly

characterized as a non-controlling interest and is less marketable. He further testified, however, that

if the partnership interest was only 49%, an additional deduction of 20% for lack of control would

apply. A real estate appraiser also testified at trial on Michael’s behalf regarding the value of the real

property used by Northwest Hills and Best Way Carpet. He testified generally that the industry-wide

standard is to reduce the value of an undivided interest in real property by one-third because “[i]t’s

more difficult to sell a piece of property when there is an undivided interest, trying to get two people

to agree on the sales agreement.”

                In the final divorce decree, the court awarded Michael “[t]he business known as

Northwest Hills, including all community interest, including but not limited to all interest in the lots

in Block 1 . . . and in the lots in Block 7 and 8 . . . .” Before rendering final judgment, the court

issued a memorandum ruling declaring Michael’s interest in Block 8 to be his separate property and

his interest in Northwest Hills, including Blocks 1 and 7, to be community property.8 In amended

findings of fact and conclusions of law, the trial court reiterated that the lots in Block 8 were

Michael’s separate property and determined that the value of the community portion of the




        8
         In the memorandum ruling, the court stated that “the following community property is
awarded to Respondent [Michael] . . . All right, title and interest in and to the business known as
‘Northwest Hills,’” which included “all of the community interest” in Blocks 1 and 7 of the
Milestone Planned Development Number One.

                                                   15
Northwest Hills storage business and real estate, including Blocks 1 and 7, totaled $82,125.9 To the

extent the trial court concluded that the property used in the storage business was either community

or separate property, the court implicitly determined that it was not partnership property, because

partnership property is neither community property nor separate property in nature. See Lifshutz,

199 S.W.3d at 27 (“Under the entity theory [of partnership], all property brought into the partnership

is partnership property and, as partnership property, does not retain either a community or separate

property nature [for purposes of community property principles relating to marriage].”). But with

respect to the trial court’s disposition of the lots in Blocks 1 and 7, the trial court appears to have

found (somewhat incongruously) that these lots were partnership property and that Michael’s interest

in the storage business, including these assets, was community property. The trial court made

no express fact findings resolving the disputes about Michael’s ownership percentage or the

applicable discounts, but the court’s valuation of the community’s interest in Northwest Hills is




       9
           The court described the property being valued and awarded as follows:

       5.     During the marriage, Petitioner and Respondent acquired the following
       property other than by gift or inheritance with the values shown:

       ....

       Business known as “Northwest Hills,” including but not limited to all furniture,
       fixtures, machinery, equipment, inventory, cash, receivables, accounts, goods,
       supplies, and all personal property used in connection with the operation of the
       business, and also including all of the community interest in the lots in Block 1,
       Replat of Milestone Planned Development Number One, and the lots in Block 7,
       Replat of Milestone Planned Development Number One, Bell County, Texas, more
       particularly described in Exhibit “A” to the Final Decree of Divorce signed on
       December 20, 2011[.] [Valued at] $82,125.00.

                                                  16
consistent with an application of a non-controlling interest discount and with a finding that Michael

owned a 49% interest in the partnership.

               On appeal, Danette contends the evidence establishes that Northwest Hills is valued

at a minimum of $2.22 million under the income-capitalization approach and that the trial court erred

in applying non-controlling interest discounts because Michael owns 50% of the business per the

partnership agreement. Accordingly, she contends that the community’s interest in Northwest Hills

is $1.11 million. Alternatively, if discounts are applied, she contends that the uncontroverted

evidence establishes a minimum value of $521,909 for the business.

               Danette’s claim that the “uncontroverted” evidence establishes a minimum value of

$2.2 million for the storage business is flawed because she includes in that figure value calculations

that her expert conceded were attributable only to the buildings on Block 8, which she does not

dispute are Michael’s separate property. Excluding the value attributable to Block 8 leaves a

maximum value of $1,546,346 for the business under the income-capitalization approach and

$1,401,750 under the cost approach (if land and miscellaneous improvements are not allocated by

building value). Although Danette’s appellate argument implies that only the income-capitalization

approach should be considered, the court was free to consider both methods in determining the value

of the property in the marital estate because both of these methods were presented in the expert

reports admitted at trial. Aside from Danette’s faulty premise regarding the minimum value of the

business, we agree that the trial court significantly undervalued the community’s interest in

Northwest Hills because there does not appear to be any value attributable to the community’s




                                                 17
interest in Block 1 even though the divorce decree indicates that there is at least some portion of

Block 1 that was acquired by the parties (or the partnership) during the marriage.

                Although the trial court did not explain its methodology in valuing “the business

known as Northwest Hills,” “including all of the community interest in the lots in Block 1 . . . and

the lots in Block 7,” the $82,125 value the trial court assigned to the business is identical to the

valuation proposed in Michael’s written final argument as the community’s contribution to the

partnership. The figure Michael proposed, which the trial court apparently adopted, was based on

an ownership interest of 49% and a non-controlling interest discount of 33% (based on the real estate

appraiser’s testimony regarding reductions in value for undivided interests). According to Michael,

Blocks 1, 7, and 8 are partnership property and his interest in the partnership is his separate property,

having its inception no later than execution of the partnership agreement in May 1992. In his view,

therefore, the only community-property interest in Northwest Hills is the 49% interest in the lots in

Block 7, which Michael purchased after marriage, paid for with profits distributed to him by the

partnership, and contributed to the Northwest Hills partnership. Accordingly, Michael contends that

the community has an interest only in the buildings on the lots in Block 7—buildings 415 and

515—and the accompanying land. Per the appraisals admitted at trial, which were not contested,

buildings 415 and 515 were valued at $162,200 and $145,000, respectively, using the “appraisal cost

approach” for a total of $307,200. The land in Blocks 1, 7, and 8 was separately valued at a total of

$122,000, which was not segregated among the tracts of land; consequently, Michael conceded that

the entire value of the land must be considered to be part of the community’s contribution of

Block 7 to the partnership. Based on these values, which were not contested by Danette or her



                                                   18
expert, Michael valued the community interest at $82,125 by adding the building and land value

($307,00010 + $122,000 = $429,000), reducing that figure by his 49% ownership interest, applying

an additional non-controlling interest discount of 33.3%, and then deducting the outstanding balance

of $58,000 on the note to Michael’s father. This is exactly the amount that the trial court found to

be the value of the entire community-property interest in the Northwest Hills partnership.

               There was conflicting evidence about whether Michael holds an equal ownership

interest in Northwest Hills or a 49% ownership interest, and there was conflicting expert testimony

about whether discounts should be applied to Northwest Hill’s value if Michael holds an equal

ownership interest. As a reviewing court, we give deference to the responsibility of the fact-finder

to fairly resolve conflicts in testimony, to weigh the evidence, and to draw reasonable inferences

from basic facts to ultimate facts. See McGalliard v. Kuhlmann, 722 S.W.2d 694, 697 (Tex. 1986).

Based on the evidence at trial, the trial court could reasonably have determined these issues in

Michael’s favor and valued the business accordingly. Even so, however, there were errors in the trial

court’s valuation of the business that so significantly undervalued the community’s interest in

Northwest Hills—as awarded by the court—that a new division of the marital estate is required.

               One error is the failure to attribute any value to the $125,000 in miscellaneous

improvements that the experts included in the cost approach to valuation, which the trial court

evidently used to value the community’s interest in Northwest Hills. The more significant error is

the court’s failure to assign any value to Block 1, which is contrary to undisputed evidence that a




       10
          In his calculations, Michael erroneously stated this figure as $307,000, which we use
because the trial court apparently did as well.

                                                 19
significant portion of the storage business’s value is attributable to the buildings on the lots in that

block, regardless of whether the court valued the property under the income-capitalization method

or the cost approach to valuation. The failure to assign any value to Block 1 could make sense only

if the court determined either that the lots in Block 1 are Michael’s separate property or that his

interest in the storage business is. But if the trial court intended to treat either Block 1 or the

partnership as Michael’s separate property and value Block 7 as the only community contribution

to the partnership, such intention is not evident from the final divorce decree or the trial court’s

findings and conclusions. Indeed, some of the court’s findings and conclusions are inconsistent with

such an intention.

                In its findings and conclusions, the trial court identified the storage business as

community property and awarded it to Michael. The trial court further identified Blocks 1 and 7 as

assets of the storage business that were acquired during the marriage. Yet the value the trial court

assigned to the storage business can only be traced to evidence related to the value of Block 7, as

analyzed by Michael in his closing argument. Because there was undisputed evidence of some value

attributable to Block 1, the trial court’s valuation of Northwest Hills simply cannot be squared with

the evidence. And because the experts testified that Block 1 added several hundred thousand dollars

to the value of Northwest Hills (even if discounts are applied), the trial court’s failure to assign some

value to this property resulted in a property division so disproportionate as to constitute an abuse of

discretion and requires that we remand the cause to the trial court for a new just and right division

of the community estate. See Grossnickle, 935 S.W.2d at 851. We therefore sustain Danette’s

second appellate issue.



                                                   20
Best Way Carpet

               In the first part of her third issue, Danette asserts that the trial court abused its

discretion by not valuing and disposing of the community’s interest in two lots upon which Best Way

Carpet operated. Michael formed a partnership in Best Way Carpet with his friend, Bret Stafford,

while he was married to Danette. It is undisputed that Michael’s interest in Best Way Carpet is

community property and that he holds an equal ownership interest, although there is some evidence

that the partnership operated with Stafford as the final decision-maker. In 1995 Michael and Stafford

purchased Lots 7, 8, and 9 in Block Number 1 of Northwest Hills Commercial Subdivision (not to

be confused with the Northwest Hills storage business, which operates on lots in the Milestone

Planned Development). The carpet business presently operates in an improved structure on Lots

8 and 9; Lot 7 was sold during the marriage and is not at issue in the divorce proceedings. In

1999 Michael and Stafford also purchased Lot 4 in the Milestone Planned Development Number

One. Lot 4 is used by Best Way Carpet for storage of inventory.

               The trial court valued Lot 4 at $27,600 and awarded it to Michael. Danette does not

dispute this disposition. The trial court also awarded Michael the following interest in Best Way

Carpet, which it valued at $336,519:


       [a]n undivided one-half interest in the business known as Best Way Carpets [sic],
       including all ownership interest in Best Way Carpet Services, Ltd. and Best Way
       Carpet Management, LLC, including but not limited to all furniture, fixtures,
       machinery, equipment, inventory, cash, receivables, accounts, goods and supplies;
       all personal property used in connection with the operation of the business; and all
       rights and privileges past, present, or future, arising out of or in connection with the
       operation of the business.




                                                 21
The value the court assigned to Michael’s interest in Best Way Carpet is equivalent to the value

provided by Michael’s expert witness and reflects a 30% discount for lack of marketability/liquidity,

a 25% discount for lack of control, and a 49.5% ownership interest. Danette does not dispute the

trial court’s valuation of Best Way Carpet or the application of these discounts. Rather, Danette

argues that the trial court failed to dispose of the community’s 50% interest in Lots 8 and 9. Danette

requested additional findings of fact and conclusions of law regarding the value of Lots 8 and 9, but

the trial court did not make any additional findings or conclusions related to this property. There is

no dispute, however, that the lots are worth $434,000 before any deductions are applied; the only

issue is whether the trial court disposed of this property in the final divorce decree.

               The trial court did not specifically mention Lots 8 and 9 in the final divorce decree

or in its amended findings of fact or conclusions of law. The court also did not mention real

property, buildings, or land in valuing and awarding Best Way Carpet. However, by adopting the

valuation of the business proposed by Michael’s expert, the trial court appears to have recognized

the value of these lots as a major component of the business’s value and, therefore, valued and

disposed of this property in its award to Michael of an undivided one-half interest in Best

Way Carpet.

               Michael’s expert valued Best Way Carpet at $1,294,926 before adjustments and

discounts were applied. In determining the business’s value, the expert used an “income-oriented”

approach, which “assumes that all of the assets, tangible or intangible, are indistinguishable parts of

the business, and does not attempt to separate the values of the two.” Best Way Carpet’s adjusted

balance summary sheets, which were included in the expert’s report, included a fixed asset value of



                                                  22
$1,171,979 for calendar year 2010, which included “property, plant, & equipment” valued at

$1,155,521 and “land” valued at $16,458. Although there is no listing of the assets used to generate

these values, there was testimony at trial that Best Way Carpet operates in a building constructed on

Lots 8 and 9, and the income statement attached to the expert’s report valuing the business shows

no expense for rent, which is consistent with the business owning the property on which it operates.

Taking the foregoing evidence together, it is reasonable to conclude that the trial court accounted for

the value of Lots 8 and 9 when it valued Best Way Carpet using the income-asset approach and that

the lots were therefore disposed of when Michael’s interest in the business was awarded to him at

the stated value.11

                However, Danette’s concern regarding the disposition of Lots 8 and 9 is

understandable because there is an incongruity in the way the trial court apparently valued and

disposed of Lots 8 and 9 in the final divorce decree and the way Lot 4 was treated in the final divorce

decree. Lot 4 was valued and awarded separately from the business even though it was acquired in

a manner similar to Lots 8 and 9 and there was testimony that it was used by the partnership for

storage. Although there is no apparent reason why these lots should have been disposed of in a

different manner, the trial court did dispose of them. Accordingly, we overrule Danette’s third

appellate issue complaining about the disposition of Lots 8 and 9. However, because we must

remand the entire community estate for a new division of property based on the trial court’s error in

valuing the community’s interest in the Northwest Hills storage business, Jacobs v. Jacobs,


        11
           Notably, Danette did not include these lots in her inventory and proposed division of the
community estate. Her expert also did not include values for Lots 8 and 9 in his listing of the
parties’ real property. Both, however, included separate values for Lot 4 and Best Way Carpet.

                                                  23
687 S.W.2d 731, 733 (Tex. 1985), the trial court will have the opportunity to revisit its valuation and

disposition of Lots 4, 8, and 9.12


Disposition of Post-Filing Income

                The trial court concluded that Danette wasted $298,495 in community assets that were

in her possession after she initiated divorce proceedings. In her fourth issue on appeal, Danette

contends there is no evidence that she disposed of community assets for non-community purposes.

Danette maintains that she adequately accounted for her expenses, which included $11,500 in

medical bills from a car accident, $57,500 in attorneys’ fees, unspecified travel fees and hotel

expenses related to the divorce proceedings, and living expenses, including rent of between $2,500

and $3,400 per month.

                We need not decide at this time whether the trial court’s waste finding was erroneous

because, even if it was, Danette was not harmed by the finding. The parties asked for an equal

division of property, and the trial court awarded Danette 49.7% of the estate as valued by the court.


       12
          Michael contends that the trial court awarded Lots 8 and 9 to him in the final divorce
decree by virtue of the following language:

        WILLIAM MICHAEL PAPPAS, is awarded the following as his sole and separate
        property . . . [T]he business known as Northwest Hills, including . . . all interest in
        the lots in Block 1, Replat of Milestone Planned Development Number One, and in
        the lots in Block 7 and Replat of Milestone Planned Development Number One . . .
        more particularly described in Exhibit A . . . .

(Emphases added.) We do not believe the final decree can be so construed. Although Exhibit A
includes the legal description of Lots 8 and 9 in the Northwest Hills Commercial Subdivision, it
appears that Michael is either failing to recognize the decretal language limiting the award to the lots
in the Milestone Planned Development or is confused by the similarity in the names of the storage
business and the subdivision in which Lots 8 and 9 are situated.

                                                  24
There is nothing in the final divorce decree, the findings of fact and conclusions of law, or the trial

court’s division of assets indicating that Danette was penalized in the division of assets based on the

waste finding.13

                In the second part of her third issue, Danette complains that the trial court failed to

make requested fact findings regarding the amount and disposition of money Michael had in his

possession after divorce proceedings were initiated and, consequently, that the court failed to dispose

of community funds Michael earned after she filed for divorce. At trial, Danette focused more on

the period before she filed, arguing that Michael had earned, but failed to account for, more than

$1.2 million dollars in 2006, 2007, 2008, and the portion of 2009 that preceded the divorce

proceedings. On appeal, she focuses on testimony that, in the twenty months between the filing of

divorce in May 2009 and trial, Michael earned approximately $375,000—$10,000 per month in

salary from Best Way, $1,500 per month in distributions from Northwest Hills, one-half of an IRS

refund check (approximately $27,000), and one-half of proceeds from a land transaction

(approximately $44,000). She contends that approximately $211,000 of this money was not

accounted for and remains undivided. Contrary to Danette’s claim on appeal, the trial court

expressly found that “[Michael] did not conceal or otherwise fail to account for $1,000,000.00


        13
           At worst, the trial court offset the amount of wasted funds from the economic-contribution
claim Danette asserted against Michael’s separate property interest in Block 8. The trial court
declined to recognize that claim, but in the alternative, found that it was accounted for in the division
of property. Because the trial court awarded the parties the nearly equal division of property they
requested, the court’s alternative holding regarding the economic-contribution claim would make
sense only if the waste finding offset an economic-contribution claim, if one were found to exist.
We have already determined that the trial court did not abuse its discretion in declining to recognize
the community’s economic-contribution claim; accordingly, there is no apparent harm to Danette
arising from the finding that she wasted community assets.

                                                   25
(or any other amount) in community assets” and concluded that “[Danette]’s claim that

[Michael] concealed or failed to account for $1,000,000.00 in community assets is not supported by

credible evidence.” Thus, as we perceive it, the real issue is not the trial court’s failure to make a

fact-finding, but whether the trial court’s finding is supported by the evidence.

               To account for the disposition of funds in the pre-divorce time period of 2006-2009,

Michael offered testimony from his bookkeeper, who provided accounting records and testimony

regarding his income and expenses during that time period. Danette apparently is no longer pursuing

a claim of concealment as to those periods of time. With regard to funds Michael acquired and

disposed of after Danette filed for divorce, he testified that (1) the $1,500 monthly payment from

Northwest Hills is used every month to pay off the loan from his father on Block 7, (2) Danette’s half

of the IRS tax-refund check had already been disbursed to her, (3) Danette’s half of the land

transactions had already been disbursed to her, except for a small check that she failed to collect

from the title company, (4) he paid $3,500 to $4,500 per month in spousal support to Danette, (5) he

paid $20,000 in attorneys’ fees, and (e) he used the remaining funds for living expenses (including

a mortgage on the marital residence) and quarterly tax payments on his partnership income.

Although he did not provide testimony as to his precise expenses in the post-filing time period, there

was evidence that he had monthly expenses of at least $8,000 and paid an unspecified amount of

quarterly tax payments. There is also evidence in the record of historical expenses in the pre-divorce

time period of 2006-2008, which showed approximate monthly house and insurance payments of

$1,850, property taxes of $6,500 per year, and “quarterly and taxes” of more than $100,000 per year

on average. In addition, Danette did not dispute that she had already received her half of the IRS



                                                 26
refund and land transaction proceeds. Based on the foregoing evidence, the trial court could

reasonably have concluded that Michael did not conceal any assets and that there were no

further community assets to be divided by the court.14 We overrule Danette’s third and fourth

appellate issues.15


                                          CONCLUSION

                Having determined that the trial court erred in its calculation and division of what it

determined to be Danette and Michael’s community-property estate, we reverse the portion of the

trial court’s decree dividing the community estate and remand the cause to the trial court for a new

just and right division of the community estate.



                                               _________________________________________

                                               J. Woodfin Jones, Chief Justice

Before Chief Justice Jones, Justices Rose and Goodwin

Reversed and Remanded

Filed: January 10, 2013



        14
          Furthermore, Danette’s claims of concealment are not supported by her pleadings, and a
judgment must conform to the pleadings. Tex. R. Civ. P. 301; Cunningham v. Parkdale Bank, 660
S.W.2d 810, 812 (Tex. 1983); Khalaf v. Williams, 814 S.W.2d 854, 858 (Tex. App.—Houston [1st
Dist.] 1991, no writ).
        15
          In her fifth issue, Danette asserts that the cumulative effect of the trial court’s errors in
valuing property in the community estate resulted in a division of the marital estate that is so
disproportionate as to be manifestly unjust. Because we have sustained issue two, which will require
a remand for a new just and right division of the community estate, we need not address issue five.
See Tex. R. App. P. 47.1.

                                                   27
