CASE STUDY:
ROSS V. ROSS 2004

Ross v. Ross, 835 So.2d 817 (La. Ct. App. 1st Cir. 2004).

Facts and procedural history: Billy Ross and Susan Starks were married on May 29, 1992. Shortly after their marriage, Mr. Ross filed a declaration of paraphernality in which he declared that he reserves all fruits, natural or civil, of his paraphernal and separate property, wherever located and however administered.

 

This includes interest, dividends, rents, bonuses, royalties, delay rentals, and shut-in payments arising from mineral leases on separate property, or from the result of labor, or otherwise, for his own separate use and benefit and that it is his intention to administer such property separately and alone. Mr. Ross also acknowledged in the declaration that a regime of acquets and gains otherwise existed between him and Ms. Starks.

Four years later, Ms. Starks filed for divorce, which was granted, and she then filed a petition to partition community property. In that petition, Ms. Starks asserted that Mr. Ross had used community funds to satisfy his separate debts. In his answer to the petition, Mr. Ross denied Ms. Starks’ assertion, claiming that the income in question, which he received from his insurance business, was his separate property subject to the declaration of paraphernality.

 

The trial court held a hearing on the singular issue of whether the income derived from Mr. Ross' insurance business was his separate property and thus subject to the declaration of paraphernality. In a partial judgement, the trial court ruled the following:

  • (1) that the renewal commissions for policies issued before May 29, 1992, are classified as Mr. Ross' separate property;

  • (2) that Ms. Starks bore the burden of proving any entitlement to a pro rata share of renewals received by Mr. Ross after the establishment of the community regime, but prior to the filing of the declaration of paraphernality; and

  • (3) that any new policies issued during the existence of the community, and renewal commissions derived therefrom, subject to deductions based on any efforts, skills or industry exerted by Mr. Ross following the termination of the community regime, were community property.

Ms. Starks appealed, contending that the trial court committed error based on the following determinations:

  • (1) The renewal commissions earned by the Appellee were civil fruits and constituted separate property, which could be reserved to sole administration and control of the Appellee;

  • (2) The Appellant bears the burden of proof in showing that the renewal commissions earned as a result of the labor, skill, and industry of the Appellee are separate in nature, despite the fact that such earnings are presumptively community assets as a matter of law;

  • (3) The renewal commissions earned by the Appellee during his marriage to the Appellant were not the result of his effort, skill, effort and industry; and

  • (4) Policies sold by the Appellee prior to his marriage to the Appellant constituted a “thing” from which fruits could be derived.

Issue: The issue is whether the renewal commissions earned by Mr. Ross during his marriage to Ms. Starks constitute his separate property.

Rule: Things in the possession of a spouse during the existence of a regime of acquets and gains are presumed to be community. La. C.C. art. 2340. However, either spouse may rebut this presumption. La. C.C. art. 2340. The spouse seeking to rebut the presumption bears the burden of proving that the property is separate in nature. Knighten v. Knighten, 00–1662, p. 7 (La.App. 1st Cir. 9/28/01), 809 So.2d 324, 331, writ denied, 01–2846 (La.1/4/02), 805 So.2d 207. Ross v. Ross, 2001-2691 (La. App. 1 Cir. 11/8/02), 835 So. 2d 817, 819, writ granted, 2002-2984 (La. 2/21/03), 841 So. 2d 748, and rev'd, 2002-2984 (La. 10/21/03), 857 So. 2d 384.

Property acquired by a spouse prior to the establishment of a community property regime is separate property. La. C.C. art. 2341. Yet, the natural and civil fruits of separate property produced during the existence of the community property regime are community unless a spouse reserves them as his separate property in a declaration made by authentic act or an act under private signature duly acknowledged. La. C.C. art. 2339. Ross v. Ross, 2001-2691 (La. App. 1 Cir. 11/8/02), 835 So. 2d 817, 819, writ granted, 2002-2984 (La. 2/21/03), 841 So. 2d 748, and rev'd, 2002-2984 (La. 10/21/03), 857 So. 2d 384.

 

Analysis: The trial court found that the policies generated prior to the establishment of the community property regime were Mr. Ross’ separate property. Based on Mr. Ross’ declaration of paraphernality, the trial court further held that the renewal commissions on those policies generated prior to the establishment of the community property regime were also Mr. Ross’ separate property.

 

This court affirmed the trial court’s ruling that the renewal commissions constitute civil fruits because it is revenues derived from a thing by operation of law or by reason of a juridical act. Here, Mr. Ross received renewal commissions based on his contract with State Farm and renewals of pre-existing insurance policies, and since both the contract and the insurance policies are juridical acts, the policies are things or assets from which civil fruits may be derived. This court disagreed with Ms. Starks contention that the renewal commissions at issue should be deemed Mr. Ross’ salary. Per Louisiana law, to disprove that the renewal commissions received by Mr. Ross were not civil fruits, it was necessary to prove that substantial labor was exerted by Mr. Ross to obtain the renewal commissions during the existence of the community property regime.

This court also rejected Ms. Starks' contention that Mr. Ross expended effort, skill, or industry during the existence of the community property regime to keep the pre-community policies generated in effect. Although Mr. Ross may have listed the renewal commissions as income on his income tax statements and such income comprised a disproportionate share of his total income, the evidence shows that Mr. Ross received this income because of little or no effort, skill, or industry exerted on his part during the community.

 

Specifically, Mr. Ross testified that most of the renewal commissions received by him stemmed from policies he had actively solicited years previously. Further, Mr. Ross stated that the only active effort he made regarding renewal policies was to answer questions from clients concerning their policies and occasionally sending out notices to some, not all, clients whose policies were at risk of lapsing. Otherwise, he neither advertised nor actively pursued contacting clients to secure renewals on existing policies.

 

Conclusion: This court rejected Ms. Starks' assertion that the simple designation of the renewal commissions as salary or income bars a finding that the renewal commissions are civil fruits subject to the declaration of paraphernality. Rather, there must be further proof that the civil fruits, in this case, the renewal commissions, resulted from the substantial labor or effort, skill and industry of Mr. Ross, expended during the existence of the community property regime, to be classified as community property. The judgment of the trial court was affirmed. See La. C.C. art. 2338; Kyson, 596 So.2d at 1315. Ross v. Ross, 2001-2691 (La. App. 1 Cir. 11/8/02), 835 So. 2d 817, 822, writ granted, 2002-2984 (La. 2/21/03), 841 So. 2d 748, and rev'd, 2002-2984 (La. 10/21/03), 857 So. 2d 384.