Jean Ann Hoover and Linda K. Kutni, in their capacities as Independent Co-Executors of the Estate of Diana Grenstein Koss, Deceased v. Nathan W. Koss--Appeal from County Court at Law No 2 of McLennan County

IN THE

TENTH COURT OF APPEALS

No. 10-04-00015-CV

Jean Ann Hoover and Linda K. Kutni,

as Independent Co-Executors of the

Estate of Diana Grenstein Koss,

Deceased,

Appellants

v.

Nathan W. Koss,

Appellee

From the County Court at Law No. 2

McLennan County, Texas

Trial Court No. 20031058-CV2

MEMORANDUM Opinion

This case involves a family dispute between Nathan Koss, and his deceased wife s daughters from a previous marriage, Jean Ann Hoover and Linda K. Kutni, in their capacity as the personal representatives of the Estate of Diana Grenstein Koss. At her death, Diana Koss owned stock in Nathan s business. Nathan filed a traditional motion for summary judgment arguing that as a matter of law the stock was community property. The trial court granted the motion. Because genuine issues of material fact exist, we reverse.

Background

Nathan owned an auto salvage business which he operated for many years as a sole proprietorship. In 1987, he sold the business, but was forced to take it back in 1995 because he financed part of the sale. He continued operating the business as a sole proprietorship until 1996, when it was incorporated. At this time, the newly formed corporation issued 500 shares of stock to Nathan, and 500 to Diana, whom he had married in 1994. Subsequently, Diana conveyed 128 of her 500 shares of stock to Linda Kutni. Diana later died, and her will bequeathed all her community property to Nathan while leaving her separate property to her daughters, Hoover and Kutni, (Appellants). At the time of her death, Diana owned 372 shares of stock.

Appellants, as co-executors of Diana s estate, classified the stock as Diana s separate property. Thereupon, Nathan filed suit against Appellants as co-executors, seeking a declaratory judgment that the stock was community property. Appellants answered and filed two counterclaims, one of which was a request for a declaratory judgment that the stock was separate property. Nathan filed a traditional motion for partial summary judgment claiming that the stock was community property. The trial court granted the motion, and severed the question from the remaining issues in the Appellants counterclaim, establishing a final judgment. From this judgment, Appellants appeal.

Summary Judgment

In their sole issue, Appellants argue that the trial court erred in granting Nathan s motion for summary judgment because genuine issues of fact exist as to the character of the stock.

We review the decision to grant or deny a summary judgment motion de novo. See Rosas v. Hatz, 147 S.W.3d 560, 563-64 (Tex. App. Waco 2004, no pet.); Rucker v. Bank One Tex., N.A., 36 S.W.3d 649, 653 (Tex. App. Waco 2000, pet. denied).

The standard of review for a traditional summary judgment is well established. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). The movant has the burden of showing that no genuine issue of material fact exists and that he is entitled to the summary judgment as a matter of law. American Tobacco Co. v. Grinnell, 951 S.W.2d 420, 425 (Tex. 1997); Rosas, 147 S.W.3d at 564. The reviewing court must accept all evidence favorable to the non-movant as true. Nixon, 690 S.W.2d at 549; Rosas, 147 S.W.3d at 564. Every reasonable inference must be indulged in favor of the non-movant and all doubts resolved in his favor. Grinnell, 951 S.W.2d at 425;Rosas, 147 S.W.3d at 564. The non-movant need not respond to the motion for summary judgment unless the movant meets his burden of proof. Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222-23, 42 Tex. Sup. Ct. J. 927 (Tex. 1999). But if the movant meets his burden of proof, the non-movant must present evidence to raise a fact issue. Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197, 38 Tex. Sup. Ct. J. 658 (Tex. 1995).

Upon the dissolution of marriage by death, property possessed by either spouse is presumed to be community property. Tex. Fam. Code Ann. 3.003 (Vernon 1998). Property owned by a spouse before marriage, or acquired during the marriage by gift, devise, or descent is considered separate property. Tex. Fam. Code Ann. 3.001 (Vernon 1998). It is undisputed that Diana acquired stock in Nathan s corporation during the marriage, therefore the presumption that the stock is community property applies. However, Appellants argue that Nathan used his separate property to buy back his auto salvage business, making the business and its assets his separate property. They contend that when the business assets were later exchanged for stock in the new corporation, the stock then became Nathan s separate property. Appellants argue that the stock was then given as a gift to Diana, who acquired it as her separate property.

When separate property is used to acquire property during marriage and title is taken in the name of both spouses, the spouse who contributed the separate property is presumed to have made a gift to the non-contributing spouse, unless rebutted by evidence clearly establishing that there was no intention to make a gift. In re Marriage of Royal, 107 S.W.3d 846, 851 (Tex. App. Amarillo 2003, no pet.) (citing Cockerham v. Cockerham, 527 S.W.2d 162, 168 (Tex.1975)). A presumption of a gift is made because it is not possible for a spouse to make a gift to the community estate. Id. The burden of proving a gift is on the party claiming the gift was made, and the intent of the grantor at the time of the conveyance is one controlling factor. Id. Further, corporations organized during marriage and capitalized entirely with traceable separate property of one spouse are characterized as the separate property of that spouse. Allen v. Allen, 704 S.W.2d 600, 604 (Tex. App. Fort Worth 1986, no pet.). Therefore, the controlling issues in this case are whether the corporation was formed entirely with Nathan s separate property, and whether Nathan intended to make a gift of the stock to Diana.

Nathan argues that it is impossible to trace the character of the inventory of his business at the time of incorporation because there is no distinction between inventory purchased with community property funds and inventory acquired when he purchased the business. Nathan s tax returns list purchases for his business as $208,228.00 for 1995 and $127,147.00 for 1996. Nathan states in his affidavit that these purchases were funded with proceeds from the operation of his business and interest income from assets owned prior to the marriage, both considered community property. He also states that the vast majority of the inventory transferred to the corporation was purchased in 1995 and 1996 with community property funds. Further, Nathan states that he never intended to make a gift of the stock to Diana.

Conversely, Appellants point to Nathan s deposition as evidence that the business and its assets were Nathan s separate property at incorporation. In the deposition, Nathan testifies that Diana had no ownership interest in the business. In fact, Nathan repeatedly states that he paid for the business and inventory with money acquired before his marriage to Diana, and that Diana had no interest in the assets listed in the bill of sale at the time of incorporation. Also, Appellants point to Diana s gift of 123 shares of stock to Kutni, issued without Nathan s signature, as evidence that Nathan and Diana treated Diana s share of the stock as her separate property.

Appellants and Nathan present conflicting evidence as to the character of stock. Therefore, indulging every reasonable inference in favor of the non-movant and resolving all doubts in their favor, we find that genuine issues of material fact exist concerning the character of the stock. See Grinnell, 951 S.W.2d at 425;Rosas, 147 S.W.3d at 564. Accordingly, we sustain Appellants issue.

Conclusion

Having sustained Appellants only issue, we reverse the judgment of the trial court and remand this cause to the trial court for further proceedings consistent with this opinion.

FELIPE REYNA

Justice

Before Chief Justice Gray,

Justice Vance, and

Justice Reyna

Reversed and remanded

Opinion delivered and filed June 22, 2005

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