Loya v. Loya: MSA Wins the Day at Texas Supreme Court

Loya v. Loya: MSA Wins the Day at Texas Supreme Court.

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Back in March, Annotations highlighted a question raised by Loya v. Loya, 473 S.W.3d 362 (Tex.App.—Houston [14th Dist.] 2015)—how are discretionary bonuses characterized in a divorce proceeding when a party earns a portion of the bonus during the marriage but the bonus is not awarded until after the marriage has been dissolved? On review before the Texas Supreme Court, Loya’s bonus characterization question was briefed[1] and argued,[2] but in Loya v. Loya, ___ S.W.3d. ___ (Tex.2017) (No. 15-0763; 5-12-17), the Court held that a proper interpretation of the parties’ mediated settlement agreement (MSA) resolved the case without reaching the characterization of the bonus. Disposing of the issue cleanly, the Court wrote:

Whether the portion of a purely discretionary bonus based on services performed during the marriage constitutes community property is an important issue, but one we need not reach in this case. [W]e resolve this case on the ground that the MSA partitioned the bonus.[3]

Facts & Arguments

In Loya v. Loya, ex-husband Miguel earned a $4.5 million bonus nine months after a thoroughly litigated divorce from ex-wife Leticia. In an original petition for post-divorce division of property, Leticia sought to apportion the bonus as previously undivided community property. She argued that because Miguel’s work during the marriage earned some of the bonus, a portion of the bonus money was community property and should be divided. (See our March post for the full inception-of-benefits arguments made by the two sides).

Along with arguing the characterization of the bonus on the merits, Miguel argued first and foremost that there should be no post-divorce partition of undivided community property because the MSA signed by both parties disposed of the bonus at issue. Miguel claimed that the broad MSA partition of future income and earnings was sufficient to cover the discretionary bonus awarded after the MSA was signed.

The Houston (14th Dist.) Court of Appeals sided with Leticia, concluding that “the bonus was not considered, divided, or partitioned in the divorce proceedings and the wife raised a fact issue concerning the characterization of this bonus.”[4] So, the court of appeals reversed the trial court’s summary judgment in favor of Miguel and remanded the case. Miguel petitioned for review.[5]

Texas Supreme Court Holding

Miguel argued throughout the litigation that the MSA decided the case without getting to the characterization question, and the Texas Supreme Court agreed. The Court explained, “Because an MSA is a contract, we look to general contract-interpretation principles to determine its meaning.”[6] With that, the Court proceeded through a typical contract-interpretation analysis of the MSA language.

The MSA did not address bonuses particularly, but it did say “all future income” was to be  partitioned to the person to whom the property was awarded.[7] Further, the case arbitrator later clarified “[a]ll future income and earnings are partitioned.”[8] The Court looked to Black’s Law and Merriam-Webster for a definition of “future income” and found that the discretionary bonus awarded to Miguel after the marriage was dissolved fell in the future income category— “regardless of whether part of the bonus compensated for work done during marriage.”[9]

The Court concluded:

Like any contract, the express terms of a [MSA] control. Moreover, the MSA in this case dictates how the parties must resolve disputed interpretations of its terms. … Miguel’s future income encompasses the … discretionary bonus, which was neither owed nor paid to him until nine months after the MSA was signed. Accordingly, we reverse the court of appeals’ judgment and render judgment for Miguel.[10]

Loya proves the importance of getting your MSA right. Before you draft your next MSA, turn to O’Connor’s Texas Family Law Forms for a downloadable, fully-cited MSA form you can trust. Visit our online store to order your copy – O’Connor’s Texas Family Law Forms 2017 is now available!

[1] Texas Supreme Court Case Docket, Loya v. Loya, No. 15-0763; see What About Bonuses? TX Supreme Court to Consider Characterization, O’Connor’s Annotations, Mar. 1, 2017.

[2] Oral Argument, Loya v. Loya, No. 15-0763 (Tex. Mar. 3, 2017).

[3] Loya v. Loya, ____ S.W.3d ____ (Tex.2017) (No. 15-0763; 5-12-17) (slip op. p. 5).

[4] Loya v. Loya, 473 S.W.3d 362, 364 (Tex.App.—Houston [14th Dist.] 2015).

[5] Petition for Review, Loya v. Loya, No. 15-0763 (Tex. Dec. 9, 2015).

[6] Loya, ___ S.W.3d at ___ (slip op. p. 6).

[7] Id. at ___ (slip op. pp. 7).

[8] Id.

[9] Id.

[10] Id. at ___ (slip op. p. 9).