## Facts

- Mary Marlene Allen (wife) and Robert Wood Allen (husband) married on December 31, 1977, stopped living together in October 1982, and the husband filed for divorce on January 20, 1983.
- Before the marriage, the wife operated “Marlene’s Beauty Salon” as a sole proprietorship for about 17 years, and it was her separate property.
- During the marriage, the wife converted the sole proprietorship into a corporation, Marlene’s Beauty Salon and Cuttery, Inc., to avoid purchasing malpractice insurance.
- The corporation required initial capitalization of $1,000, but the wife presented no evidence showing whether the capitalization came from her separate funds or from community funds.
- The wife contended that the corporation used goodwill developed before marriage, but she offered no evidence of the value of that goodwill at incorporation or at the time of divorce.
- The trial court valued the corporation at divorce in a range of approximately $131,789 to $263,578 and treated it as community property (and awarded it to the wife as part of the division).
- Before trial, the parties entered stipulations (approved by the trial court) identifying certain property as each spouse’s separate property, including the husband’s Keogh retirement plan, subject to any reimbursement claims.
- The wife sought reimbursement for funds she claimed were spent improving the husband’s separate-property farm (including claims of $10,000 from her separate funds and $20,000 from community funds); both sides asserted reimbursement-related claims, and the trial court denied all reimbursement claims.
- No findings of fact or conclusions of law were requested or filed, and the wife appealed the property division.

## Issues

1. Did the trial court err by treating Marlene’s Beauty Salon and Cuttery, Inc. as community property rather than the wife’s separate property based on the pre-marital sole proprietorship?
2. Did the trial court err in classifying the husband’s Keogh retirement plan as his separate property where the parties stipulated to that characterization?
3. Did the trial court abuse its discretion by denying the wife’s reimbursement claim for funds allegedly used to improve the husband’s separate-property farm?

## Decision

- The court of appeals affirmed the divorce decree.
- The trial court did not err in treating the beauty salon corporation as community property because the wife did not carry her burden to trace any separate-property contribution to the corporation’s capitalization and did not prove the value of any separate-property goodwill transferred into the corporation.
- The wife could not obtain reversal based on the Keogh plan characterization where the record included stipulations treating it as the husband’s separate property and there was no basis shown to avoid the stipulation.
- The trial court did not abuse its discretion in denying reimbursement, given the proof problems and the overall property division.

## Legal Principles

- Property possessed by either spouse during or on dissolution of marriage is presumed community property; the spouse claiming a separate interest must prove it by clear and convincing evidence, typically through tracing.
- Inception-of-title principles do not relieve a spouse of proving a separate interest when a business is reorganized during marriage; if a new entity is formed during marriage, a claimed separate component (such as capitalization or goodwill) must be supported by evidence of source and value.
- Mischaracterization of property is not automatically reversible; reversal requires a showing that the error probably caused an improper judgment, such as a manifestly unjust and unfair division of the marital estate.
- Stipulations made in the trial court are generally binding on the parties absent a showing that they should be set aside.
- The just-and-right division of community property and rulings on reimbursement are reviewed for abuse of discretion; a trial court may deny reimbursement when the claimant’s proof is insufficient and when the overall division is not shown to be unjust.

## Conclusion

The Fort Worth Court of Appeals affirmed the property division because the wife did not prove that the salon corporation formed during marriage contained a measurable separate-property interest through traced capitalization or valued pre-marital goodwill, she was bound by trial stipulations classifying the husband’s Keogh plan as separate property, and she did not show that denial of reimbursement for alleged farm expenditures made the overall division an abuse of discretion.


Allen v. Allen, 704 S.W.2d 600 (1986)