Unreported / Non-Citable
Background
Tina Thuy Truong opened a nail salon before marrying Hoa Hiep Hoang and later incorporated it as Tina 1960 Nails Salon, Inc., of which she was the sole owner. During their divorce proceedings, the parties agreed that the Salon was Truong’s separate property. The trial court nevertheless had to determine how much income the Salon generated during the marriage because income from separate property acquired during marriage is community property.
The Salon was a cash business, and Truong did not testify or produce receipts, bank statements, ledgers, or other transactional records substantiating its claimed expenses. Her expert discussed tax-return principles but did not audit the Salon or testify about its specific income and expenses. The trial court rejected the claimed labor expenses, treated 60% of the Salon’s gross receipts as its income, and awarded Hoang half of that amount for the relevant marital period—a total of $384,307.
The Court’s Holding
The First Court of Appeals held that the trial court did not abuse its discretion by declining to deduct the Salon’s claimed business expenses. Truong and the Salon bore the burden of proving expenses that would reduce community income, but the tax-return entries were not supported by receipts, banking records, ledgers, or comparable documentation.
The appellate court held, however, that no evidence supported the trial court’s assumption that the Salon retained 60% of gross receipts while workers received 40%. Counsel’s unsworn statement that payments were split “60/40” and that the owner received 40% was not evidence and, in any event, did not support the allocation the court used. The court therefore reversed the portion of the divorce decree dividing the marital estate and remanded for a new property division, while affirming the decree in all other respects.
Key Takeaways
- Income generated during marriage by one spouse’s separate-property business may constitute community property.
- A party seeking to reduce community income by claimed business expenses must substantiate those expenses with sufficient evidence; tax-return entries alone may not carry that burden.
- Unsworn statements by counsel are not evidence and cannot support a trial court’s valuation formula.
- Because the unsupported calculation affected the just-and-right division, the entire marital estate had to be remanded for a new division; the court did not reach the separate challenge to the judgment against the Salon.
Why It Matters
The decision illustrates both sides of the evidentiary burden in valuing income from a closely held, cash-based business during divorce. A trial court may reject undocumented expense deductions, but it may not replace missing proof with an unsupported percentage or valuation assumption.
For family-law practitioners, the opinion underscores the importance of presenting admissible transactional records and witness testimony supporting both revenues and expenses. When a valuation error affects the overall property division, the remedy is a new division of the marital estate rather than merely adjusting one component of the decree.