1983: After learning that Barbara and Gunnar had met with the D.A. to try and get custody of Paul, James invited them all to Spain in honor of his son's birthday. There, he arranged for Barbara to get trapped in a bullring with a bull. She was saved by Gunnar, who engaged in a duel to the death with James. With a sword to his throat, James finally signed the custody papers, then said a sad farewell to his boy. Newly wed, Gunnar and Barbara promised Paul that they could finally be a family.

But not long after that, Burke Donovan arrived in Oakdale with son Dusty. James and Burke teamed up against Gunnar, who turned out to be Dusty's father, which made Dusty the rightful heir to the Stenbeck fortune. James inexplicably maintained visitation rights to his son, so Paul and Dusty spent a lot of time together. The troublemaking Dusty was a bad influence on young Paul, persuading him to shoplift and play with firecrackers. When James's schemes to destroy Gunnar were uncovered, Stenbeck feared he would once again lose any rights to see his son, so he lured Paul away from summer camp and took him to Cheyenne, WY. When the boy caught TV news reports about his kidnapping, he realized that his dad was a liar, just before Barbara and Gunnar tracked them down. Paul was informed he could never see his father again, so the confused boy blamed his stepfather.

Later that year, Burke died, and James tried to kill Dusty, Gunnar and John numerous times, but instead fell to his "death" from a plane. A devastated Paul continued to bear ill will toward Gunnar, so Barbara separated from her husband, who left town in 1984 and was later presumed dead.