October 2012 Archives

Drowning in Debt: Equitable Division and the Nondischargeability of Domestic Support Obligations in Bankruptcy

October 16, 2012 by The McKellar Law Firm, PLLC

In Yattoni-Prestwood v. Prestwood, No. E2011-01967-COA-R3-CV (Tenn. Ct. App. Aug. 29, 2012), Tennessee divorce attorneys learn the manner in which courts address equitable division for divorcing parties with no assets and lots of debt in light of the fact that domestic support obligations are not dischargeable in personal bankruptcy.

The facts of the case are as follows: Husband (earning $30,000 per year at the time of marriage) and Wife (earning $7,000 to $15,000 per year at the time marriage) were divorced less than one year after being married. A bank sued the parties on a promissory note on their real property, and the court combined the divorce and bank cases. Husband then filed for (and obtained) a Chapter 7 bankruptcy that discharged all of his debts. The bank proceeded against Wife for the deficiency following foreclosure on the parties' property, and she settled for a $15,000 entry of judgment (even though she was simply a co-signor and never owned the property).

At trial, the court discovered that Husband had placed the leftover loan money into his personal checking account and paid a portion to a previous girlfriend. When Husband promised that he was capable of repaying the loan and alleged that new loan requirements and his ownership of multiple properties made co-signature necessary, Wife had co-signed the note. Prior to marriage, Wife had enjoyed many assets from the settlement of a prior divorce (including two properties) and did not have much debt. Husband had multiple vehicles and a home, but he also owed mortgage payments on several rental properties.

During their brief marriage, Wife paid over $90,000 in expenses for Husband's vehicles, property, and the engagement ring he purchased for her. Wife also refinanced a property to obtain a $99,000 line of credit. Husband testified that he was primarily responsible for paying the bills. Husband said he had been reluctant to marry until achieving financial stability and pre-warned Wife that he was "borderline bankrupt" prior to marrying her; Wife denied this. The testimony conflicts as to whether Wife was indifferent to Husband's financial state and at any point asserted that she had enough assets. By trial, Wife was unemployed and $1,200 yearly real estate licensure fee was out of her budget; her sole income was from her two rental properties. Post-separation, Husband only earned $10,000-$12,000 per year appraising properties; he felt as though they had acquired the debt together and said he never promised to repay Wife any amount other than $4,000 for a credit card bill.

The court granted both parties a divorce and held them each responsible for their own liabilities. The case was then reopened on one issue: "whether Husband's discharge in bankruptcy 'trumped' the trial court's ability to assign him debt in the divorce." The court heard evidence from Wife's expert bankruptcy attorney regarding the nondischargeability of divorce-related debts and "domestic support obligations" but nevertheless affirmed its prior decision. The trial court also denied Wife's request for attorney's fees, in a departure from a prior ruling.

The appellate court addressed the issue of "whether the trial court erred in assigning one hundred percent of the marital debt to Wife." The court found that it would be "impossible" to restore either Husband or Wife to their pre-marriage financial state, as courts typically strive to do for short-term marriages. The court defined "marital debts" as "all debts incurred by either or both spouses during the course of the marriage up to the date of the final divorce hearing." The court asserted that courts can equitably divide marital debts by considering the Alford factors: (1) the debt's purpose; (2) which party incurred the debt; (3) which party benefitted from the debt; and (4) which party is best able to repay the debt.

The court found that the loan was not a marital debt since Husband applied for and obtained it prior to the marriage (rather than during the marriage); Husband placed the remainder of the loan in his personal Bank account and used the loan to pay off debt that was his alone. Since Wife settled for $15,000 with the bank after Husband discharged the loan in his Chapter 7 bankruptcy, the court ruled that Husband should pay Wife $15,000 of alimony in solido under Tenn. Code Ann. § 36-5-121.

On Appeal, the Appellate Court ruled that $89,000 of Wife's $99,000 line of credit that she obtained when she refinanced one of her properties was acquired during the marriage and thus constituted a marital debt . Therefore, a total of $108,700 - $89,000 of the equity line of credit plus $19,700 in credit card debt - was subject to equitable distribution between the parties, which the Court determined should be fifty-fifty.

Therefore, Husband was ordered to pay $54,350 in alimony in solido to the Wife, because he was found to have an ability to pay in light of the fact that Wife is solely liable to the creditors due to Husband's bankruptcy and his greater earning capacity.
The appellate court asserted that certain debts were not dischargeable in bankruptcy (per 11 U.S.C. § 523 (a)), including "domestic support obligations"--citing a case from Ohio, the court stated: "a requirement in a divorce decree to hold harmless or indemnify a spouse for joint obligations incurred during a marriage creates a 'new' [nondischargeable] debt, running solely between the former spouses." The court therefore modified the judgment and allocated the marital debt evenly between the parties, finding that "in the present case, equitable means equal"; the court held that alimony in solido from Husband to Wife to compensate for his share of the marital debt (in spite of Husband's debt discharge via bankruptcy) was proper. The appellate court also granted Wife her attorney's fees for both trial and appeal.

Older Parties Divorcing After a Long Marriage: Division of Marital Estate and Determinations of Periodic Alimony

October 12, 2012 by The McKellar Law Firm, PLLC

In Rodgers v. Rodgers, No. E-2011-02190-COA-R3-CV (Tenn. Ct. App. July 9, 2012), the Tennessee Court of Appeals sheds light for Tennessee divorce attorneys on the manner in which it divides the marital estate and awards periodic alimony for a marriage of long duration in which the parties are at or nearing retirement.

The facts are as follows: Both parties were aged in their mid-to-late 60s. After more than forty years of marriage, Wife accused Husband of irreconcilable differences and inappropriate marital conduct and divorced Husband. Husband, in turn, accused Wife of inappropriate marital conduct. Wife, a registered nurse, had worked part-time throughout her career while taking care of their sons (now adults), and presently her $3350.55/month expenses exceeded her $2407.69/month income--she had received no financial assistance from Husband during the separation although prior to his retirement he was making $100,000/year using his two degrees. Husband qualified for Social Security Disability beginning in 2005. As a means of supplementing his income, Husband owned a side car sales business in which Wife was not greatly involved (and which Husband failed to report on joint income tax returns). Selling cars and a line of credit were the means by which Husband accumulated $89,011 in funds in the parties' joint account at one point in 2006; however, Husband alleged that he no longer sold cars often.

In the final divorce decree, the trial court granted Wife a divorce and periodic alimony and also divided the marital estate. The court determined that a family heirloom ring that Wife wore was to be passed to the parties' adult sons upon their engagement or marriage. It also determined that Husband's sister's flat screen TV, freezer, and refrigerator that she had shipped to TN in anticipation of a move were "gifts" that were abandoned to the marital estate. The court evaluated the expert testimony pertaining to the valuation of the lake house and marital residence, ultimately deciding that the lake house was worth $243,000 and the marital residence was worth $248,750. Six of the parties' automobiles were to be sold to satisfy the HELOC (Husband would pay any remaining disparity since he used the HELOC as an income source).

As for alimony, the court (citing T.C.A. § 36-5-121 and common law) emphasized "need" and "ability to pay" as its primary considerations. The court found that Husband's sale of automobiles generated a substantial profit and noted that Husband would make more than twice the amount in Social Security benefits as Wife when she became of age to qualify. While the parties are at an age nearing retirement (thus, "their traditional earning capacity is not relevant"), Husband's car business is likely be ongoing post-retirement. The parties were in similar physical and mental conditions and Husband was at fault for the divorce. Based on all of the information, the court awarded Wife $1,000/month in periodic alimony, required Husband to pay the premium on both his and his Wife's life insurance policy, and enabled Wife to change beneficiaries. $5500 of Wife's attorney fees were also to be covered by Husband.

The appellate court decided the following issues on Husband's behalf: "(1) Whether the trial court erred in its classification of the marital estate; (2) whether the division of the marital estate was in error; (3) whether the trial court erred in awarding Wife periodic alimony; and (4) whether the trial court erred in awarding Wife's attorney's fees."
First, the appellate court discussed the difference between "separate" and "marital" property-- according to T.C.A. § 36-4-121(b)(2)(D), "separate property" includes "property acquired by a spouse at any time by gift, bequest, devise or descent" and can become marital property "under theories of commingling or transmutation" that reveals an "intention that it become marital property." As for marital property, there is a "presumption" that "property acquired during the marriage" qualifies. The court affirmed the trial court's decision that the heirloom ring and abandoned property of Husband's sister constituted marital property. Second, the court affirmed that the 53% (Wife) and 47% (Husband) division of marital property was equitable since relative fault should not be taken into account in dividing marital property (T.C.A. § 36-4-121(a)(1)) and "equitable" does not necessarily mean "equal." The court referenced T.C.A. § 36-4-121(c) factors. The appellate court, explaining its affirmation of the trial court, noted the older age of the parties, the high standard of living to which the parties had become accustomed, and the length of the marriage.

Third, the court decided the issue of periodic alimony; maintaining the "broad discretion" of the trial court and the "factually-driven" nature of alimony determinations, the court explained that the objective of alimony in futuro (based on factors such as earning capacity, past education, length of marriage, age and health of each party, standard of living the parties enjoyed, contributions of each party to the separate and marital property, and relative fault- see T.C.A. § 36-5-121(i)) is to "provide support on a long-term basis until the death or remarriage of the recipient." T.C.A. § 36-5-121(f)(1). Finding that Husband was at fault, the parties enjoyed a high standard of living, Husband earned more income, and the marriage lasted over four decades, the appellate court affirmed the trial court's award of alimony to Wife. Fourth, the court considered the issue of attorney's fees. The appellate court said that it was reasonable under the statute to require the spouse with adequate income to pay the legal expenses of the other spouse who does not have enough income and thus affirmed Wife's award of attorney's fees.

Finally, the appellate court addressed Wife's two disputed issues: "(1) whether the trial court erred in declining to award her the vehicles she requested and (2) whether the trial court erred in requiring Wife to pay part of what Wife describes as Husband's debt out of her share of marital property." First, the court said that the trial court was justified in requiring Wife to use her portion of marital property (in this case, the vehicles) to assist with paying some of Husband's debts since the HELOC benefit (and resulting "debt incurred during the marriage") "benefitted the marriage." Second, the court asserted that Wife is not entitled to attorney fees pertaining to any appellate issue on which she did not prevail.

When is a Modification or Extension of an Order of Protection Warranted?

October 10, 2012 by The McKellar Law Firm, PLLC

In Rodgers v. Rodgers, No. E-2011-02190-COA-R3-CV (Tenn. Ct. App. July 9, 2012), Tennessee divorce attorneys learn what criteria courts assess when determining whether to grant an extension or modification of an existing Order of Protection.

The facts of the case are as follows: After a forty-year marriage, Wife accused Husband of irreconcilable differences and inappropriate marital conduct. At trial, Wife stated that Husband owned guns, "sometimes hit her", and displayed a "violent temper." Wife had previously obtained a no communication Order of Protection against Husband that also prohibited him from owning firearms; however, Husband called Wife and left her a message regarding the divorce. Furthermore, a woman with whom Husband had engaged in an extramarital affair testified that during the time when the Order of Protection was in effect, Husband had owned a gun. Wife was ultimately granted her divorce and also received an extension of her Order of Protection.

The appellate court had to decide "whether the trial court erred in extending the Order of Protection in favor of Wife against Husband." Tenn. Code Ann. § 36-3-605(b) provides that when a party initially obtains an Order of Protection, it can be granted for one year, maximum. The court stated that Tenn. Code Ann. § 36-3-608(b) allows a modification or extension of a one-year Order of Protection when either party files an affidavit and motion that evidences a "change in circumstances." After notifying Respondent, courts with proper jurisdiction can modify an existing Order of Protection. Courts may also extend an Order for up to five years if a hearing reveals that a violation occurred. T.C.A. § 36-3-605(d). Proof of stalking, sexual assault, or domestic abuse (under a preponderance of the evidence standard) will justify a modification or extension of the Order. T.C.A. § 36-3-605(b). Since Husband had called Wife in violation of the no communication Order of Protection and also possessed a pistol in violation of the Order. The appellate court upheld the trial court's extension of the Order. Also, the court held that Wife was entitled to attorney's fees on appeal pertaining to her Order of Protection extension.

Classifying Separate vs. Marital Real Property; Determining When Transmutation has Occurred

October 4, 2012 by The McKellar Law Firm, PLLC

In Sandford v. Sandford McKee, No. M2010-00562-COA-R3-CV (Tenn. Ct. App. Sept. 27, 2012), Tennessee divorce attorneys learn how courts decide which real property is classified as marital versus separate and how courts determine whether transmutation has occurred.

The facts: The parties obtained a divorce after eight years of marriage. The court adopted a parenting plan, provided Wife with transitional alimony, and equitably divided the property. At trial, it was established that Husband had bought (and had invested even more money in repairing) a 63-acre farm and house in Franklin, TN prior to the marriage. Also prior to the marriage, Husband had obtained a mortgage on the house and 10 acres of the farm ($1,050,000 fair market value) and kept the other 53 acres ($684,300 fair market value) separate. Situated on the 53 acres of land was a barn that Husband "convert[ed] into a guesthouse"; while Wife's father had contributed about a week of his time for framing the house and inspecting a lumber list, Husband had completed most of the work on his own prior to the marriage. Wife alleged that she had sanded, painted, decorated, furnished, designed, found assistants, and ordered wood for the new guesthouse. Husband obtained a $1,404,000 mortgage on the 10 acres and house in 2006; Husband obtained a $150,000 home equity loan in 2007, with security being the entire 63 acres (both Deeds of Trust were signed by both Husband and Wife).

At the conclusion of trial, the court held that the Franklin home on the 10 acres belonged to Husband as his separate property (however, any appreciation that occurred due to Wife's involvement during the marriage constituted marital property). Since the appreciation was equal to the mortgage indebtedness ($350,000), the court gave Husband this property to own and pay off. The trial court further held that the other 53 acres of the property belonged to Husband as "separate property as Wife made no substantial contribution to the appreciation of the value in that property." However, Wife alleged that transmutation occurred on both properties because she co-signed the 2006 and 2007 loan Deeds of Trust, enabling Husband to obtain a much higher loan than he otherwise could have and making her "an essential party."

The appellate court addressed whether the trial court's categorization of marital and separate real property was correct. Citing to Tenn. Code Ann. § 36-4-121, the court defined "marital property" as: "... all real and personal property, both tangible and intangible, acquired by either or both spouses during the course of the marriage up to the date of the final divorce hearing..." and "income from, and any increase in value during the marriage of, property determined to be separate property... if each party substantially contributed to its preservation and appreciation." The court defined "separate property" as: "all real and personal property owned by a spouse before marriage."

The appellate court further noted that "contributions [to separate property that convert it to marital property] may be either 'direct' or 'indirect'" but (1) "the contributions must be 'real and significant'" and (2) "there must be some link between the spouses' contributions and the appreciation in the value of the separate property."
In this particular case, the appellate court reaffirmed the trial court in ruling that the 53 acres should belong to Husband since it constituted "separate property." In support of this decision, the court first noted that Husband's evidence suggested depreciation of the 53 acres and that Wife never attempted to prove appreciation of the 53 acres. Secondly, the court asserted that Wife never actually showed that her personal "contributions [led to] any appreciation in value of the 53 acres," but that Wife simply claimed that she provided such contributions.

In response to Wife's transmutation argument, the appellate court again affirmed the trial court's ruling since Wife failed to meet her burden. Transmutation, which can be proved if "separate property [is put] in the names of both spouses" or if spouses "take title in joint tenancy," "occurs when separate property is treated in such a way as to give evidence of an intention that it become marital property." The court looks to "conduct between the parties" in determining whether transmutation has occurred. Here, Husband's actions never revealed that Husband "intended the house and 10 acres or the 53-acre parcel to become marital property." Wife only signed two Deeds of Trust "to protect the bank's interest in the property"; she never paid on either loan and never "signed either note [or] assumed liability for them." The appellate court also mentioned that the trial court required only Husband to pay debts related to both properties.

Selection of Primary Residential Parent, Transfer of Petitions, and Definition of "Material Change in Circumstances" in the Context of Custody Disputes

October 2, 2012 by The McKellar Law Firm, PLLC

In In re: Jada C.H., No. W2011-02542-COA-R3-JV (Tenn. Ct. App. Sept. 18, 2012), Tennessee divorce attorneys learn the manner in which courts select the primary residential parent, decide whether a petition should be transferred to a different county, and define a "material change in circumstances."

The facts of the case are as follows: Mother (who had three other children in addition to the child involved in this case) and Father had a child out of wedlock in 2008. Father filed a Petition for Custody of the minor child in 2009. The Special Judge dismissed the petition because the court had not confirmed his paternity. The Juvenile Court Judge later agreed to Father's request for a hearing. Father affixed a paternity test to his motion to alter or amend the prior dismissal and established that he had attempted to petition the Court "to enter an agreed order of paternity" on an earlier date. Father later filed a petition to preclude Mother's potential relocation to another state. Father also filed a Contempt petition for interference with his parenting time. In a judicial order, Mother and Father were given joint custody, but the court designated Father as primary residential parent. The case was continued, but a new order granted Father temporary parenting time and designated Mother as primary residential parent. The final custody hearing involved allegations of dependency and neglect, and the expert testified that efforts of reconciliation "w[ere] fruitless." The judge stated that Mother refused to call the child when the child was with Father, that three different men fathered her four children (some of whom have been in prison and none of whom want to be a father to their children), and that Mother had a criminal history. The judge did not believe Mother's testimony regarding sending her older children to school and noted that she was "secretive" and "hostile", that she was seriously dating another man, and that she had difficulties controlling the behavior of her oldest daughter. Further, Mother was opposed to cultivating a relationship between the child and her Father. The court gave both parties joint custody but awarded Father primary residential parent but failed to find any dependency and neglect on Mother's part.

Later, Mother alleged inappropriate sexual contact on the part of Father and his new wife and therefore filed a Petition for Dependency and Neglect. In accordance with Tenn. Code Ann. § 37-1-112, the Special Judge entered an order transferring the petition to Lake County, sua sponte and on Father's verbal motion. Father alleged that these "unfounded allegations of sexual abuse were detrimental to the child" in his Petition for Modification, Supervised Visitation, and Contempt. The Special Judge granted Father's petitions, resulting in supervised visitation for Mother.

The appellate court decided the following issues: "(1) whether the trial court erred in naming Father primary residential parent; (2) Mother's dependency and neglect petition should be transferred to Lake County; and (3) whether there was a material change in circumstances to justify modifying Mother's parenting time to supervised."

First, the appellate court asserted that Tenn. Code Ann. § 36-6-106 provides factors that guide courts in selecting the primary residential parent and in assessing the best interests of the child, including: "stability of the family unit", "character and behavior of any other person who resides in or frequents the home of a parent" and "each parents' 'willingness and ability... to facilitate and encourage a close and continuing parent-child relationship between the child and both of the child's parents." After reviewing the evidence from the hearing and in light of the above factors, the appellate court affirmed the trial court's designation of Father as the primary residential parent. Second, the appellate court reversed the trial court regarding the transfer of Mother's neglect and dependency petition to Lake County Juvenile Court since Tenn. Code Ann.§ 37-1-112 provides that the juvenile court must make a finding of fact prior to transferring the case to the county where the child resides. Since in this case the trial court made no findings of fact, the appellate court must "vacate... and remand."

Third, the court definitively found that the order awarding Mother unsupervised visitation "was final for purposes of modification." Modification of a final order requires "a material change in circumstances," and it occurs when: "(1) the change occurred after the entry of the order sought to be modified; (2) the changed circumstances were not reasonably anticipated when the underlying decree was entered; and (3) the change is one that affects the child's well-being in a meaningful way." In this case, the court found no material change in circumstances or "facts not in existence or reasonably foreseeable when the decision was made." Finally, the appellate court recommended that Father's Petition to Modify Mother's parenting time and Mother's Petition for Dependency and Neglect should be combined and potentially transferred to Lake County Juvenile Court (assuming the court provides adequate findings of fact).