Value of Assets and Debts Must Be Determined Prior to Distribution in Tennessee Divorces

November 15, 2012
By The McKellar Law Firm, PLLC on November 15, 2012 3:32 PM |

Tennessee divorce attorneys learn in Hill v. Hill, No. M2011-02253-COA-R3-CV (Tenn. Ct. App. October 5, 2012) that a trial court must value all property before determining equitable distribution.

The facts of the case are as follows: Husband and Wife married in 1999 and had 2 children. Ten years later, after Husband's filing, he purchased a home in Clarksville, Tennessee for $199,000 in December 2010. Husband had previously filed a motion with the Court in February 2010 "requesting permission to purchase the property and classification of the home as his separate property", though the court never heard the motion. It was found that Wife did not contribute to the down payment and never lived in the home. Wife was not listed as a co-borrower on the mortgage or the deed. Husband said he had paid $10,000 on the down payment that he saved during their separation. Wife introduced into evidence, during the divorce proceeding, that the property was valued for $259,000.

The case was tried in August 15, 2011. Husband testified he finished law school and starting working as a lawyer while married. Wife did not keep a consistent job during the marriage and did "seasonal tax work." Husband said he paid off several marital debts during the course of their separation: $13,000 to IRS, $7,500 Visa credit card debt, $5,000 MasterCard debt, $3,000 to pay off Wife's vehicle, and around $75,000 in student loans. Husband also owed $22,000 to the IRS for 2010 tax year. The male child was determined to be outside the marriage and wasn't included in the divorce. Wife was designated the primary residential parent of the female child. The court ruled that the Clarksville property was owned by both parties as tenants in common, and the Wife was therefore entitled to a share of the property. The Court ordered Husband to pay for his student loans, for his 2010 tax liability, and "all other debts, including those incurred during the marriage and those he has incurred sine the date of separation."

Husband filed an appeal against the trial court's findings of the marital property and debts and provisions of the permanent parenting plan. Husband argued that "the trial court erred in granting Wife an interest in Husband's residence and failed to make an equable distribution of the marital assets and debts."

The appellate court reviewed the trial court's decision on the classification of Husband's purchase of the real property during the separation. The Court followed Tennessee Code Annotated §36-4-121(b)(1)(A), which describes marital property as "all real and personal property... acquired by either or both spouses during the course of the marriage up to the date of the final divorce hearing... and including any property to which a right was acquired up to the date of the final divorce hearing... and including any property to which a right was acquired up to the date of the final divorce hearing..." The appellate court found that the property "falls squarely within the definition of marital property." The appellate court did find that the trial court failed to assign a value on the property at issue, but ordered that "the property was owned by both parties as tenants in common, and that [Wife] is entitled to a share of the property." The Appellate Court found that the trial court should have decided the total value of all marital property before distributing it.

Husband also disagreed with the trial court's decision to give him all marital debt. When distributing the marital estate, "a court must equitably divide the marital debts as well as the marital assets." See Alford v. Alford, 120 S.W. 3d 810, 813 (Tenn. 2003). Our Supreme Court has 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." Our courts must consider the following factors in determining the equitable apportionment of marital debts: "(1) the debt's purpose; (2) which party incurred the debt; (3) which party benefitted from incurring the debt; and (4) which party is best able to repay the debt." Id. at 814. On appeal, the Court here found that the trial court did not "value and distribute the parties" interests in the house purchased by Husband during pendency of the divorce. The appellate court found "on remand, the trial court shall value and divide the parties, interests in Husband's residence and consider the effect (if any) this decision should have on the apportionment of debt."

Husband next argued that the trial court erred in calculating the child support. Courts are required to use child support guidelines pursuant to Tenn. Code Ann. § 36-5-101(e). The appellate court found that Husband received two different incomes, which derived from self-employment and employment from the law firm. The trial court understood that he was entitled to a 15.3% off from his self-employment for taxes. Tenn. Comp. R. & Regs. § 1240-2-4-.04(4)(a), (d). On appeal, the Court found that the trial court did make a mistake in the calculation by not subtracting the percentage from Husband's monthly income. The trial court also wrongly credited daycare to Wife, because $40 was for the total amount for both of the children's daycare not just the daughter, Husband's only legal child. Lastly, Husband alleged that the trial court erred in the 54 days of parenting time that was assigned to him. He believed the total days to be 60. Husband did not have an explanation in his brief as to justify the 60 days. The appellate court found that the trial court was correct in the number of days assigned to Husband for parenting time and that this issue was without merit.