Appreciation Due to Market Factors Not Enough to Justify Distribution of Value to Spouse in Tennessee Divorce

August 13, 2013
By The McKellar Law Firm, PLLC on August 13, 2013 8:38 AM |

In the case of Huddleston v. Huddleston, No. M2012-00851-COA-3-CV (Tenn. Ct. App July 30, 2013), a case out of Putnam County Chancery Court, Knoxville divorce attorneys learn that an increase in value of separate property during a marriage, if due to market factors only, will not justify dividing that increase between the spouses upon a divorce.

Facts: The parties married in 1996, and each brought property into the marriage. The Husband owned a farm and the Wife a house in Cookeville. Wife moved to the farm until they separated in 2010. During the marriage, the couple bought a vacant lot adjacent to the Cookeville house. Husband then quitclaimed his interest in that property to Wife, and Wife conveyed the property to her sons but retained a life estate. Wife then gave that up and the sons sold the property and the proceeds were used to purchase a life insurance policy on the Wife. In a trial in 2012, the court bisected the farm property, giving each spouse half. Wife's life insurance property was awarded solely to her. Husband appealed the classification of the increase of the value of the farm as marital property, the award of half the property to the Wife and the classification of life insurance as separate property.

Analysis:

The Farm Property: The trial court decided that this property was marital and not separate because Wife contributed to its appreciation during the marriage. T.C.A. ยง36-4-121 defines marital property as that which is acquired during the marriage and includes income or increase in value of separate property if the spouse substantially contributed to its preservation and appreciation. Substantial contribution can include a spouse who is a homemaker, wage earner, parent, financial manager and other factors. Separate property is defined as that owned by either spouse prior to the marriage or income/appreciation earned after the marriage from separate property, gifts, bequests, or inheritance. Here, this Farm property was acquired in 4 parcels, three prior to the marriage and one after. An appraiser concluded that the increase in value during the marriage was approximately $330,000. Here, the trial court found that the Wife maintained the home, did laundry, cleaned, cooked, gardened, landscaped, painted and decorated, helped with farm chores, maintained fencing and helped harvest crops. However, the Appellate Court concluded that these efforts did not contribute to the increase in the value of the property. Because the court failed to make a finding as to why it held that Wife did substantially contribute to the appreciation. Prior case law emphasizes that when property increases due to market factors, and not efforts of either spouse, that increase in value is not marital property. Accordingly, the trial court's award is reversed as what was given to the Wife.

Life Insurance: Husband argues that the life insurance policy was marital because even though purchased with proceeds from separate property, the policy itself was acquired during the marriage and was comingled and/or transmuted into a marital universal policy worth over $250,000. The trial court found that Husband had signed over his interest via deed of the property to Wife. Husband offered no proof or evidence to support his contention. Accordingly, the proceeds from the sale of separate property to buy the separate life insurance policy was correctly determined to be Wife's separate property, and the trial court was affirmed on this issue.