Tennessee Divorce Attorney Blog

Malone v. Malone, No. E2010-01455-COA-R3-CV, 2011 WL 3066384 (Tenn. Ct. App. July 26, 2011) has further defined what constitutes marital and separate property in Tennessee divorce cases.

James Malone ("Husband") and Susan Malone ("Wife") married in 1990. In 2005, Husband filed for divorce. At the time of the marriage, wife received $13,975 in disability income and $11,712 in Social Security disability benefits. She also had a 401(K) worth $96,914. Husband received $5,130/month in pension benefits, had $847,106 in deferred compensation, a stock deferral plan of $390,000, a 401(k) plan of $232,000, and a flexible compensation plan of $205,000, all accumulated during the marriage. Husband also had over 20,000 shares of stock. During the entire marriage Husband and Wife lived separately due to Husband's profession.

The total marital estate was valued at $7,323,910 at the time of trial. Husband argued Wife should only receive 20% of the estate since wife did nothing to contribute to the appreciation of the majority of the property because of their separate living arrangements. Therefore, she should not receive an equal division of the property, but an equitable one. The trial court disagreed, ruling that it would be more equitable to split the estate 60-40, with Husband receiving $4,320,030 and Wife $2,968,989. Wife and Husband both appealed.

Tenn. Code Ann. § 36-4-121(a)(1) controls distribution of marital property. Courts are required to look at all relevant factors, including the factors listed in subsection (c) to determine how to be distribute and divide marital property. Tenn. Code Ann. § 36-4-121(b) also classifies property as either separate or marital. Any property owned by a spouse before marriage is considered separate and is therefore not subject to division. Marital property, on the other hand, is property gained by either or both spouses during marriage and up to the time of divorce. If a piece of property is a pension, stock option, retirement, or other fringe benefit right related to employment, then the court determines the value of that benefit that accrued during the marriage even if it was originally separate property. Any other property that was originally separate will not be considered marital property even if there was any increase in income or appreciation during marriage.

While Husband argued that Wife's TVA disability pension should be marital property, the Tennessee Court of Appeals held it was separate property. Tenn. Code Ann. § 36-4-121 states that social security disability actions and other similar actions for wages lost during the marriage are marital property, but here Wife received the pension before she married, and there was no action for any wages lost while married. Therefore, her pension was still separate property.

The appellate court also allowed Husband's expenditures on his attorney and expert fees to be counted as part of the marital estate. Lastly, Wife was allowed 40% of the 20,000 stock. Even though the option price was lower than the market price, the appellate court held Wife had the right to share in any future gains from any employment benefit that accrued during the marriage.

Tennessee courts will enforce agreements between spouses, but only if they are found to be valid contracts. The case of Bratton v. Bratton, 136 S.W.3d 595 (Tenn. 2004) adopted the standard that spouses may enter into a contract to divide the marital estate and/or set out support provisions, and that they do not violate public policy even if not contemplated in light of an impending divorce or separation.These "post-nuptial agreements" are looked at as any other contract, and must have adequate consideration from both parties to be upheld as valid. Additionally, these agreements must be free from fraud, duress coercion or undue influence. However, courts can and will decide that the division of the estate is inequitable, even if there is a valid, enforceable contract, resulting in a redistribution of property.

A trial court will find that consideration exists when a party agrees to take action or to refrain from some action even though they have a legal reason for doing that action. Mutual promises meet this threshold. Spouses who waive their rights given under statute also are normally deemed to have given sufficient consideration. However, the court will look closely at promises to ensure they are not too vague or illusory. In the Bratton case, the Court found that the Wife's promise to refrain from entering a career in the dental industry was not adequate consideration. This occurred in part because the Wife never applied to school, or took admission exams but rather had decided to become a stay-at-home mom prior to entering the agreement. Therefore, the court determined she had either given insufficient consideration or prior consideration, which would result in invalidity of the contract. Trial courts will also want to ensure that neither party had a superior bargaining position.

The Court in Barnes v. Barnes, 193 S.W.3d 495 (Tenn. 2006) found that a Marital Dissolution Agreement signed by the parties was enforceable in light of Husband's arguments to the contrary. First, he argued that he was under duress when the document was signed because Wife stated she would leave the state with the children. The court found that her threat was not "credible" due to her job and family ties. The Husband then argued that Wife's adultery, committed after the agreement was signed, was grounds for invalidation. The court found Wife's behavior irrelevant to the enforceability issue. Next, Husband argued that Wife's mediation request should result in estoppel, which the court held was not a ground for repudiation nor could used against her based on the rules of evidence.

Anytime a divorce comes before a Judge in Tennessee, the distribution of the estate begins with a classification of the property involved. This classification is left up to the trial judge, and is based upon the facts presented in the courtroom. If the property involved is determined to be marital, it is subject to equitable division. If the property is determined to be separate, then it stays with that spouse. Once classified, the court must place a value on that property before deciding how to distribute the assets between the parties.

In a recent Court of Appeals case entitled Pope v. Pope, 2010 WL 4272690
(Tenn.Ct.App.Oct. 28, 2010) the decision highlights the importance of the trial court's classification and valuation of property. In this case, the Husband owned a business at the time of the marriage, which Wife began to work for as well, even starting an online version of the business which she managed. Other property included a home in North Carolina that was bought and sold during the marriage, leaving a substantial profit. The trial court determined that the funds derived from the sale of the residence were marital property per T.C.A. $36-4-121(b)(1)(a), which the Appellate Court found to be proper. Regarding the business, the trial court decided this was also marital property, for a number of reasons: that although Husband owned the business prior to the marriage, he sold it during the marriage; that during the marriage, both parties conducted and managed a comparable business, though online instead of as a storefront; and that both parties involvement in the operation became a factor in the success of the business. The trial court then classified gifts of jewelry given to the Wife by the Husband during the marriage as her separate property, which is also proper per T.C.A . §36-4-121(b)(2)(D), which states that gifts, regardless of when given, are separate property.

However, the trial court then failed to classify additional, outstanding property, including four vehicles, inventory from the business, bank accounts, the business names and some personal property. The Appeals Court found that the trial court erred in doing this, because all property must be classified prior to an equitable division. Having not classified this property, the court also failed to assign a value to it as well. T.C.A §36-4-121(b)(1)(A) requires that all marital property be given a value determined as close in time to the finality of the divorce as possible. Because the appellate record did not contain sufficient information for a value to be determined, the trial court must go back and assign values for these items. Because of the less than complete classification and valuation, the trial court's division of property was also overturned and sent back to the trial judge for a new adjudication of all property issues.

Therefore, when going through a divorce trial in Tennessee, it is imperative that all items of marital property are classified, valued and then distributed to avoid additional costly litigation.