Jennifer Thomas v. Stephen Thomas ( 2000 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
August 30, 2000 Session
JENNIFER PURCELL THOMAS v. STEPHEN ALEXANDER THOMAS
A Direct Appeal from the Chancery Court for Shelby County
No. D27019-2 The Honorable Floyd Peete, Chancellor
No. W1999-00284-COA-R3-CV - Filed November 13, 2000
In this divorce case, the trial court, among other things, made a division of marital property,
awarded Wife alimony in solido, made an award of child support, and ordered payments of various
debts by the parties. Both parties have appealed presenting issues concerning the court’s above
stated actions.
Tenn.R.App.P. 3; Appeal as of Right; Judgment of the Chancery Court Vacated in Part,
Affirmed in Part and Remanded
W. FRANK CRAWFORD , P.J., W.S., delivered the opinion of the court, in which DAVID R. FARMER ,
J. and JOHN EVERETT WILLIAMS, J., joined.
David E. Caywood, Stacy A. Ingle, Memphis, For Appellant, Jennifer Purcell Thomas
Dorothy J. Pounders, Memphis, For Appellee, Stephen Alexander Thomas
OPINION
This is an appeal of the final decree of the Chancery Court of Shelby County, Tennessee,
granting plaintiff/appellant, Jennifer Purcell Thomas (“Wife”), a final divorce from
defendant/appellee, Stephen Alexander Thomas (“Husband”), presenting issues dealing with the
division of marital property, alimony, and child support.
On March 21, 1976, Wife filed a complaint for divorce, and Husband responded with an
Answer and Counterclaim. On December 3, 4, 8, and 9, 1997, a non-jury trial was held on the
original complaint filed by Wife and the counter-complaint filed by Husband, answers thereto, the
testimony of Wife and Wife’s witnesses, the testimony of witnesses for Husband, exhibits filed in
the cause, statements of counsel and the entire record. Husband did not testify at the trial. At the
end of the trial, counsel for both parties and the court agreed that closing arguments would be
submitted on brief. On January 8, 1998, Wife filed a motion to join Clinton Cecil Thomas,
Husband’s father, as a party defendant. On June 1, 1998, Wife filed a petition for civil contempt
alleging that Husband was in arrears in his pendente lite support in the amount of $11,725.00 and
that he had not paid any private school tuition for the 1998-99 school year for the parties’ three
minor children. Wife averred that Husband’s failure to pay support and tuition were violations of
the trial court’s orders. On September 21, 1998, the trial court entered an order denying Wife’s
motion to join Clinton Cecil Thomas as a party defendant. On October 21, 1998, the trial court
entered a final decree of absolute divorce. On November 10, 1998, the trial court entered an order
correcting a previous order and dismissing Wife’s petition for civil contempt against Husband with
prejudice over Wife’s objection. Both parties filed motions to alter or amend the judgment. On
April 5, 1999, the trial court entered an order on both parties’ motions to alter or amend, inter alia,
clarifying Wife’s award of alimony in solido and the judgment with regard to payment of private
school tuition. Thereafter, both parties filed notices of appeal. This Court entered an order
designating Wife to be appellant and Husband to be appellee.
Wife presents seven issues for review as stated in her brief:
I. Whether the trial court erred in calculating Mr. Thomas’ child
support based upon the evidence presented at trial?
II. Whether the trial court erred in classifying the ownership interest
in LADS as Mr. Thomas’ separate property pursuant to T.C.A. § 36-
4-121?
III. Whether the trial court’s award of one-half of the future proceeds
in LADS as alimony in solido should be a division of property, or in
the alternative, a sum certain?
IV. Whether the trial court erred in denying Mrs. Thomas’ motion to
join Clinton C. Thomas as a party defendant?
V. Whether the trial court erred in dismissing Mrs. Thomas’ petition
for civil contempt with prejudice?
VI. Whether the trial court erred in only awarding Mrs. Thomas
$25,000.00 in attorney’s fees?
VII. Whether the trial court erred in failing to assign the parties’
marital liabilities?
Husband presents issues for review as follows:
I. Whether the trial court erred in calculating Stephen Thomas’ child
support obligation based on $25,000 income where the evidence at
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trial established his inability to earn income in an amount greater than
$20,000.00?
II. Whether the trial court erred in its classification of the Eaton
Street residence as marital property when it was acquired in the same
manner as Stephen Thomas’ separate property?
III. Whether the trial court erred in the classification and amount of
alimony?
IV. Whether the trial court erred in awarding Jennifer Thomas
$25,000.00 in attorney’s fees where Jennifer Thomas’ need was no
greater than Stephen Thomas’ and Stephen Thomas had no ability to
pay?
V. Whether the trial court erred in failing to credit Stephen Thomas
$10,400.00 for the loan he obtained to pay the children’s private
school tuition?
VI. Whether the trial court erred in refusing to join Clint Thomas as
a third-party defendant where he has no liability or obligation to
either or the parties?
VII. Whether the trial court erred in dismissing Jennifer Thomas’s
petition for civil contempt with prejudice?
Since this case was tried by the trial court sitting without a jury, we review the case de novo
upon the record with a presumption of correctness of the findings of fact by the trial court. Unless
the evidence preponderates against the findings, we must affirm, absent error of law. Tenn. R. App.
P. 13(d).
The trial court made specific findings of facts incorporated by reference into the decree:
1. The parties married on December 21, 1984, the final separation
occurred on December 26, 1995, the parties lived together in the
marital relationship for eleven (11) years and had been married
thirteen (13) years at the time of trial.
2. The youngest child of the parties, Ivy is, at the time of trial,
developmentally impaired by Williams Syndrome, a genetic disease
that is attributed to neither party, and is likely to remain so.
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3. At the time of the marriage, Husband had a history of mental
illness, sufficiently severe to require confinement in a psychiatric
ward in the year preceding the marriage, had a history of alcohol and
drug abuse and was completely financially dependent on his father,
all of which was known to Wife prior to marriage.
4. Husband suffered both before and throughout the marriage with
bouts of addictive behavior and mental illness, and Husband has often
required prescription medication.
5. Husband, both prior to and periodically throughout the marriage,
required psychotherapy to deal with his drug and alcohol abuse and
mental illness.
6. At the time of trial, Husband’s prognosis was only fair, and it is
unlikely that Husband will ever sustain gainful employment to the
extent that he is going to make a lot of money.
7. At the time of the marriage, Wife was employed as a school
teacher, but, since the birth of the parties first child Grace in March
1985, Wife has not been gainfully employed outside the home but
was a homemaker and parent.
8. Mrs. Thomas must now devote the majority of her time and energy
to the care and upbringing of the parties’ youngest daughter, Ivy.
9. At the time of the marriage, Husband was employed in the mail
room at one of his father’s appliance stores and later doing clerical
work and running errands for LADS, a Thomas family business; after
a month-long period of confinement in the psychiatric ward in 1989,
Husband decided to complete his college education and attended the
University of Memphis, at his father’s expense, and received a
bachelor’s degree in social work in 1990 or 1991. After receiving his
degree, he was employed in a juvenile detention center, then as a
technician in a psychiatric ward at St. Francis Hospital, then as a
child abuse caseworker for the Tennessee Department of Human
Services; he resigned his employment as a caseworker for the
Tennessee Department of Human Services following his
institutionalization for drug addiction at the Hazelden Clinic in 1995,
later became employed as a social worker for St. Peter’s Villa for a
short time and had resumed his employment as a technician at St.
Francis Hospital at the time of the separation.
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10. Husband has limited employability.
11. The standard of living enjoyed by the parties during the marriage
was made possible solely by gifts from Husband’s parents, who
provided the house they live in and the cars they drove, who paid
their utility bills, who took them on vacations to Europe and Hawaii,
who paid Husband’s medical expenses and his debts and who paid for
their children’s private education.
12. Following the marriage, Husband’s father provided the parties a
residence rent free, provided automobiles for the parties’ use without
cost, paid certain of the parties living expenses, and, as the children
of the parties reached school age, paid the expenses of their private
school education until Husband received his college degree in 1990
or 1991. Husband’s father provided him employment and, afterward,
Husband’s father continued to subsidize the parties’ standard of living
by causing Husband to be paid a salary by LADS, although Husband
was employed full-time elsewhere and preformed no services for
LADS.
13. In addition to providing those benefits above-mentioned, each of
Husband’s parents, in an effort to reduce their taxable estates, made
a practice of making annual gifts to each of the parties during the
marriage in the maximum amount allowable under tax laws, and the
sums comprising these gifts were accumulated and applied to the
acquisition of certain properties owned by Husband’s father on
extremely favorable terms, generally at “cost;” it was the intention of
Husband’s parents in making these gifts to confer a benefit upon their
child and heir, the gifts to Wife being made in consequence of and as
an accommodation to the tax laws.
14. The conveyance of property by Husband’s father to Husband in
exchange for the accumulated gifts above-mentioned coincided with
the birth of the children of the parties and the consequent increase in
the parties’ living expenses; Husband’s father's conveyance to
Husband of his grandmother’s former house in Florida, which had
become rental property, coincided with the birth of the parties’ first
child Grace, while Husband’s father’s conveyance to Husband of the
commercial rental property on Park Avenue in Memphis coincided
with the birth of the parties’ second child, Ellen, and in making such
conveyance it was Husband’s father’s intention to provide an income
stream from which Husband could support his family.
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15. The parties occupied the marital residence located on Eaton
Street in Memphis from the time of the marriage, living there rent
free until 1992, when the property was conveyed and it has been
found that this property is marital property.
16. LADS is a Tennessee general partnership formed by Husband’s
father for the exclusive benefit of his four (4) children and was an
outgrowth of Husband’s father’s individual activities in developing
commercial real property for use by the Tandy Corporation, by whom
Husband’s father had been employed following the sale of his own
business to the Tandy Corporation around the time of the marriage;
at the time of trial, the partnership owned certain improved real
properties and certain securities, and, from its inception, the business
of the partnership had always been conducted by Husband’s father in
the capacity of General Manager.
17. OB Development Company, Inc. is a Tennessee corporation
formed by Husband’s father for the exclusive benefit of his four (4)
children, the sole business of which is the development of a specific
residential subdivision in the State of Mississippi and all of which is
administered solely by Husband’s father.
18. With the exception of the marital residence, neither party made
any material contribution to the upkeep, preservation and
maintenance of any of the properties acquired by the application of
the accumulate gifts above-mentioned, and neither party made any
contribution whatever, direct or indirect, to the management,
operation or administration of the business of LADS or OB
Development Company. Inc.
19. At the time of the divorce, the parties had acquired the following
assets using the gift monies from Husband’s father:
a. The marital residence located at 749 Eaton Street,
Memphis Tennessee;
b. Commercial rental property at 3906 Park Avenue,
Memphis Tennessee;
c. Ownership interest in LADS, a Tennessee General
Partnership;
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d. Ownership interest in OB Development, a
Tennessee General Partnership;
e. Note receivable from LADS;
f. Individual Retirement Account of Stephen Thomas.
20. All of the above-mentioned assets were accumulated during the
marriage.
21. All decisions concerning the acquisitions of properties in
exchange for the accumulated gifts above-mentioned, all decisions
concerning the formation, operation and administration of the
business of LADS and OB Development Company, Inc. were made
by Husband’s father.
22. At the time of the separation, the parties household income
consisted of Husband’s earnings as a technician at St. Francis
Hospital, monthly rental income from the Park Avenue property,
monthly distributions of profits by LADS and a monthly salary paid
by LADS to Husband, for which Husband rendered no services, and,
with the exception of Husband’s earnings above-mentioned, none of
the income was produced by any effort on the part of either party, nor
was any property which produced income acquired by or through any
effort on the part of either party; as between Husband and his father,
any and all decisions affecting continuation of the income stream
from LADS were made by Husband’s father.
23. At the time of the trial, neither party owned or controlled any
liquid assets. Husband’s father declined to make any further
distributions of cash to Husband or to Wife, or to Husband which
might benefit Wife.
24. Wife enjoyed, during the marriage, a standard of living measured
by the Husband’s father rather than the Husband. Wife knew or
should have known at the time of the marriage that Husband was
substantially impaired in his abilities as a breadwinner.
25. Stephen A. Thomas [Husband] conspired with Clinton C.
Thomas [Husband’s father] and dissipated the marital estate in the
amount of $67,000.
The trial court ordered in pertinent part:
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b. As a division of marital property, pursuant to T.C.A. § 36-4-121,
Wife shall be awarded the Eaton Street property which is the marital
residence, and one-half (½) of Husband’s IRA account at Union
Planters Bank.
c. As alimony in solido, Wife shall be awarded the commercial rental
property on Park Avenue, Memphis, Tennessee. As additional
alimony in solido, Wife is awarded one-half (½) of Husband’s
proceeds from his distribution of profits from LADS for a period of
ten (10) years.
d. Husband’s portion of the Individual Retirement Account in the
amount of $10,076.10 shall be awarded to Wife and shall be applied
to Husband’s child support arrearages. The remaining arrearages in
the amount of $7,441.68 which includes interest through August 31,
1998, shall be reduced to judgment, subject to execution.
e. Wife shall be awarded custody to the parties’ three (3) minor
children. Husband shall have visitation with the minor children one
weekend per month so long as he resides outside of Tennessee.
In the event of his return to Tennessee, visitation shall be every other
weekend, alternating holidays and up to two weeks non-consecutively
in the summer.
f. Husband shall pay child support to Wife, with the child support
based upon Husband’s earning capacity of $25,000.00 per year.
Therefore, Husband shall pay child support to Wife in the amount of
$692.00 per month beginning September 1, 1998. Husband shall pay
to Wife, as additional child support, 41% of Husband’s stock
dividends and 41% of Husband’s proceeds in the distribution of
profits from LADS.
g. Husband shall provide sufficient dependent healthcare insurance
coverage for the minor children.
h. Husband’s partnership interest in LADS and his stock in OB
Development Co., Inc. is awarded to Husband as his separate
property.
i. Husband shall not conspire or consort with any party in an attempt
to impede or obstruct the distribution of these funds or disobey the
Orders of this Court.
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j. Husband shall pay to Wife and Wife’s counsel the sum of
$25,000.00 as a portion of Wife’s attorney fees.
k. The Court costs shall be assessed against Husband, for all of
which let execution issue.
We will consider Wife’s issues II and III, regarding the classification of the ownership
interest in LADS and the award and classification of alimony, together with Husband’s issues II and
III, addressing classification of the Eaton Street property and the amount and classification of
alimony. Wife takes issue with the trial court’s classification of the one-quarter interest in LADS
as separate property belonging to Husband. Wife asserts that during the marriage the parties used
gift funds from Husband’s parents to capitalize LADS and other assets acquired during the marriage.
Wife asserts that since these assets were treated as marital property during the marriage, they should
be treated as marital property in the classification of property. Husband’s issue II addresses
whether the trial court erred in its classification of the Eaton Street residence as marital property
when it was acquired in the same manner as Husband’s separate property. We consider these issues
together as they all address the classification and division of property by the trial court.
In Batson v. Batson 769 S.W.2d 849 (Tenn. Ct. App. 1988) the court said:
Tennessee is a "dual property" jurisdiction because its divorce
statutes draw a distinction between marital and separate property.
Since Tenn.Code Ann. § 36-4-121(a) (Supp.1988) provides only for
the division of marital property, proper classification of a couple's
property is essential. See 3 Family Law and Practice § 37.08[1]
(1988). Thus, as a first order of business, it is incumbent on the trial
court to classify the property, to give each party their separate
property, and then to divide the marital property equitably. See 2 H.
Clark, The Law of Domestic Relations in the United States§ 16.2, at
183-84 (2d ed. 1987).
Tenn.Code Ann. § 36-4-121(b) contains the ground rules for
classifying property, and little elaboration is needed beyond the
statute itself. Tenn.Code Ann. § 36-4-121(b)(2) defines ‘separate
property’ as:
all real and personal property owned by a spouse
before marriage; property acquired in exchange for
property acquired before marriage; income from and
appreciation of property owned by a spouse before
marriage except when characterized as marital
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property under subdivision (b)(1); and property
acquired by a spouse at any time by gift, bequest,
devise or descent.
This Court has construed this section to mean that gifts by one
spouse to another of property that would otherwise be classified as
marital property are the separate property of the recipient spouse.
This Court has also found that the portion of a spouse's pension or
other retirement benefit attributable to creditable service prior to the
marriage is separate property.
Tenn.Code Ann. § 36-4-121(b)(1) defines ‘marital property’
as:
all real and personal property, both tangible and
intangible, acquired by either or both spouses during
the course of the marriage ... including income from,
and any increase in value during the marriage, of
property determined to be separate property in
accordance with subdivision (b)(2) if each party
substantially contributed to its preservation and
appreciation and the value of a vested pension,
retirement or other fringe benefit rights accrued
during the period of the marriage.
Id. at 856 (emphasis added). In addition, Tennessee courts have held that in determining whether
property is marital or separate, the inquiry is not limited to what is contained in the title documents,
but rather all interests are to be considered. Jones v. Jones, 597 S.W.2d 886 (Tenn. 1979). “In the
final analysis, the status of property depends not on the state of its record title, but on the conduct
of the parties.” Mondelli v. Howard, 780 S.W. 2d 769, 774 (Tenn. Ct. App. 1989).
In Batson v. Batson, 769 S.W.2d 849 (Tenn.App.1988), the court recognized that separate
property may become marital if its owner treats it as such. Batson, 769 S.W.2d at 858. The
Batson court defined the doctrine of transmutation as follows:
[Transmutation] occurs when separate property is
treated in such a way as to give evidence of an
intention that it become marital property. One
method of causing transmutation is to purchase
property with separate funds but to take title in joint
tenancy. This may also be done by placing separate
property in the names of both spouses. The rationale
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underlying both these doctrines is that dealing with
property in these ways creates a rebuttable
presumption of a gift to the marital estate. This
presumption is based also upon the provision in
many marital property statutes that property
acquired during the marriage is presumed marital.
The presumption can be rebutted by evidence of
circumstances or communications clearly indicating
an intent that the property remain separate.
2 H. Clark, The Law of Domestic Relations in the United States §
16.2, at 185 (1987).
Batson, 769 S.W.2d at 585 (emphasis added).
The assets acquired during the marriage include the one-quarter interest in LADS, the Eaton
Street marital residence, the Park Avenue rental property, and an interest in OB Development. All
assets were acquired during the marriage and were treated as marital assets by both parties. The trial
court drew a distinction between Husband’s parents’ motivation in giving gifts to Husband and in
giving gifts to Wife stating “it was the intention of Husband’s parents in making these gifts to confer
a benefit upon their child and heir, the gifts to Wife being made in consequence of and as
accommodation to the tax laws.” Although we do not doubt that Husband’s parents wished to
confer a benefit on their son, the testimony at trial clearly indicates that these gifts, both to Husband
and Wife, were intended to result in a tax benefit to Clinton C. Thomas and his wife. The record
reflects that gifts were used to pay marital expenses as well as to purchase marital assets. With
regard to these gifts, Clinton C. Thomas testified:
Q: All right what sort of gifts are you talking about?
A: We gave them the - - that amount of monies or close to it
that you could give tax free - - up to $10,000.00 per child per
parent.
* * * * *
Q: Now, Mr. Thomas, let me just see if we have an agreement
about this. You and your wife, pursuant to the $10,000 per
person year gift tax exemption, gave gifts to your son and
Jennifer - - it looks to be anywhere from 35 to $40,000 a year
for a while; isn’t that true?
A: Yes. That’s correct.
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Q: All right. And those funds were used by Steve and Jennifer
Thomas for several purposes. They were used to acquire the
residence that they now - - she now lives in; isn’t that true?
A: Yes, sir.
Q: Those funds were used to acquire the Park Avenue property.
A: Yes, sir.
Q: Those funds were used to capitalize or make the capital
contribution to LAD.
A: Yes, sir.
The classification and division of the interest in OB development and in the Park Avenue
property were not raised on appeal, however the record indicates that the Eaton Street property, the
interest in LADS, the interest in OB Development, and the Park Avenue property were all acquired
during the marriage in the same manner. This Court may in its discretion consider other issues not
presented for review. Tenn. R. App. P. 13(b). In the interest of justice, we therefore include the
Park Avenue property and the interest in OB Developments in our classification of property.
Since the Eaton Street property, the one-quarter interest in LADS, the interest in OB
Development, and the Park Avenue property were acquired during the marriage, and were treated
by both parties as marital property, we find that these properties should all be classified in the same
manner. We see no evidence in the record to rebut the presumption that all of these assets acquired
during the marriage should be classified as marital property. Accordingly, we find that the trial court
erred in classifying the interest in LADS and the interest in OB Development as Husband’s separate
property. Therefore, we vacate the trial court’s order as to those properties. We affirm the
classification of the Eaton street property as marital property.
The trial court failed to classify the Park Avenue rental property but awarded such property
to Wife as alimony in solido, indicating an implied classification as Husband’s separate property.
T.C. A. § 36-5-101(d)(1)(H) requires that in awarding alimony the court should consider “the
provisions made with regard to marital property as defined in § 36-4-121.” In light of our
classification of property, we vacate the award of the Park Avenue Property as alimony to Wife
along with the alimony award of one-half of Husband’s proceeds from distributions of LADS for
ten (10) years. We hold that the Park Avenue property, along with the Eaton Street property, the
one-quarter interest in LADS, and the interest in OB Developments are classified as marital property.
The case is remanded for an equitable division of marital property in accordance with our holding
and for a reconsideration of alimony in light of our finding. Wife’s portion of LADS and of OB
Development, as determined by the trial court on remand, shall be paid out in annual installments
for a period to be determined by the trial court from distributions from these interests.
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Wife’s issue I and Husband’s issue I both ask whether the trial court erred in calculating
Husbands’s child support. Wife asserts that the trial court did not consider Husband’s income from
all sources, arguing that since Husband did not offer evidence at trial as to his current income, the
trial court should have taken into consideration the income shown on the 1996 joint tax return. The
1996 joint tax return shows a total gross income of $176,846.00. In addition, Wife contends that the
Tennessee Child Support Guidelines provide for an upward deviation of child support where a non-
custodial parent does not exercise minimal visitation rights. Wife asserts that there was no visitation
schedule set forth in trial court’s order or findings. She argues that because it is obvious from the
facts of the case that Husband is not exercising the minimum visitation envisioned by the guidelines,
an additional amount is required to compensate Wife for the added care of the minor children. Wife
further asserts that the guidelines provide for an upward deviation where there are extraordinary
expenses for the children. Wife contends that the trial court erred in ordering her to pay one-half of
the children’s tuition, in light of her inability to work outside of the home and Husband’s award of
valuable income-producing property. On the other hand, Husband contends that the trail court erred
in basing his child support on an earning capacity of $25,000.00 per year because all the evidence
at trial pointed to an earning capacity of not more than $20,000.00 per year. Husband asserts that
trial court correctly denied Wife’s argument that flow-through income from his partnership interest
in LADS, which is equal to the taxes owed on the profits, should be included in Husband’s gross
income for the purposes of calculating his child support obligations since he does not actually realize
the income. Husband contends the trial court was not in error on this point, as the decision of
whether to distribute profits is made by the General Manager pursuant to the partnership agreement.
Husband asserts that according to the Tennessee Child Support Guidelines, there is a rebuttable
presumption that all awards of child support are to be based upon the obligor’s gross income less
FICA, withholding tax, and other court-ordered child support payments. Husband asserts that the
Child Support Guidelines contemplate the inclusion of only the income that an obligor parent
actually receives and not distributive income. Furthermore, the trial court correctly determined that
when and if there is a distribution of income to the partners of LADS, Husband is obligated to pay
41% net income he receives as child support.
In Brown v. Brown, No. 03A01-9812-CV-0017, 1999 WL 552854 (Tenn. Ct. App. July 28,
1999), the court stated:
Since the Legislature has mandated that courts set a definite amount
of child support, the issue thus becomes how should that amount be
calculated. The child support guidelines, which must be applied as
a rebuttable presumption of the proper amount of child support,
requires that child support is to be based upon a flat percentage of the
obligor's net income, depending upon the number of children to be
supported. Tenn. Comp. R. & Regs. tit. 10, ch. 1240-2-4-.03(2). Net
income is calculated by subtracting FICA and federal income tax
from gross income, so the first step is determining the obligor's gross
income. See Tenn. Comp. R. & Regs. tit. 10, ch. 1240-2-4-.03(4).
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The guidelines define gross income as:
all income from any source (before taxes and other
deductions), whether earned or unearned, and includes
but is not limited to the following: wages, salaries,
commissions, bonuses, overtime payments, dividends,
severance pay, pensions, interest, trust income,
annuities, capital gains, benefits received from the
Social Security Administration, i.e., Title II Social
Security benefits, workers compensation benefits
whether temporary or permanent, judgments
recovered for personal injuries, unemployment
insurance benefits, gifts, prizes, lottery winnings,
alimony or maintenance, and income from
self-employment....
Tenn. Comp. R. & Regs. tit 10, ch. 1240-2-4-.03(3)(a). Accordingly,
the husband's income in the form of interest, dividends, and
partnership distributions would be included within the definition of
"gross income." The guidelines further provide that “[v]ariable
income such as commissions, bonuses, overtime pay, dividends, etc.,
should be averaged and added to the obligor's fixed salary." Tenn.
Comp. R. & Regs. tit. 10, ch. 1240-2-4-.03(3)(b). Therefore, we
conclude that the husband's additional income must be averaged and
added to his salary in order to determine gross income for child
support purposes.
Id. at *4 - *5.
On the issue of the determination of obligor parent’s income for the purpose of calculation
of child support other jurisdictions have imputed distributive income to an obligor parent with
substantial control over earnings of a corporation or a sole stock holder. See Bleth v. Bleth, 607
N.W.2d 577, 579 (N.D. 2000) (citations omitted). “The less control the obligor spouse has over
retained earnings, however, the more reluctant courts have been to impute corporate income to a
stockholder obligor.” Id. (citations omitted). In Mitts v. Mitts, No. E2000-00374-COA-R3-CV,
2000 WL 1156624 (Tenn. Ct. App. Aug. 16, 2000), the Eastern Section of the Tennessee Court of
Appeals followed similar reasoning in addressing the issue of the husband’s income in setting his
child support obligation. In that case the wife argued on appeal that the husbands’s obligation
should be based upon his distributable share of the corporation and the trial court based his
obligation on the amount of his share actually received. Id. The corporation is a Subchapter S
corporation, and the shareholders are required to pay taxes on their apportioned shares of the
corporation’s earnings, regardless of the actual interest paid. This requirement is essentially the
same for a partnership as in the case of LADS. In addressing the question the Mitts Court stated:
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This court has held that where a business is solely owned, the
business' accumulation of retained earnings can be considered in
determining an obligor's income for the purpose of child support. See
Sandusky v. Sandusky, C/A No. 01A01-9808-CH-00416, 1999 WL
734531, at *4 (Tenn.Ct.App. M.S., filed September 22, 1999). That
is because "[a] self-employment situation where an obligor spouse or
parent can control the salary he or she receives may raise issues
requiring the court to examine whether the potential exists for the
obligor to manipulate his reported income either by failing to
aggressively solicit business or by inflating his expenses, thereby
minimizing his income." Id. (internal quotation marks and citation
omitted). However, Husband in the instant case is not the sole
shareholder of Rivermont. On the contrary, he is a minority
shareholder, and the distribution of the corporation's income is within
the control of the majority shareholder, his father. Thus, Husband
does not have the ability "to manipulate his reported income" as a
sole shareholder would. Wife has not cited any authority--and we are
not aware of any--that would require a court to consider a
corporation's retained earnings in calculating an obligor's income
where the obligor is a minority shareholder and thus lacks control
over the distribution of the corporation's income. We therefore find
that the trial court properly based Husband's minimum child support
obligation on the payments Husband actually received from the
corporation.
Mitts, at *5.
Wife asserts that the distributive income from LADS for 1996 should have been considered
in making a determination of Husband’s income for child support purposes. Husband contends,
however, that the amount shown as distributive income by the partnership was not actually income
that he received. The trial court found that Husband did not receive the income as contemplated
under the child support guidelines, and from our review of the record, the evidence does not
preponderate against the trial court’s findings. The trial court’s omission of Husband’s distributive
shares not actually received is in accordance with Tennessee law as Husband’s father, not Husband,
controls distributions from LADS. See Mitts, supra. Husband also asserts that the trial court’s
finding that his child support obligation should be based upon $25,000.00 per year is not supported
by the evidence and that it should be $20,000.00 per year. We must disagree. Husband’s brief notes
that when the distributive income from LADS and the rental income from Park Avenue are deducted
from the 1996 tax return, along with the $686.00 income attributed to Wife, the total amount of
income Husband received for the fiscal year 1996 was $25,804.00. Accordingly, the evidence does
not preponderate against the trial court’s finding that Husband’s annual income for child support
calculation is $25,000.00. The trial court properly awarded child support based upon this figure.
However, on remand the trial court must reconsider the award of child support as to 41% of
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Husband’s share of distributions from LADS and OB Development. As previously noted, we have
determined that Husband’s interest in LADS and OB Development as marital property subject to
division by the court. Wife’s interest is to be paid in installments as determined by the trial court
from the distribution Husband received therefrom. Accordingly, Husband’s child support obligation
for 41 percent of the distribution shall be calculated on the difference between the total distribution
and the amount paid to Wife. In addition, the trial court should address the upward deviations from
the child support guidelines requested by wife and the division of private school tuition for the
parties’ three minor children.
In Wife’s Issue 4, Husband’s Issue 6, Wife contends that the trial court erred in failing
to join Husband’s father, Clinton C. Thomas, as a third party defendant. Wife asserts that evidence
at trial showed that LADS owes the marital estate $67,000.00. Wife asserts that Clinton C. Thomas
and Husband fabricated promissory notes to create a debt from Husband to his father, and that
Clinton C. Thomas testified at trial that these notes were repaid to him by a distribution from LADS
to Husband.
Rule 19 of the Tennessee Rules of Civil Procedure addresses “Joinder of Persons Needed for
Just Adjudication” stating:
19.01. Person to Be Joined if Feasible. - A person who is subject
to the jurisdiction of the court shall be joined as a party if (1) in the
person’s absence complete relief cannot be accorded among those
already parties, or (2) the person claims an interest relating to the
subject of the action and is so situated that the disposition of the
action in the persons absence may (i) as a practical matter impair or
impede the person’s ability to protect that interest, or (ii) leave any of
the persons already parties subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent obligations by reasons of
the claimed interest. If the person has not been so joined, the court
shall order that the person be made a party....
The trial court found that Wife’s motion to join Clinton C. Thomas as a party defendant was
not well taken and denied that motion in its entirety. Our review of the record reveals testimony that
the distributions made to repay the loans that Clinton C. Thomas’s children had made to LADS were
made in November of 1997. Clinton C. Thomas stated that the $49,000.00 distribution from LADS
to Husband was actually a payment on the $67,000.00 note that Husband was holding against LADS.
Clinton C. Thomas further testified that upon the distribution to Husband, he received funds to apply
to the outstanding loan to his son. Although the evidence at trial indicates that the five promissory
notes representing Clinton C. Thomas’s “loan” to Husband were not executed on the dates testified
to by Clinton C. Thomas, we do not believe that the LADS distribution to Husband or the
questionable promissory notes justify the addition of Clinton C. Thomas as a third party defendant.
Therefore, we find that evidence does not preponderate against the trial court’s denial of Wife’s
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motion. On remand, the trial court should take into account the discredited testimony of the
promissory notes in the valuation of LADS for the purpose of an equitable division.
Wife’s Issue V and Husband’s Issue VII address whether the trial court erred in dismissing
Wife’s petition for civil contempt with prejudice. On June 1, 1998, Wife filed a petition for civil
contempt alleging that Husband was in arrears on his pendente lite support for the months of
November 1997 through May 1998 in the amount of $11,725.00. The petition also alleged that
Husband had failed to pay the children’s private school tuition for the 1998/99 school year. The
petition was set to be heard on July 21, 1998. On July 20, 1998, counsel for Mr. Thomas requested
a continuance. The hearing was rescheduled for August 18, 1998. On October 26, 1998, the trial
court entered an order stating that Wife desires to dismiss the petition with prejudice and thereby
dismissed Wife’s petition for civil contempt with prejudice. On December 11, 1998, the trial court
entered a corrected order Nunc Pro Tunc stating that Wife desired to dismiss the petition for civil
contempt without prejudice and that the trial court’s order of dismissal with prejudice was over the
objection of Wife. Wife contends that the dismissal of the petition by the trial court with prejudice
was in error, because Husband was able to effectively avoid service by moving to Florida. Wife
asserts that she is now barred from pursuing a contempt action against Husband for failure to support
his children.
We find that the trial court was not in error in dismissing Wife’s petition with prejudice.
The order correcting the previous order of voluntary dismissal with prejudice states that Husband
desired to have the petition for civil contempt dismissed with prejudice. Tennessee Rules of Civil
Procedure provide for a dismissal for plaintiff’s failure to prosecute or comply with the rules. Tenn.
R. Civ. P. 41.02(1). The trial court was not in error in dismissing the petition with prejudice at the
request of Husband, as Wife had failed to serve process on the Husband pursuant to Tennessee Rule
of Civil Procedure 5.01 requiring service of process of “every pleading subsequent to the original
complaint.”
Finally, In Wife’s issue VI, she contends that the trial court erred in failing to assign marital
liabilities. Wife contends that Husband’s substance abuse had a tremendous impact on the family’s
finances. Wife asserts that Husband is in a better position to assume the marital debt as he has a
degree in social work and has been employed since receiving his degree. On the other hand, Wife
has not been employed outside the home since the birth of the parties’ oldest child in 1986, and is
currently consumed with the care of the youngest child, Ivy, who has been diagnosed with Williams
Syndrome.
Trial courts have the authority to divide marital debts in the same manner that they
apportion marital assets. Mahaffey v. Mahaffey, 775 S.W. 2d 618, 623 (Tenn. Ct. App. 1989)
(citing Whitley v. Whitley, 757 P.2d 849, 850 (Okla. Ct. App. 1988); 2 H. Clark, The Law of
Domestic Relations in the United States § 16.4, at 198 (2d ed. 1987). When apportioning debts,
courts are to consider:
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(1) which party incurred the debt and the reason for the debt, see
Dahlberg v. Dahlberg, 358 N.W.2d 76, 80 (Minn. Ct. App. 1984);
(2) which party benefitted from the loan, Bodie v. Bodie, 590 S.W.2d
895, 896 (Ky. Ct. App. 1979); Shink v. Shink, 140 A.D.2d 506, 528
N.Y.S.2d 847, 849 (1988); and (3) which party is better able to
assume the debt. Geldmeier v. Geldmeier, 669 S.W.2d 33, 35 (Mo.
Ct. App. 1984).
Mahaffey, 775 S.W.2d at 624.
Wife’s uncontroverted testimony at trial indicated that Husband’s use of drugs and alcohol
contributed to the martial debt. However, it does not appear that Husband was the sole contributor
to the debt, nor was he the sole beneficiary. Wife’s amended affidavit of income and expenses filed
on December 3, 1997, and introduced at trial shows credit card debts totaling $16,602.25, and
$177.19 in outstanding, uninsured medical bills.
Because the trial court failed to make an assignment of marital debt, on remand, marital
debts should be divided according to the foregoing Tennessee law.
Husband also raises a question regarding the assignment of debt in his issue V which
questions whether the trial court erred in failing to credit him $10,400 for the loan he obtained to pay
the children’s private school tuition. At trial, Husband failed to put on any proof as to the existence
of his loan and the record lacks sufficient evidence to establish such debt. In light of the foregoing,
the trial court did not err in refusing to rule upon this issue in the parties' divorce proceeding.
In Husband’s issue IV, he asserts that the trial court erred in awarding Wife $25,000.00
attorney’s fees. An award of attorney’s fees constitutes alimony in solido. Herrera v. Herrera, 944
S.W.2d 379, 390 (Tenn. Ct. App.1996); Cranford v. Cranford, 772 S.W.2d 48, 52 (Tenn. Ct.
App.1989). As with any alimony award, in determining whether to award attorney's fees, the trial
court should consider the relevant factors in T.C.A. § 36-5-101(d)(1). The decision whether or not
to award attorney’s fees is within the sound discretion of the trial court and "will not be disturbed
upon appeal unless the evidence preponderates against such a decision." Kincaid v. Kincaid, 912
S.W.2d 140, 144 (Tenn. Ct. App. 1995); see Rule 13(d) Tenn. R. App. P.
A spouse with adequate property and income is not entitled to an award of alimony to pay
attorney’s fees and expenses. Umstot v. Umstot 968 S.W.2d 819, 824 (Tenn. Ct. App. 1997); and
Duncan v. Duncan, 686 S.W.2d 568, 573 (Tenn. Ct. App. 1984). Where the court awards the wife
alimony in solido adequate for her needs and attorney’s fees, it may not be proper for the court to
make an additional award of alimony in solido for payment of the wife's attorney’s fees. Id.“These awards are appropriate, however, only when the spouse seeking them lacks sufficient
funds to pay his or her own legal expenses,” Houghland v. Houghland, 844 S.W.2d 619, 623 (Tenn.
Ct. App.1992); Ingram v. Ingram, 721 S.W.2d at 264, or would be required to deplete his or her
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resources in order to pay these expenses. Harwell v. Harwell, 913 S.W.2d 163." Brown v. Brown,
913 S.W.2d 163, 170.(Tenn. Ct. App. 1994). In addition, the spouse obtaining the divorce should
not be left in a worse financial situation than he/she was before the other spouse's misconduct
brought about the breakup of the marriage. See Long v. Long, 957 S.W.2d 825, 830 (Tenn. Ct.
App. 1997); Shackleford v. Shackleford, 611 S.W.2d 598, 601 (Tenn. Ct. App.1980).
Because of our reclassification of the parties’ property and the necessity of a determination
by the trial court of the division of marital property, the award of attorney fees should be vacated for
further consideration by the trial court on remand.
In sum, the trial court’s classification of the one quarter interest in LADS and the interest in
OB Development is reversed, and these interests are classified as marital property. The trial court’s
implicit classification of the Park Avenue property as Husband’s separate property is reversed, and
this property is classified as marital property. The trial court’s classification of the Eaton Street
property as marital property is affirmed. In view of the reclassification of the marital property, we
vacate the decree of the trial court as to distribution of marital assets and the award of alimony in
solido and remand the case to the trial court for a proper determination of the division of marital
property and award of alimony in solido if required, consistent with this opinion. The award to Wife
of $25,000.00 attorney fees as alimony in solido is likewise vacated to be considered on remand in
conjunction with the court’s distribution of marital property. On remand, the trial court shall also
apportioned the marital debt. The trial court’s decree as to child support is vacated. On remand, the
trial court should set the amount of Husband’s monthly child support obligation in accordance with
this opinion. The trial court’s present award of child support remains in effect pending
determination and award of child support on remand. The trial court’s decree is affirmed with regard
to Husband’s IRA, the award of custody of the parties’ three minor children, visitation, and
insurance. The case is remanded for further proceedings consistent with the opinion. Costs of the
appeal are equally divided between the parties, appellant, Jennifer Purcell Thomas, and appellee,
Stephen Alexander Thomas, and their sureties.
__________________________________________
W. FRANK CRAWFORD, PRESIDING JUDGE, W.S.
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