Edwin Elam v. Martha Elam ( 1999 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
EDWIN CARROLL ELAM, )
)
Plaintiff/Counter Deft./ ) McNairy Chancery No. 7187
Third Party Deft./Appellee, )
) Appeal No. 02A01-9812-CH-00362
VS. )
)
MARTHA PEARL (SWINEY) ELAM, )
Defendant/Counter Pltf./ )
) FILED
Appellant, )
) August 30, 1999
CANDICE LOU GARRISON, )
) Cecil Crowson, Jr.
Third Party Deft./ ) Appellate Court Clerk
Appellant. )
APPEAL FROM THE CHANCERY COURT OF McNAIRY COUNTY
AT SELMER, TENNESSEE
THE HONORABLE DEWEY C. WHITENTON, CHANCELLOR
CHADWICK G. HUNT
REYNOLDS, REYNOLDS & HUNT
Savannah, Tennessee
Attorney for Appellants
CHARLES L. TROTTER, JR.
TROTTER & JACKSON, P.L.L.C.
Huntingdon, Tennessee
Attorney for Appellee
REVERSED AND REMANDED
ALAN E. HIGHERS, J.
CONCUR:
DAVID R. FARMER, J.
HOLLY KIRBY LILLARD, J.
Martha Elam (“Wife” or “Appellant”) appeals the trial court’s order which awarded
Edwin Elam (“Husband” or “Appellee”) an undivided 1/3 interest in the 171-acre tract of real
property after deducting the sum of $24,750 (the value of Wife’s separate interest at the
time of inheritance), and awarded Husband an equitable lien on the 60-acre tract of land
(the “Homeplace”) for ½ of the undetermined value over $32,800. The trial court awarded
Wife an interest in the 171-acre property in the amount of $24,750 and a 2/3 interest in
value of said property over that amount. The trial court refused to set aside the conveyance
of the Homeplace tract from Wife to Wife’s daughter, Candice Garrison (“Garrison” or
“Appellant”), but made it subject to the equitable lien of Husband.
I. Factual and Procedural History
The Elams married on August 4, 1966. Husband sued Wife for divorce on October
21, 1997. W ife filed her own complaint on October 30, 1997. Husband commenced a third-
party action on December 16, 1997 against Garrison to set aside a conveyance of marital
real estate from Wife to her daughter, Garrison. The Chancellor consolidated the cases
and tried them on May 8, 1998 without a jury.
In 1986 Wife’s mother died testate. Wife inherited an interest in two pieces of real
estate at the heart of this litigation. One is known as the Homeplace, which includes a
house and 60 acres of land. The other is known simply as the 171-acre farm. Wife took the
Homeplace outright and inherited a ½ undivided interest with her brother in the 171-acre
farm. On October 2, 1987, Wife and Husband bought Wife’s brother’s ½ interest for $7,500
as tenants by the entirety.
Upon stipulation of the parties, the agreed value of the Homeplace at the time of the
inheritance was $32,800. Husband worked on and improved the Homeplace, including the
surrounding acreage. The Elams took up residence at the Homeplace in 1996. Husband
testified that over $102,000 was spent in refurbishing the Homeplace and that in his
opinion the total value of the land and improvements was approximately $190,000. Mr.
Mark Alexander, a licensed appraiser, testified that based upon his survey of the
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Homeplace, the value of the home and improvements was $75,000 - $80,000.
Wife conveyed the Homeplace to Garrison on September 16, 1997. Husband
moved the court to set aside the conveyance. The Chancellor overruled Husband’s motion
but awarded Husband an equitable lien upon the property for ½ of the undetermined value
over and above the $32,800 (the stipulated value at the time of inheritance). The
Chancellor ordered the property sold. On appeal, Wife contends that the trial court erred
in ordering the property sold without giving Wife an opportunity to buy out Husband’s
interest.
Wife also inherited a ½ interest in the 171-acre farm pursuant to her mother’s will.
Wife and Husband purchased the other ½ interest from Wife’s brother for $7,500. Husband
later entered into a mining lease with Adamsville Sand and Gravel to excavate large gravel
deposits located on this tract. Husband testified that in his opinion the value of the 171-
acre tract was approximately $300,000. The appraiser testified the value of the land was
$180,000. The appraiser further testified that he was only licensed to appraise commercial
property up to $250,000 and that in his opinion the mineral rights would cause the value
of the property to exceed this amount.
The court held that as a result of transmutation, Husband was entitled to an
undivided 1/3 interest in the 171-acre tract after deducting $24,750 (the stipulated value
of Wife’s interest at the time of inheritance). This property was also ordered sold if the
parties could not reach a settlement within 90 days from the entry of the order. Wife argues
that she should have been awarded her initial ½ interest in this property and an equal
share of the ½ interest purchased by Husband and Wife, resulting in 3/4 interest to Wife
and 1/4 interest to Husband. Husband argues that the trial court erred in awarding him a
1/3 interest in the property. Husband asserts he should have been awarded ½ interest in
the 171-acre tract after setting apart $24,750 for Wife’s separate interest.
II. Property Division
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In accordance with Tenn.R.App.P. 13(d), the role of this Court is to review the
record made in the trial court de novo with the presumption that the trial court's findings of
fact are correct unless the evidence preponderates otherwise. Thus, we will affirm the trial
court's decision unless there is an error of law affecting the result or unless the evidence
preponderates against the trial court's factual determinations. Campanali v. Campanali,
695 S.W.2d 193, 194 (Tenn. App.1985) (citations omitted).
A. The Homeplace
Wife inherited the Homeplace when her mother died in 1986. From the outset,
Husband worked on and improved the Homeplace, including the surrounding acreage. The
Homeplace house itself dated to 1909 and has historical significance, but Wife
acknowledged at trial it was not in good condition when she inherited it. Boards were
rotted, and the back porch was unusable. The porch was partially rotted and leaked. The
electrical wiring was antiquated.
From the time Wife inherited the Homeplace, Husband built fences, repaired the
barn and built sheds. As soon as the tenants left in 1989 or 1990, the Elams began
rebuilding the house. Husband borrowed money to pay for the improvements on the
Homeplace. He firmed up parts of the flooring. He sheetrocked the walls. He put down
baseboards. He added new windows, new doors, new ceiling, new flooring, new trim and
replaced the siding. He rewired and replumbed. When the Elams sold their house at River
Heights in Crump, the Elams paid the mortgage and invested the $25,000 equity in the
Homeplace. After selling the house at River Heights, the Elams took up residence at the
Homeplace. Although the records were destroyed in a fire, Husband estimated he
ultimately spent $102,000 on the Homeplace house itself and another $25,000 on
improvements to the Homeplace grounds and the 171-acre farm.
Prior to trial, and unbeknownst to Husband, Wife conveyed the Homeplace to her
daughter by a previous marriage, Candice Lou Garrison. Husband commenced a third
party action against Ms. Garrison to set aside a conveyance of marital real estate from
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Wife to Garrison.
At trial, Husband testified that the Homeplace was worth, in his estimation, $190,000
($65,000 for the 60 acres of land, and $125,000 for the house and outbuildings). An
appraiser testified that in his opinion the Homeplace was worth $75,000. Wife did not offer
her personal opinion. Tax appraisal records were introduced which valued the Homeplace
at $32,800 at the time of inheritance in 1986.
At the conclusion of the trial, the Chancellor found that there were no grounds for
setting aside the deed executed by Wife to her daughter, Appellant Garrison, which was
signed and delivered prior to separation. The trial court found that the Homeplace was
worth approximately $32,800 at the time of inheritance and had increased in value due to
improvements. The trial court found Husband to be entitled to ½ of the undetermined value
over $32,800 and awarded him an equitable lien on said property. The trial court then
ordered the property sold if no agreement was reached by the parties within 90 days.
Wife argues that the Chancellor abused his discretion in ordering the sale in light
of the fact that neither of the original parties owns the property and the fact that the
Chancellor refused to set aside the conveyance. Wife also argues that the Chancellor is
forcing the sale of property that has been in the possession of Wife’s family for
generations. Wife asserts that if the Court had granted weight to the testimony of the
appraiser, it could easily have ordered Wife to pay ½ of the value over $32,800 to Husband
and allowed the inherited property to remain in the family. Wife testified at trial that she was
prepared to pay Husband for his interest in order to keep the property she had inherited
and which had long been in her family.
In light of the fact that Wife inherited this property from her family, and the property
has been in Wife’s family for generations, this Court is of the opinion that Wife should be
allowed to pay Husband his interest. Additionally, forcing the sale of the property will result
in harsh tax consequences due to the large capital gain which will arise from the sale.
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Tennessee Code Annotated §36-4-121(c) directs the court to consider tax consequences
as one of the relevant factors in making an equitable division of marital property. Tenn.
Code Ann. §36-4-121(c)(9).
Husband contributed to the increase in value of the property and is entitled to ½ of
the increase in value as per the trial court’s order. The parties have not challenged the trial
court’s decision not to set aside the transfer to Garrison, and this Court will not address
that ruling. However, the increase in value of the property was part of the “marital pot” to
be divided between Husband and Wife by the trial court, and Wife shall be ultimately liable
for paying Husband his interest in cash. However, if payment is not made to Husband, the
property shall be sold, with Husband receiving his interest and Garrison, the owner of the
property, receiving the balance.
For the above noted reasons, the trial court erred in ordering the Homeplace
property sold. Wife shall be given the opportunity to pay Husband the value of his interest
in the property. This matter shall be remanded to the trial court for a determination of value
of the Homeplace.
B. 171-acre Farm
Wife also inherited a ½ interest in a 171-acre tract of land upon the death of her
mother. Husband and Wife then purchased the outstanding ½ interest in the property from
Wife’s brother for $7,500 as tenants by the entireties. At trial, tax appraisal records were
introduced which valued the property at $49,000 at the time of inheritance.
The 171-acre farm as inherited by Wife was unimproved, but relatives of both Elams
adjoin the property. Husband negotiated a favorable written lease in late 1996 with
Adamsville Sand and Gravel Company to take advantage of the gravel deposits on the
property. The Elam’s 1997 U.S. Individual Income Tax Return reflects gravel royalties
received of $22,493. Besides the gravel lease, Husband cleared parts of the property as
needed, improved the roads on the farm and bushhogged the entire 171 acres annually.
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At trial, Husband valued the 171-acre farm, including mineral rights, at $300,000.
Wife’s trial expert valued the 171-acre farm at $180,000 excluding mineral rights. The
expert testified that he was licensed to appraise property up to $250,000 and that, in his
opinion, the value of the property including mineral rights might exceed $250,000.
The trial court found that Wife inherited a ½ undivided interest in the tract under her
mother’s will and Husband and Wife purchased the remaining ½ interest in said tract, all
of which is subject to a gravel operation. The trial court ruled that, after deducting the value
of ½ of the real estate value of $49,000 in 1986 ( $24,750), Husband was entitled to an
undivided 1/3 interest in the undetermined value of said land and gravel interest and Wife
was entitled to a 2/3 interest in the same. The trial court ruled that if the parties could not
divide the property according to his order within ninety days, the tract of land should be
sold and the proceeds divided as per the determined interest of each.
On appeal, Wife contends that Husband is only entitled to a 1/4 interest in the
property, as his equal share of the ½ interest purchased by Husband and Wife from Wife’s
brother. Wife further contends that the trial court should not have ordered the property
sold, but should have allowed Wife to pay Husband for his interest in the property.
Husband contends that after subtracting the value of W ife’s share of the property at the
time of inheritance, Husband is entitled to ½ of the increase in value.
As with the Homeplace property, we find that the trial court erred in ordering the sale
of the 171-acre farm. Due to the fact that this property was inherited by Wife and has been
in Wife’s family for generations, and due to the great tax liability which will be imposed on
the parties with such a large capital gain, the trial court should have allowed Wife to retain
the land and pay Husband for his interest. Wife testified that she believed she would be
able to borrow the necessary money to pay Husband and pay it back out of the gravel
operation. The trial court should have set a value for the property and allowed Wife the
opportunity to pay Husband the value of his interest in the property.
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With regard to the division of the 171-acre farm, we first note that the ½ interest
purchased by Husband and Wife as tenants in the entireties is clearly marital and should
be divided equally between the parties. Additionally, absent proof of transmutation, the
value of Wife’s ½ interest at the time of inheritance ($24,750) is clearly Wife’s separate
property. What remains to be divided is the increase in value of Wife’s ½ interest.
In making its ruling, the Chancellor ruled that after deducting $24,750, Husband as
a result of transmutation is entitled to an undivided 1/3 interest in the land and gravel
interest. The doctrine of transmutation was addressed by this Court in the case of
McClellan v. McClellan, 873 S.W.2d 350 (Tenn. App. 1993).
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 underlying both of
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 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.
Id. at 351.
While transmutation might apply to the situation at hand, the trial court made no
mention of the property being treated in such a way as to give evidence of an intention that
the property become marital. There was no evidence that the parties took title to Wife’s
inherited ½ interest in joint tenancy, and therefore no presumption of a gift to the marital
estate. Furthermore, under the doctrine of transmutation, the value of the property at the
time of Wife’s inheritance (Wife’s separate property) could become marital property by
transmutation. Yet, under the trial court’s ruling, the value of Wife’s ½ interest at the time
of inheritance remains her separate property, but the increase in value of her ½ interest
became marital property by transmutation. It is inconsistent for the parties to treat W ife’s
original ½ interest as separate property, while treating the increase in value of same ½
interest as marital property.
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It is more logical to this Court, that the trial court was attempting to divide the
increase in value between the parties, as it did with the Homeplace. An increase in the
value of separate property constitutes marital property if (1) it occurred during the marriage
and (2) the non-owner spouse made some substantial contribution to the preservation and
appreciation of the separate property. Cohen v. Cohen, 937 S.W.2d 823, 833 (Tenn.
1996). In the case of Harrison v. Harrison, 912 S.W.2d 124 (Tenn. 1995), the husband had
an interest in a tract of farmland which was found to be his separate property. The 45.5-
acre tract of farmland increased in value from $7,000 at the time of the parties marriage
to $1,361,750 at the time of their divorce. The sole cause of the appreciation in value was
the construction of a interstate highway across a portion of the larger 125-acre tract. The
Tennessee Supreme Court found that, as the sole cause of the appreciation in value was
the construction of the interstate, the wife’s activities did not substantially contribute to the
preservation and appreciation in value of the property. Id. at 127. The increase in value
remained the separate property of the husband. Id.In the case at hand, Husband clearly contributed to the increase in value of the
property and is therefore entitled to some portion of the increase in value of Wife’s
separate ½ interest. In keeping with the trial court’s ruling on the Homeplace, Husband
would be awarded ½ of the increase in value of Wife’s separate ½ interest in the 171-acre
farm. Wife would be awarded the value of her separate property at the time of inheritance
($24,750), Husband and Wife would equally divide the increase in value of Wife’s separate
½ interest, and Husband and Wife would equally divide the value of the remaining ½
interest which was clearly marital property. Simply stated, after first deducting Wife’s
$24,750 interest, Husband and Wife would share equally in the value above that amount.
However, it is unclear from the record how much of the increase in the value of the
171-acre tract is the result of Husband’s activities in keeping up the land and Husband’s
efforts in obtaining the gravel lease, and how much of the increase in value is due to
simple appreciation or inflation. The tract of land was valued at $49,000 in 1986 and is now
valued at $180,000 to $300,000.
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On remand, the trial court should take evidence to determine what percentage of
the increase in value is due to Husband’s efforts in maintaining the property and in
obtaining the gravel lease, and what percentage of the increase in value is due to simple
appreciation or inflation. Any increase in value to which Husband contributed should be
treated as marital property and divided between Husband and Wife. Alternatively, If the trial
court wishes to treat the property as marital by way of transmutation, we see no reason for
the trial court to set aside the original value of Wife’s ½ separate interest before dividing
the property between the parties.
For all the foregoing reasons, the trial court erred in awarding Husband a 1/3
interest in the 171-acre farm after deducting the original value of Wife’s separate ½
interest. The trial court also erred in ordering the property sold without first assessing the
value of the property and allowing Wife to buy out Husband’s interest.
III. Conclusion
The judgment of the trial court is hereby reversed and remanded for further
proceedings consistent with this opinion. Costs of this appeal are taxed to Appellee, for
which execution may issue if necessary.
HIGHERS, J.
CONCUR:
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CRAWFORD, P.J., W.S.
FARMER, J.
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