Harvey Dalton v. Linda Jane Faasen Dalton ( 2006 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
SEPTEMBER 19, 2006 Session
HARVEY DALTON v. LINDA JANE FAASEN DALTON
Direct Appeal from the Chancery Court for Shelby County
No. CH-03-1026 Walter L. Evans, Chancellor
No. W2006-00118-COA-R3-CV - Filed December 28, 2006
This case involves a trial court’s division of marital property following a divorce. The wife came
into the marriage with substantial assets, but the husband had no assets and owed a large debt to the
IRS. During the marriage, the wife was continuously employed, and the husband was often
unemployed. After the wife found out that her husband had quit one of his jobs, he executed a
quitclaim deed conveying his interest in their house to the wife. When they later divorced, the trial
court appointed a special master to classify certain assets and debts as marital or separate property.
The trial court affirmed the special master’s report with modifications. Both parties now challenge
the classification of certain assets and the court’s division of the marital property. For the following
reasons, we affirm.
Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Affirmed
ALAN E. HIGHERS, J., delivered the opinion of the court, in which DAVID R. FARMER , J., and HOLLY
M. KIRBY , J., joined.
Gail R. Sevier, Vicki J. Singh, Memphis, TN, for Appellant
Kathleen D. Norfleet, Steven R. Walker, Memphis, TN, for Appellee
OPINION
I. FACTS & PROCEDURAL HISTORY
Harvey Ellis Dalton (“Husband” or “Appellant”) and Linda Jane Faasen Dalton (“Wife” or
“Appellee”) were married in 1989. This was Husband’s second marriage and Wife’s third. At trial,
Wife was 61 years old and Husband was 57. The parties have no children together. When they
married, Wife was working at Graceland and had a net worth of about $580,000. Husband had no
assets, had been through bankruptcy, and owed an $18,000 debt to the IRS.
The parties kept their earnings separate while they were married. Wife paid the bills, but
Husband contributed when he was working steadily. Wife was continuously employed during the
marriage and earning $95,000 per year at the time of trial. Husband had worked at various
construction jobs. He testified that he had quit several jobs without having another job available,
and he was sometimes unemployed for periods of up to eight months. During the marriage, his
annual income ranged from $5,5681 to $49,504. At the time of trial, he was earning approximately
$50,000 per year.
The parties lived in four different homes during their marriage. Before they married, Wife
had paid for the first home in full with her own separate funds. The parties moved into it together
and were married two years later. The parties would make improvements to each home they lived
in, sell it, and use the proceeds to buy another home. A mortgage was obtained if necessary to cover
the balance, and it appears that the mortgage payments were auto-deducted from Wife’s checking
account.2 For the improvements, Wife would generally purchase the materials and sometimes paid
labor for workers, but other times Husband and Wife would work together on the projects
themselves. Husband claims to have paid for some materials. Husband also did extensive work
constructing the third house, but it was being built by his employer and Husband was the building
supervisor for that particular jobsite.
The houses were titled in Wife’s name alone with the exception of the third in the series of
houses, which they built. This was the most expensive house purchased during the marriage, and
it was initially titled in both their names. However, a month after closing, on October 12, 1999,
Husband executed a quitclaim deed conveying his interest to Wife. Their testimony conflicted as
to why this was done. Wife claimed that Husband had promised to stay employed if they built the
house because it would be more expensive. She found out after closing that he had quit his job
1
These figures are taken from Husband’s earnings record according to his Social Security Statement.
Regarding the $5,568 figure displayed for 1995, Husband admitted that he had not reported all of his income when he
attempted to start a home service business that year. His next lowest annual income reported was $12,387 in 1989.
2
Husband originally testified that he made the mortgage payments himself in cash. However, he later stated
that the mortgage payments were auto-deducted from W ife’s account. Subsequently, he again said that he gave W ife
cash each week to pay toward mortgage payments. W ife testified that the mortgage payments were deducted directly
from her account.
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months before and hidden it from her. She then asked him to quitclaim his interest to her, which he
did because “he knew that he had been irresponsible.” At trial, Husband admitted that he had been
unemployed for three to four months, he did not tell Wife he had quit his job, and when she found
a COBRA notice in the mail, he had told her it was a mistake. Husband claimed that when Wife
found out he was unemployed, she asked him to sign the quitclaim deed so that the property could
be put into a trust to avoid creditors’ claims. The “Linda Jane Dalton Revocable Living Trust” was
established a year after the quitclaim was executed, on October 9, 2000, and Wife then transferred
the home into the trust.3 The trust terms addressed the possibility of the parties’ divorce, and it
provided that if the marriage was dissolved, Husband would cease to be a beneficiary. At one point,
Husband testified that the trust had existed when he quitclaimed the property, and the parties
reviewed the trust terms together at that time. He said he understood that if anything happened to
Wife, he was designated as the beneficiary so it protected both of them. However, he also testified
that he didn’t look at the quitclaim deed, and he didn’t even know it was a quitclaim deed when he
signed it. He further stated that he never intended to transfer title of the property.
When the third house was sold and the proceeds used to buy their current residence, it was
titled in Wife’s name only. She executed a quitclaim deed conveying the property to the trust on
March 27, 2002. Husband also executed the quitclaim deed conveying “all of his right, title and
interest which he may have had in and to the subject property, by virtue of marriage to [Wife].”
On or around April 1, 2003, the parties separated and Husband moved out of the home.
Husband filed a complaint for divorce on May 29, 2003, alleging irreconcilable differences. On June
11, 2004, the trial judge appointed Attorney Arnold V. Lindseth, Jr., to serve as Special Master and
to classify certain assets as either separate or marital. The property included: the parties’ current
residence; three vehicles; fourteen checking, savings, and investment accounts; stock options;
personal property; and various debts. The parties stipulated to the classification of some of these
assets.
The Special Master’s report was filed on April 28, 2005. Relevant to this appeal, he found
that the parties’ third residence had become Wife’s separate property at the point when Husband
executed the first quitclaim deed conveying the property to her. Consequently, the proceeds from
the sale of the third home, $245,131, were considered Wife’s separate property. The parties’ current
residence was bought outright on the same day that their third home was sold, apparently with those
same funds. Regarding their current home, the Special Master concluded that the asset’s value was
mixed separate and marital property. He classified the amount purchased with the proceeds from
the third house as Wife’s separate property ($245,131). The difference in that amount and the
estimated value of the home was considered marital ($253,600 value – $245,131 paid = $8,469
3
At trial, W ife was questioned about her previous testimony at a deposition when she stated that she had
created the trust “to avoid probate for [her] family members, to make it easier for them when [she] died.” At the
deposition, W ife had explained her understanding that if she died, the house would remain in the trust and would not be
transferred to Husband because he had a tax lien, and she did not want the IRS getting the house.
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marital property). The Special Master did not consider the second quitclaim deed because, in his
opinion, the residence was already Wife’s separate property.
The Special Master also classified a certain A.G. Edwards IRA Account (“#6182”) as a
mixed separate and marital asset. Wife had opened the account in 1981 with Peoples Bank, but it
was later transferred to Dean Witter Reynolds and then A.G. Edwards. After the parties married,
Wife had rolled her Graceland 401k into #6182, which was partially funded with marital property.
Therefore, the Special Master concluded that 80% of the account was separate property and 20% was
marital.
During the divorce proceedings, Wife paid a debt to the IRS in the amount of $4,292.67. The
Special Master classified it as a marital debt and recommended that Husband reimburse Wife for
one-half that amount.
Both parties filed objections to the Special Master’s report. The matter was heard on July
11, 2005, and the judge asked both parties to submit proposed orders regarding the division of
marital property. On August 18, 2005, the court entered an order approving and adopting the Special
Master’s report with certain modifications. The order confirmed the finding that the value of the
parties’ current residence was a mixed asset. The judge agreed that when Husband executed the
quitclaim deed conveying all his interest in the property, the house became Wife’s separate property.
However, the appreciation in the home’s value since the date of the last quitclaim deed, $27,100, was
classified as marital property.
Regarding the A.G. Edwards IRA Account #6182, the trial judge also agreed that it consisted
of both marital and separate property, but he disagreed with the Special Master’s percentages.4 The
court found that the account was not inextricably commingled, and upon a further review of the
evidence, it considered 89.5% of the funds to be Wife’s separate property and 10.5% to be marital
property. The court attached a summary of the evidence it used to reach those figures.
The order also confirmed the Special Master’s finding that the IRS debt Wife had paid was
a marital debt. The debt was owed on the parties’ joint tax return in 2002, and Husband was ordered
to reimburse Wife for one-half the amount she had paid.
The divorce trial was held on November 1 – 3, 2005, and the final decree of divorce was
entered on November 30, 2005. In regard to the division of marital property, the judge noted that
Husband’s contribution to the creation of marital assets had been minimal, but that his employment
income had helped pay for some of the parties’ marital and household obligations. The marital
property was divided two-thirds to Wife and one-third to Husband. Husband filed his notice of
appeal to this Court on December 30, 2005.
4
The account at issue, previously designated #6182, was also referred to as #3768. It appears that the account
is now designated #3768, but we will continue to refer to it as #6182.
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II. ISSUES PRESENTED
Appellant has timely filed his notice of appeal and presents the following issues for review5:
1. Whether the trial court erred in its classification of the parties’ marital and separate property
when the court approved the Special Master’s finding that the marital residence was a mixed
separate and marital asset in contravention of Tennessee law;
2. Whether the trial court erred in classifying the parties’ marital and separate property when
the court approved the Special Master’s finding that the A.G. Edwards IRA account #6182
was not inextricably commingled, or the court failed to conclude, alternatively, that at least
all of the appreciation in the IRA was marital property.
3. Whether the trial court erred in its division of the marital property in failing to appropriately
consider the statutory factors in T.C.A. § 36-4-121(c), resulting in an inequitable division.
Additionally, Appellee presents the following issue for review:
4. Whether the trial court erred in concluding that the appreciation in the value of the parties’
residence was marital property; and
5. Whether the trial court erred in its division of marital property and marital debt, by not
finding that Wife is entitled to full ownership of all the assets and reimbursement for the full
amount of Husband’s IRS debt.
For the following reasons, we affirm the decision of the chancery court.
III. STANDARD OF REVIEW
The trial court’s order referring certain matters to the Special Master, the Special Master’s
report, and the trial court’s order on the report affect our standard of review on appeal. See Manis
v. Manis, 49 S.W.3d 295, 301 (Tenn. Ct. App. 2001); Archer v. Archer, 907 S.W.2d 412, 415
(Tenn. Ct. App. 1995). Generally, concurrent findings of fact by a special master and a trial court
are conclusive and cannot be overturned on appeal. Manis, 49 S.W.3d at 301. However, a
concurrent finding is not conclusive where it is upon an issue not properly referred to a special
master, where it is based upon an error of law or a mixed question of fact and law, or where it is not
supported by any material evidence. Id.
On appeal, we review findings of the trial court which reject or modify a special master’s
findings under the general standard of Tenn. R. App. P. 13(d). Parks v. Eslinger, No.
M1999-02027-COA-R3-CV, slip op. at 8 (Tenn. Ct. App. M.S. Feb. 4, 2003). Our review is de
5
In addition, Appellant's Statement of the Issues questions "whether the trial court erred in granting W ife's oral
request for a stay of execution pending this appeal." However, his brief presents no argument and cites to no authority
relative to this issue. He admits in his reply brief that the issue is not now properly before this Court.
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novo upon the record, with the trial court’s findings of fact accompanied by a presumption of
correctness unless the evidence preponderates otherwise. Id.
IV. DISCUSSION
A. The House
On appeal, Appellant first asserts that the chancery court erred when it approved the Special
Master’s finding that the value of the parties’ residence was a mixed separate and marital asset. He
maintains that by executing the quitclaim deeds, he did not intend to make a gift of his interest in the
property.6 At trial, Husband admitted that Wife found out after closing that he had quit his job, and
he had hidden his unemployment from her for several months. However, he denies that he intended
to make a gift of the property when she found out. According to Husband, when Wife learned that
he was no longer working, she told him she needed to set up a trust to protect herself from creditors.
He testified that she brought papers home a few weeks later and explained that he needed to sign
them to protect them from creditors. He claimed that he found out “later on” it was a quitclaim deed
when she brought home the trust papers and wanted to review them together. Husband said that he
did not even want to see the papers, but Wife highlighted the chapters anyway. Husband later stated
that when he had executed the quitclaim deed, the trust was already in existence and he discussed
its terms with Wife at that time. The quitclaim deed was dated October 12, 1999, and the trust
agreement was dated October 9, 2000.
Regarding the second quitclaim deed, Husband testified that the day after Wife closed on
their current house, she asked him to stop by an attorney’s office to sign a paper. Again, he claimed
that he “didn’t even look at it . . . [s]ince it was the next day after closing . . . .” The record reveals
that the deed to the house was executed on February 14, 2002, and the second quitclaim was dated
March 27, 2002.
Wife’s version of the story is slightly different. She claimed that before they began building
their third house, they had a talk about him “being responsible for staying employed” because the
house would be expensive. According to Wife, when she found out he had been unemployed since
before they closed on the house, she simply asked him to sign the quitclaim deed conveying title to
her, and he did it because he knew that he had been irresponsible.
“Property classification is a question of fact.” Bilyeu v. Bilyeu, 196 S.W.3d 131, 135 (Tenn.
Ct. App. 2005) (citing Mitts v. Mitts, 39 S.W.3d 142, 144-45 (Tenn. Ct. App. 2000)). Therefore, we
6
W ife argues that the houses were her separate property because each was acquired in exchange for the
previous house, and the first house was her separate property. Husband contends that the houses had become marital
property for various reasons. However, if we find that the quitclaim deeds conveyed away any interest Husband may
have had in the property, we need not consider whether the houses had, in fact, become marital property or whether they
remained the separate property of W ife.
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must affirm if there is any material evidence to support the trial court’s concurrence with the Special
Master’s classification. Archer, 907 S.W.2d at 415.
We agree with Husband’s contention that the classification of property does not depend on
the state of its record title, but on the conduct of the parties. See Altman v. Altman, 181 S.W.3d
676, 680-81 (Tenn. Ct. App. 2005). However, “gifts by one spouse to another of property that would
otherwise be classified as marital property7 are the separate property of the recipient spouse.”
Batson v. Batson, 769 S.W.2d 849, 856 (Tenn. Ct. App. 1988). A conveyance of property between
spouses creates a rebuttable presumption of a gift to the recipient spouse8, although it is not
conclusive on the issue. Dotson v. Dotson, No. E1999-00135-COA-R3-CV, 2000 WL 688576, at
*2 (Tenn. Ct. App. E.S. May 30, 2000). To be valid, a gift requires “(1) an intention to make the
gift on the part of the donor, (2) delivery of the gift, and (3) its acceptance by the donee.” Fugate
v. Fugate, No. E2004-00546-COA-R3-CV, slip op. at 4 (Tenn. Ct. App. E.S. Sept. 20, 2004).
The first quitclaim deed contained the following language:
KNOW ALL PERSONS BY THESE PRESENTS that . . . HARVEY
E. DALTON . . . does hereby bargain, sell, remise, release, quit claim,
and convey unto LINDA J. DALTON . . . all of their right, title, and
interest in and to the following described real estate . . . .
7
W e express no opinion as to whether the houses had become marital property when Husband executed the
quitclaim deeds.
8
In his brief, Husband insists that the trial court erred in failing to recognize the nature of W ife’s revocable
trust. He argues that, as settlor and trustee, W ife had complete and unfettered control of the assets and the mere fact that
an asset was held in the name of W ife’s revocable living trust should have no bearing on the classification of the asset
as separate or marital. Although we agree that the state of the record title is not controlling, we still must consider the
fact that Husband conveyed all his interest in the properties to W ife, and then to W ife’s trust, in determining whether
the houses thereby became her separate property. If we find that Husband made a gift to W ife’s trust, we will treat it as
a gift to W ife. Even though Husband was designated as a beneficiary, his interest was merely potential, rather than
vested, so long as the trust remained revocable. See Head v. Wachovia Bank of Georgia, N.A., 88 S.W .3d 180, 192
(Tenn. Ct. App. 2002). His interest under the trust could “evaporate in a moment at the whim of” W ife, see id., and in
fact, the trust terms provided that if their marriage was dissolved, Husband would cease to be a beneficiary.
The trust terms also contained a paragraph entitled “Transfers of Community Property to the Trustee,” which
provided that any community property transferred to the trust would retain its character as community property. Husband
argued that the term “community property” covered property that both parties had an interest in, such as marital property.
This assertion was contradicted by an affidavit of the attorney who drafted the trust agreement, who stated that
“‘community property’ as used in Section 4.2 is intended to cover community property acquired in community property
states and is not intended to mean ‘marital property’ as that term is used in common law states such as Tennessee.”
Husband briefly mentions the term on appeal and again insists that the trust document was misinterpreted. At trial,
Husband presented no evidence that the term was intended to cover marital property other than his attorney’s opinion
as to what the term could mean. Also, he cites no authority in his brief to support his position. W e agree with the trial
court’s implicit finding that the trust’s provision for “community property” retaining its character did not apply to
“marital property” under Tennessee law.
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The second quitclaim deed, which conveyed their current residence from Wife to the trust, was also
signed by Husband. It provides:
Harvey Dalton, husband of Linda Jane Dalton, joins in the execution
of this document for the purpose of conveying all of his right, title
and interest which he may have in and to the subject property, by
virtue of marriage to Linda Jane Dalton.
At the hearing on the Special Master’s report, the Special Master explained that he considered the
quitclaim deeds to have been gifts of Husband’s property interests to Wife. He based his decision
on the language of the quitclaim deed and expressed his belief that once a deed is recorded, one need
not look beyond the conveyance itself to the parties’ subjective intentions. The trial judge also noted
the “clear and unambiguous” language of the deeds and commented that “the documents speak for
themselves.” Husband’s attorney repeatedly emphasized that the court must find an intention on
Husband’s part to make a gift, and several cases were cited in support of her position. The trial
judge assured her that he would review the cases she had mentioned before making his final
decision.
The Eastern Section of this Court faced a similar situation in Denton v. Denton, 33 S.W.3d
229, 231-32 (Tenn. Ct. App. 2000), where a trial court found that it had no choice but to give effect
to an unambiguous quitclaim deed between spouses. The Court noted that it was unnecessary to
decide exactly what motivated the trial court to find a gift because the facts did not preponderate
against a finding of a gift. Id. at 232. “We must affirm the trial court if it reached the correct result
even if we disagree with the reasoning employed by the court to arrive at that result.” Id. (citing
Tenn. R. App. P. 36(a); Kelly v. Kelly, 679 S.W.2d 458, 460 (Tenn. Ct. App. 1984)).
In Denton, the wife had decided to take a medical leave of absence from her job, and then
her husband informed her that he had “quit his job last week” to start building houses. 33 S.W.3d
at 232. He executed a quitclaim deed conveying their house to Wife so that she “would never have
to worry about not having a home, no matter what decisions he made . . . .” Id. Also, he had a small
business at the time and was attempting to avoid its high risk of personal liability. Id. At their
divorce trial, the husband insisted that he did not intend to make a gift of the property to his wife.
Id. at 231. He admitted that he knew a deed transferred title to property, but he maintained that he
executed it to give his wife security rather than to make a gift. Id. at 233. After considering the
parties’ testimony along with the language of the quitclaim deed and the entire record, the Court
concluded that the evidence did not preponderate against a finding that the husband made a gift of
his interest in the property to the wife. Id. The Court explained:
If he wanted his wife to feel secure, and if he executed the deed to
achieve this result, it logically follows that the way he was going to
make her feel secure was to put the property in her name, so that,
regardless of what happened in his new business venture, she would
own the property outright. Thus, while, as a general proposition, we
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agree with the husband that a quit claim deed is not conclusive
evidence of a gift in every case, we cannot say that the trial court
erred in its finding of a gift in view of the totality of the facts of this
case.
Id. The Court affirmed the trial court’s finding that the entire value of the property as of the date of
the transfer was Wife’s separate property. Id.
In the present case, there is material evidence in the record to support a finding that Husband
intended to convey his interest in the house to Wife as a gift. Husband admitted that he had quit
working and had hidden that fact from Wife until after closing on the house. When she found out,
Husband explained that Wife became concerned about creditors and discussed setting up a trust.
Wife testified that when she learned he had quit his job despite their conversation about him staying
employed, she simply requested that he execute a quitclaim deed, and he did. Husband’s explanation
for signing the quitclaim deeds was that he just did not read them. His testimony about the dates and
circumstances surrounding the quitclaim deeds does not comport to the evidence in the record before
us. For example, at one point, he claimed that the trust was in existence before he executed even the
first quitclaim deed. He said he understood that after he signed the quitclaim, he was protected
because he had been designated as the beneficiary of Wife’s trust. From this testimony, it is apparent
that Husband knew the property would no longer be titled in his name. Still, the record reveals that
the first quitclaim deed was executed on October 12, 1999, and the trust was not created until
October 9, 2000. Also, Husband explained that he didn’t read the second quitclaim deed because
he signed it on the day after Wife closed on the house. The record reveals that the deed to the house
was executed on February 14, 2002, and the second quitclaim was dated March 27, 2002. Whether
Husband simply signed the quitclaim at Wife’s request, or if he signed the deed so that the property
could be put into Wife’s trust to avoid creditors’ claims, we cannot say that the trial court erred in
finding that the conveyance was a gift. When the parties’ testimony is considered along with the
clear and unequivocal language of the quitclaim deeds, we find sufficient evidence to support the
findings of the Special Master and the trial court.
In his brief, Husband cites several cases in which property was classified as marital even
though one spouse had quitclaimed the property to the other during the marriage. In Altman and
Fugate, quitclaim deeds were executed along with marital dissolution agreements during the course
of divorces. Altman v. Altman, 181 S.W.3d 676, 680-81 (Tenn. Ct. App. 2005); Fugate v. Fugate,
No. E2004-00546-COA-R3-CV, slip op. at 4 (Tenn. Ct. App. E.S. Sept. 20, 2004). In both cases,
one spouse had taken advantage of the other’s vulnerable state, and the trial court refused to enforce
the quitclaim deeds and marital dissolution agreements. Altman, 181 S.W.3d at 681; Fugate, slip
op. at 4. Although both decisions were affirmed, we find the facts of the present case to be clearly
distinguishable.
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In other cases Husband mentions, one spouse had conveyed property to the other to avoid
claims of potential creditors, but the property was still classified as marital property.9 See Turner
v. Turner, No. M1999-00482-COA-R3-CV, slip op. at 8 (Tenn. Ct. App. E.S. Sept. 28, 2000)
(executed a deed to shield residence from threat of a lawsuit); Dotson v. Dotson, No. E1999-00135-
COA-R3-CV, 2000 WL 688576, at *2 (Tenn. Ct. App. E.S. May 30, 2000) (deed executed to protect
the property from potential creditors should a business fail); Hand v. Hand, No.
01A01-9607-CH-00325, slip op. at 3 (Tenn. Ct. App. W.S. Apr. 18, 1997) (husband executed
quitclaim to wife between surgeries to avoid estate disputes if he died); Abney v. Abney, C.A. No.
181, 1991 WL 16255, at *3 (Tenn. Ct. App. E.S. Feb. 12, 1991) (deed for liability purposes after
the husband obtained his pilot’s license). However, in each case, the trial court had refused to
recognize the quitclaim deed finding that the party did not intend to make a gift, and on appeal, its
credibility determination was entitled to great weight. See, e.g., Dotson, at *3. On an issue which
hinges on witness credibility, we will not reverse the trial court unless, other than the oral testimony
of the witnesses, there is clear, concrete and convincing evidence to the contrary in the record. Id.
(citing Tenn. Valley Kaolin Corp. v. Perry, 526 S.W.2d 488, 490 (Tenn. Ct. App. 1974)). In the case
at bar, the trial court approved the Special Master’s finding that Husband made a gift of the property
by executing the quitclaim deed. This finding is also given great weight on appeal, and we find
material evidence in the record to support such a finding. Therefore, we affirm the trial court’s
classification of the house as Wife’s separate property from the time when Husband executed the
most recent quitclaim deed.
Next, we must consider the appreciation in the home’s value since the date of the last
quitclaim deed. The Special Master had classified the difference in the purchase price paid with
Wife’s separate funds and the home’s appraised value as marital property . (Vol.2, p.289). The trial
judge agreed that a portion of the home’s value should be classified as marital property, but he
modified the Special Master’s finding. The trial court concluded that when Husband executed the
second quitclaim deed on March 27, 2002, while living in the house, he conveyed away any interest
9
In two of these decisions, a dissenting judge criticized this line of cases as recognizing a “sort of” transfer
between spouses. Dotson, at *5 (Swiney, J., concurring and dissenting); Turner, slip op. at 2 (Swiney, J., dissenting).
The dissent explained:
Husband’s argument to the Trial Court, and to this Court, is that he should be
permitted to “transfer” the Sugartree residence to W ife to protect it from a possible
creditor, but in the event of a divorce treat this transfer as never having happened.
It was Husband’s intention that this transfer would protect the property from a
possible creditor of Husband. This was the purpose of the deed. This transfer was
communicated to the world in general, including Husband’s possible creditor.
Husband should not now be allowed to argue that the transfer to W ife was a sham
and thereby given no effect. . . . I would hold that if either spouse purports to
transfer property as a gift to the other spouse for the stated purpose of shielding the
asset from current or potential creditors of the spouse, the transfer will be given full
effect in any subsequent divorce between wife and husband. In short, I would hold
that the courts of this State will not be used to facilitate a sham by treating such a
transfer as a “sort of” transfer by holding it may be a transfer when a creditor of the
spouse threatens but is not a transfer if a divorce threatens.
Turner, slip op. at 1-2 (Swiney, J., dissenting).
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he may have had in the house. (Vol.3, p.368). However, the appreciation in the home’s value since
the date of the last quitclaim deed, $27,100,10 would be classified as marital property. (Vol.3, p.449).
“Marital property” includes any increase in the value of separate property during the marriage
if each party substantially contributed to its preservation and appreciation. Tenn. Code Ann. §
36-4-121(b)(1)(B) (2005). On appeal, Wife contends that the home’s appreciation was due to
inflation, and not to any contributions made by Husband. She points to the testimony of Husband’s
expert witness, who admitted that his appraisal was based on the natural appreciation of the property
even if no improvements had been made. (Vol.6, p.121). The expert also stated that he had not
physically been inside the property, and he had performed a “drive-by” appraisal. (Vol.6, p.107).
Husband lived at the residence for approximately 14 months after he executed the last
quitclaim deed. At trial, the parties disputed the extent of the improvements Husband made to the
house. Wife agreed that both of them had worked together to install shelving in the laundry room
and closets. She agreed that Husband had installed a custom marble backsplash in the kitchen, but
she explained that it was a Christmas gift from Husband. She acknowledged that he had lowered
their kitchen breakfast bar countertop but insisted that she did not want it done. Wife also admitted
that Husband had laborers install a roof over their patio, but she claimed that he paid them only in
pizza and beer. Husband stated that he built a fence around their yard, and Wife claimed that she
paid for the materials. She also explained that they both did some landscaping work and leveled
their yard with a load of sand and rocks. Wife contends that Husband’s actions do not constitute a
substantial contribution to the home’s appreciation and preservation.
Again, we find the parties’ situation to be comparable to the one in Denton. 33 S.W.3d at
234. In that case, the wife had downplayed the husband’s efforts in improving their property, but
she admitted that he did fix some things. Id. The trial court attributed two-thirds of the appreciation
of the parties’ land to inflation, and the remainder to the efforts of the parties. Id. at 235. On appeal,
the Court reversed the trial court’s split classification of the appreciation. It noted that “[s]ubstantial
contributions are ones which are real and significant.” Id. at 236 (citing Mahaffey v. Mahaffey, 775
S.W.2d 618, 623 (Tenn. Ct. App. 1989)). However, “[t]hey need not be monetarily commensurate
with the appreciation in the property’s value during the marriage.” Id. The Court concluded that
the husband’s efforts had helped the property to maintain its value and increase in value over time.
Id. at 235. Once that finding was made, it did not matter that inflationary factors also impacted the
value of the property. Id. at 236-37. The entire increase in value since the date of the husband’s
quitclaim deed was considered marital property. Id. at 237.
10
The parties stipulated that the home’s value at the time of purchase equaled the purchase price, $262,900.
They also stipulated that the home was valued at $290,000 at the time of trial. Husband’s expert, a licensed real estate
appraiser, had testified that the appraised value of the property was $290,000.
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In the present case, both the Special Master and the trial court classified a portion of the
home’s current value as marital property, apparently concluding that Husband had substantially
contributed to the home’s appreciation and preservation. “Whether a spouse made substantial
contributions to the preservation and appreciation of separate property is a question of fact.” Mitts
v. Mitts, 39 S.W.3d 142, 145 (Tenn. Ct. App. 2000) (citing Sherrill v. Sherrill, 831 S.W.2d 293, 295
(Tenn. Ct. App. 1992)). We find that the evidence does not preponderate against the trial court’s
finding that Husband’s efforts substantially contributed to the home’s appreciation and preservation,
and we affirm the classification of the home’s appreciation as marital property.
B. The IRA – #6182
Husband also asserts that the Special Master and the trial court erred by finding that Wife’s
IRA #6182 was not inextricably commingled. The Special Master classified the IRA as 80%
separate property and 20% marital property. The trial court confirmed the Special Master’s finding
that the funds were not inextricably commingled, but upon “a further review of the evidence,” the
court concluded that 89.5% of the account was Wife’s separate property, and 10.5% was marital
property.11 The trial court concluded that Wife made only two contributions to the IRA during the
marriage that included marital funds.
In 1981, Wife had opened the IRA with Peoples Bank & Trust with a $550 deposit. In 1985,
the IRA was transferred to Dean Witter Reynolds. The parties married on September 30, 1989. In
1992, the IRA was transferred to A.G. Edwards Account #6182, and its balance at that time was
approximately $40,000.
In 1993, Wife left her job at Graceland and rolled her 401k balance of $15,243.21 into #6182.
A portion of her 401k had been earned during the marriage. Wife produced a “certificate of
participation” from Graceland dated October 31, 1989, a month after their marriage, showing the
balance at that time to have been $4,081.20. The trial court classified $11,162 of the rollover as
marital funds. ($15,243 rollover – $4,081 separate = $11,162 marital).
In February 2002, Wife attempted to deposit money into a different Roth IRA, including
$2500 of her marital earnings. When she learned that she could not contribute that amount because
of tax purposes, she transferred that deposit into #6182. The trial court considered $2500 of this
11
On appeal, Husband contends that this case is indistinguishable from Eldridge v. Eldridge, 137 S.W .3d 1
(Tenn. Ct. App. 2002). In that case, a trial court made no factual findings to support its rulings regarding the
classification of accounts. Id. at 17. On appeal, this Court was unable to find any evidence in the record supporting the
trial court’s findings. Id. Accordingly, we determined the preponderance of the evidence from the record without a
presumption of correctness afforded to the trial court's ruling. Id. In this case, the trial court modified the Special
Master’s conclusions upon its “further review of the evidence.” Also, the trial judge attached a “summary of the
evidence” to its order, specifically listing his classification of each deposit into #6182. Furthermore, we find substantial
evidence in the record regarding the history of account #6182 which supports the trial court’s findings. Therefore, we
find this case to be distinguishable from Eldridge and we review the trial court’s findings accompanied by a presumption
of correctness. Tenn. R. App. P. 13(d).
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deposit to have been marital property. All other deposits were classified as Wife’s separate
property.12
Wife’s separate property would be considered marital property if it was inextricably mingled
with marital property. Langschmidt v. Langschmidt, 81 S.W.3d 741, 747 (Tenn. 2002). However,
commingling does not occur if the separate property continues to be segregated or can be traced into
its product. Id. In a retirement account, “if separate funds and the gains associated with them can
be segregated from contributions made with marital funds and gains, that property is not inextricably
commingled and does not become marital property.” Miller v. Miller, No.
W2003-00851-COA-R3-CV, slip op. at 5 (Tenn. Ct. App. W.S. June 14, 2004). In this case, Wife
was able to segregate her separate property and its associated gains from the parties’ marital property
and its corresponding gains. She clearly matched the two marital deposits to certain stock purchases.
Also, she accounted for the investments’ activity and distinguished the earnings of the marital
property. Therefore, we affirm the trial court’s finding that #6182 was not inextricably commingled.
Cf. Eldridge v. Eldridge, 137 S.W.3d 1, 17-18 (Tenn. Ct. App. 2002) (where spouse could not
clearly match marital deposits with destinations, and he failed to account for growth attributable to
marital property, account was inextricably commingled).
Alternatively, Husband argues that at least the appreciation in the IRA’s value should be
classified as marital because he substantially contributed to its preservation and appreciation during
the marriage. He contends that he made direct contributions to the IRA because some deposits
contained marital property. Also, he claims that he contributed indirectly to the IRA by earning
income used to meet household expenses so that Wife could preserve the account.
In Harrison v. Harrison, 912 S.W.2d 124, 127 (Tenn. 1995), our Supreme Court emphasized
that any increase in value of separate property during marriage does not automatically become
marital property. The increase in value is marital property only when the other spouse has
substantially contributed to its preservation and appreciation. Id. The Court later clarified that a
contribution to the marriage is not the same as a contribution to the preservation and appreciation
12
Husband disputes the trial court’s classification of a certain class of deposits as W ife’s separate property.
From 1993 to 1995, and in 1997, W ife contributed $2,000 per year from her A.G. Edwards Account #6174 into the IRA
at issue, #6182. It appears that #6174 had contained investments W ife owned prior to the marriage. The deposits to
#6182 totaled $8,000. The remaining balance of #6174 was transferred into another account, which the Special Master
and the trial court classified as entirely W ife’s separate property. They also classified the $8,000 in deposits from #6174
as W ife’s separate property. However, a $10.59 dividend was later paid into #6174. The Special Master found no proof
of the source of the dividend and found that the $10.59 was marital property. Husband now contends that because the
$10.59 in #6174 was marital property, the entire account was classified as marital property, including the previous $8,000
contributed to the IRA at issue. W e find Husband’s argument to be without merit. In the Special Master’s report, when
classifying the other accounts he would specifically state “this account is W ife’s separate property” or “this account is
marital property.” However, regarding #6174, he found that “this $10.59 is marital property.” W e do not consider his
classification of the $10.59 to have been a classification of every dollar that was ever present in #6174. For example,
in the preceding paragraph, he mentioned that some funds were transferred from #6174 to another account, and he still
classified the destination account as entirely W ife’s separate property. W e find material evidence supporting the finding
of the Special Master and the trial court that the $8,000 in deposits from #6174 were W ife’s separate property.
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of an asset. Langschmidt v. Langschmidt, 81 S.W.3d 741, 746 (Tenn. 2002). Although a spouse’s
contribution to the marriage is considered when making a determination of marital property, there
must be some link between a spouse’s marital efforts and the appreciation of separate property before
the separate property’s appreciation is considered marital property. Id. In this case, we find no such
link between Husband’s contributions to the marriage and Wife’s IRA account #6182. Although two
traceable deposits of marital property contributed to the IRA, both of them came from Wife’s
earnings. From our review of the record, it does not appear that Husband made any financial
contributions to any of the investment accounts. His general contributions to the marriage are not
a sufficient basis for finding that the appreciation of Wife’s separate property thereby became
marital.
Finally, Husband points out that the Special Master did not produce his “notes” at the hearing
on the Special Master’s report to show how he reached the various figures in his calculations.
According to Husband, the trial court erred when it affirmed the Special Master’s findings without
reviewing the notes supporting his calculations. In support of his argument, Husband cites Tenn.
R. Civ. P. 53.04, which provides that:
The master shall prepare a report upon the matters submitted by the
order of reference and, if required to make findings of fact and
conclusions of law, the master shall set them forth in the report. The
master shall file the report with the clerk of the court and, unless
otherwise directed by the order of reference, shall file with it a
transcript of the proceedings and of the evidence and the original
exhibits.
Unless the court’s order of reference provides otherwise, it is error for the master to fail to file a
transcript of the proceedings before him and of the evidence and exhibits he considered. Parks v.
Eslinger, No. M1999-02027-COA-R3-CV, slip op. at 6 (Tenn. Ct. App. M.S. Feb. 4, 2003) (citing
In re Estate of Tipps, 907 S.W.2d 400, 403 (Tenn.1995)). However, the failure to produce this
information is not always reversible error. Id. “The purpose of the requirement that the special
master file a record of proceedings is so that the trial court can review any evidence taken before the
master and make independent findings.” Id.
In the present case, the Special Master produced the exhibits that he had used in reaching his
calculations. It appears that there were no proceedings held before the Special Master, and we find
no reference to any evidence or facts that he considered which were not included in the trial court’s
record. It seems that the only documents he did not produce were his spreadsheets or “notes” setting
out his calculations step-by-step. The trial court even instructed the attorneys to submit a consent
letter to the Special Master requesting his spreadsheets and explained that if they still had questions
after that then the Special Master could be called as a witness to clarify his conclusions. In his brief,
Husband notes that “no such spreadsheet or worksheet was ever produced.” However, he does not
mention whether he ever sent the consent letter to the Special Master requesting the spreadsheets.
In sum, we find that the Special Master’s failure to produce his “notes” is not reversible error. The
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trial court had sufficient evidence before it to make independent findings, as demonstrated by the
court’s decision to modify the Special Master’s conclusions upon its “further review of the
evidence.” The trial court’s findings with regard to the IRA #6182 are affirmed.
C. The IRS Debt
On appeal, Wife asserts that the trial court erred in only requiring Husband to reimburse her
for half the amount of the IRS debt. Husband points out that the debt was not even in existence at
the time of the final hearing, but he agrees that the court was within its discretion in requiring each
party to pay half the debt. The debt was owed from the parties’ joint federal income tax return from
2002. The parties separated in 2003. Wife apparently received a notice from the IRS about the debt
in 2004. She claimed that the debt was due to Husband’s failure to report all of his income on their
2002 return. Wife paid the total bill to avoid any further accrual of interest and penalties. The trial
court approved the Special Master’s finding that the debt was considered marital debt, and ordered
Husband to reimburse Wife for half the amount of the debt.
“Marital debts” are all debts incurred by either or both spouses during the course of the
marriage up to the date of the final divorce hearing. Alford v. Alford, 120 S.W.3d 810, 813 (Tenn.
2003). Unless a court has made provisions for the distribution of a couple’s marital property in a
decree of legal separation, a period of separation before divorce has no effect on the classification
of debt as marital or separate. Id. at 813-814. Separated parties are still married, and although they
live apart, the debts they incur during that time remain marital just as the property they acquire
during that time is marital. Id. at 814. As such, the 2002 IRS debt incurred on the parties’ joint tax
return would have been considered marital debt. Tennessee courts should consider four factors when
equitably distributing marital debt: (i) the debt’s purpose; (ii) which party incurred the debt; (iii)
which party benefitted from incurring the debt; and (iv) which party is best able to repay the debt.
Id. In accordance with these factors, we cannot say that the trial court erred in assigning half the
debt to each party.
D. The Overall Division of Property
Husband contends that the court’s division of marital property was inequitable because he
received only one-third of the marital property. Wife also claims that the trial court erred because
she insists that Husband was entitled to none of the marital property. In their briefs, each party
addresses the various factors set forth in Tenn. Code Ann. § 36-4-121(c) (2005), and explains how
the factors weigh in his or her favor.
This Court’s review of a trial court’s marital property division is de novo upon the record,
affording a presumption of correctness to the trial court’s findings of fact. Tenn. R. App. P. 13(d);
Dellinger v. Dellinger, 958 S.W.2d 778, 780 (Tenn. Ct. App. 1997) (citing Hass v. Knighton, 676
S.W.2d 554, 555 (Tenn. 1984); Dalton v. Dalton, 858 S.W.2d 324, 327 (Tenn. Ct. App. 1993)).
Trial courts are given wide discretion by appellate courts in the manner in which marital property
is divided, and, therefore, its division of marital property is given great weight on appeal. Id., (citing
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Wade v. Wade, 897 S.W.2d 702, 715 (Tenn. Ct. App. 1994); Wallace v. Wallace, 733 S.W.2d 102,
106 (Tenn. Ct. App. 1987)). Dividing a marital estate is not a mechanical process; the goal is to
fashion an equitable remedy by considering the factors set forth in Tenn. Code Ann. § 36-4-121(c).
Kinard v. Kinard, 986 S.W.2d 220, 230 (Tenn. Ct. App. 1998). A division of marital property is
not rendered inequitable merely because it is not precisely equal. Id., (citing Cohen v. Cohen, 937
S.W.2d 823, 832 (Tenn. 1996); Ellis v. Ellis, 748 S.W.2d 424, 427 (Tenn. 1988)). Neither does a
property division become inequitable simply because each party does not receive a share or portion
of each marital asset. Id., (citing Brown v. Brown, 913 S.W.2d 163, 168 (Tenn. Ct. App. 1994)).
The relevant statute provides that the trial court shall consider all relevant factors in equitably
dividing the marital property, including:
(1) The duration of the marriage;
(2) The age, physical and mental health, vocational skills,
employability, earning capacity, estate, financial liabilities and
financial needs of each of the parties;
(3) The tangible or intangible contribution by one (1) party to the
education, training or increased earning power of the other party;
(4) The relative ability of each party for future acquisitions of capital
assets and income;
(5) The contribution of each party to the acquisition, preservation,
appreciation, depreciation or dissipation of the marital or separate
property, including the contribution of a party to the marriage as
homemaker, wage earner or parent, with the contribution of a party
as homemaker or wage earner to be given the same weight if each
party has fulfilled its role;
(6) The value of the separate property of each party;
(7) The estate of each party at the time of the marriage;
(8) The economic circumstances of each party at the time the division
of property is to become effective;
(9) The tax consequences to each party, costs associated with the
reasonably foreseeable sale of the asset, and other reasonably
foreseeable expenses associated with the asset;
(10) The amount of social security benefits available to each spouse;
and
(11) Such other factors as are necessary to consider the equities
between the parties.
Tenn. Code Ann. § 36-4-121(c) (2005). An equitable property division is not achieved by a
mechanical application of the statutory factors, but rather by considering and weighing the most
relevant factors in light of the unique facts of the case. Tate v. Tate, 138 S.W.3d 872, 875 (Tenn.
Ct. App. 2003) (citing Batson v. Batson, 769 S.W.2d 849, 859 (Tenn. Ct. App. 1988)).
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In discussing his final order, the trial judge said he had reached his findings “[a]fter hearing
all the proof and evidence presented” by the parties. He noted his consideration of the fact that
Husband’s contribution to the creation of the assets had been minimal. However, he went on to
recognize that Husband’s employment income over the 13 years the parties were married had helped
pay household obligations, and he said that Husband should receive some credit for the increase in
value of Wife’s separate property. He stated that Wife’s income had been at least two times that of
Husband’s during the marriage and concluded that the division of the assets should be two-thirds to
Wife and one-third to Husband. We do not consider the court’s division of property inequitable.
The court had a voluminous record of exhibits and testimony before it on which to base its decision.
Even though the trial court did not specifically address each statutory factor in its final order, we
believe the court considered the factors and weighed the most relevant ones in making its decision.
Depending on the unique facts of a case, some factors may be significant and others’ importance
may be diminished. See Cronin-Wright v. Wright, 121 S.W.3d 673, 675 (Tenn. Ct. App. 2003).
In this case, we do not find error in the trial court’s emphasis of certain factors, such as “the
contribution of each party to the acquisition, preservation, appreciation, depreciation or dissipation
of the marital or separate property” and “the estate of each party at the time of the marriage.” Tenn.
Code Ann. § 36-4-121(c)(5),(7) (2005). These factors were proper for consideration and were
particularly relevant in light of the facts of this case. Therefore, we affirm the trial court’s
distribution of marital property.
V. CONCLUSION
For the aforementioned reasons, we affirm the decision of the chancery court. Costs of this
appeal are taxed to Appellant, Harvey Dalton, and his surety, for which execution may issue if
necessary.
___________________________________
ALAN E. HIGHERS, JUDGE
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