Donna Woods Hartman v. Patrick Erwin Hartman ( 2004 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
July 6, 2004 Session
DONNA WOODS HARTMAN v. PATRICK ERWIN HARTMAN
Appeal from the Chancery Court for Maury County
No. 99-441 Jim T. Hamilton, Judge
No. M2003-00805-COA-R3-CV - Filed December 30, 2004
This appeal arises out of the parties’ divorce following their second marriage to each other.
The trial court inter alia awarded the wife $75,000 for her contributions, in the form of personal
services to the husband’s medical practice, and awarded her one-half of the equity in the home where
the parties resided during the second marriage. Husband appeals the first award, arguing that the
medical practice was his separate property and that the wife failed to prove any increase in the value
of the practice during the marriage. He appeals the second award, arguing that the trial court erred
by not considering two marital debts when it awarded half of the equity in the home to the wife. We
vacate the $75,000 award pertaining to the value of the husband’s medical practice because there is
no evidence of the value of the practice at the beginning or end of the second marriage. We remand
for further proceedings the award of the equity in the home because the trial court failed to consider
two marital debts, the husband’s loan to wife of $18,500 – which she used to buy her current
residence – and the couple’s debt of $10,599.12, for which they were jointly liable. On remand, the
trial court should consider inter alia: 1) the purpose of each debt, 2) which party incurred the debt,
3) which party benefitted from incurring the debt, and 4) which party is best able to repay the debt.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Vacated in Part, Reversed in Part, and Remanded
FRANK G. CLEMENT , JR., J., delivered the opinion of the court, in which PATRICIA J. COTTRELL, J.,
joined. WILLIAM B. CAIN , J., filed a separate concurring opinion.
Keith R. Peterson, Pulaski, Tennessee, for the appellant, Patrick Erwin Hartman.
John Philip Parsons, Cookeville, Tennessee, for the appellee, Donna Wood Hartman.
OPINION
The parties were married to each other twice. Their first marriage ended in divorce in 1988.
The parties’ assets from the first marriage were divided pursuant to the first divorce decree and
successfully re-titled in their separate names. One such asset was Husband’s medical practice which
was awarded to him as his separate property. Following the 1988 divorce, Husband purchased a
house with assets he was awarded in the first divorce. Thereafter, the parties rekindled their romance
and began living together in Husband’s new house. Following a period of cohabitation, the parties
again exchanged vows of marriage in 1992. They continued to reside in the house Husband had
purchased before the second marriage.1
In 1993, Wife began working without pay in Husband’s medical practice. It is estimated that
she worked between 30 and 60 hours a week for four years. This continued until Husband closed
his medical practice in 1997. The practice was closed due to a substantial decline in revenue which
was the result of Husband losing his hospital privileges and a substantial decline in patients.
Wife commenced this divorce action in July of 1999. The parties were granted a divorce
pursuant to an agreed order entered on August 1, 2000; however, all issues pertaining to marital
assets and property were reserved for further hearings. On May 8, 2002, the trial court entered an
order in accordance with Tenn. R. Civ. P. 31 designating Jane Jennings to conduct mediation of the
remaining issues. Mediation ensued and on June 21, 2002, a Final Report of Mediator was filed
which reported that the parties appeared and participated but the case did not settle. The report
further provided that, “There are legal issues involved to determine which property is marital
property that is subject to division. Until it is determined exactly which property is marital property,
these parties cannot reach an agreement.”
Thereafter, another order was entered on November 20, 2002, resolving more, but not all,
remaining issues. The order stated that the parties had agreed the “Starlight” business was
Husband’s separate property and that the parties had resolved disputed claims relative to the personal
property in the home. The order further stated that “the main issue” to be decided was the value of
the parties’ marital home and the distribution of the equity in the home and that “all other matters”
were reserved. However, the order did not specify which “other matters” were reserved.2
The next order appearing chronologically in the record is the February 25, 2003, order that
contains the two rulings at issue on appeal. The order states that the remaining issues were
“considered by Alternative Dispute Resolution.” There is, however, no order or written consent in
the record evidencing the parties’ consent to resolve all remaining issues by ADR.3 The Statement
of the Evidence provides a modicum of information from which we can only assume that the parties
agreed to submit the remaining issues to the trial judge via an informal and unorthodox evidentiary
procedure.
1
Title to the house never changed. It remained in Husband’s name only throughout the second marriage.
2
One of the “other matters” pertained to Husband’s IRA. The IRA was awarded to Husband pursuant to the
final order and is not at issue on appeal.
3
The only order authorizing ADR was the May 8, 2002, order in which Jane Jennings was designated as the
mediator.
-2-
The February 25, 2003, order, which is the subject of this appeal, contains the following
recitation: “An Order filed on November 20, 2002, . . . finalized all matters in dispute with the
exception of the valuation of both the real and personal marital property owned by the parties and
the marital interest into certain business relationships.” It then recites the two rulings at issue. One,
that the equity in the residence is $30,973, of which Wife was awarded one-half. Two, that
Husband’s medical practice should be considered a marital asset “as the [Wife] clearly contributed
to the ongoing success of the medical practice” and that Wife is entitled to “a distributive share of
this marital asset because of [sic] her efforts as an unpaid employee contributed to the maintenance
and success of said medical practice.” The trial court found the value of “this distributive asset” to
be $75,000 and that this sum “represents some four years labor without monetary compensation.”
The $30,973 equity in the residence was based on the trial court’s findings that Husband
purchased the home in 1990 for $97,500 and the home had a current market value of $128,473. The
market value was disputed. Husband had insisted the value was $125,000. Wife had insisted the
value was $157,000. The judge’s finding was based on the independent appraiser’s opinion. As for
the value of Wife’s contributions to the medical practice, the trial court stated that the award of
$75,000 represents “some four years labor without monetary compensation.”
Issues
Husband raises two issues on appeal. One, whether the trial court erred in awarding $75,000
to Wife for her alleged contribution to Husband’s medical practice. Two, whether the trial court
erred in awarding Wife one-half of the equity in the residence that was separately owned by Husband
and without consideration of Husband’s loan of $18,500 to Wife and the parties’ joint debt of
$10,599.12.
Alternative Dispute Resolution
The order from which this appeal arises states that the issues were “considered by Alternative
Dispute Resolution.”4 That characterization, however, is not correct because the decision-making
authority in the case before us did not rest with the parties and the procedure employed was not a
recognized form of ADR under Tenn. S. Ct. R. 31. “In dispute resolution proceedings, decision-
making authority rests with the parties.” (emphasis added) Tenn. S. Ct. R. 31, Appendix “A” § 1(b).
Proceedings authorized by Rule 31 are “Mediations,” “Judicial Settlement Conferences,” “Non-
Binding Arbitrations,” “Case Evaluations,” “Mini-Trials,” and “Summary Jury Trials.” Tenn. Sup.
Ct. R.31, §§ 2, 17, 20-24. Such proceedings are initiated by an Order of Reference. Tenn. Sup. Ct.
R.31, § 2(j).
4
W e do not know the exact procedure followed in this case for there is no order or agreement concerning such
and there is no verbatim transcript of the evidence. From the little information available in the record, it appears the
parties agreed to allow the adversary to meet privately with the trial judge and to introduce any and all evidence they
desired, following which the trial judge would make a ruling that was binding on the parties. The foregoing is not one
of the ADR procedures authorized pursuant to Tenn. S. Ct. R. 31. Moreover, it is not in compliance with the Uniform
Arbitration Act, Tenn. Code Ann. § 29-5-301, et seq.
-3-
There was a Rule 31 ADR proceeding conducted in this matter; however, it was not the one
that is the subject of this appeal. It was the mediation authorized by the May 8, 2002, Order of
Reference. The parties participated in the ordered mediation, however, as some times occurs, the
mediation did not resolve the matters in dispute. Therefore, as Rule 31 § 5 requires, the mediator
filed her final report on June 21, 2002, which concluded the Tenn. S. Ct. R. 31 ADR proceeding.
Several months following the filing of the former mediator’s final report, the parties
submitted the remaining issues to the trial judge, who was to render a final judgment following the
presentation of evidence by the parties. Though we have no way of knowing the exact procedure the
parties and the trial court employed to present evidence to the court, the procedure employed
constituted a bench trial, albeit an unorthodox bench trial.5 Since our record tells us little about the
procedure employed, we assume the “bench trial” was conducted pursuant to procedures similar to
those employed by the same trial judge in Thomas v. Thomas, No. M2001-01226-COA-R3-CV, 2002
WL 1787950 (Tenn. Ct. App. August 2, 2002), wherein the parties waived the right to be present
when the adversary party presented his or her evidence to the trial judge, to cross examine witnesses
and to even know what evidence the adversary presented.6
This court has previously criticized the so-called ADR procedure practiced in the Twenty-
Second Judicial District and we see no reason to withdraw from our criticism.7 A brief review of
the confusion and problems resulting from this unorthodox procedure will explain why it is a bad
idea. In Smith v. Smith, 989 S.W.2d 346, 348 (Tenn. Ct. App. 1998), the appellant argued that the
same trial judge erred in “re-opening the case” after issuing its decree, contending that “the
procedure the parties initially agreed upon amounted to a type of Alternative Dispute Resolution
(ADR) akin to binding arbitration, with the trial court acting as arbitrator.” Id. at 348. The appellant
relied upon the Uniform Arbitration Act, Tenn. Code Ann. § 29-5-301, et seq., under which an
arbitration award may not be modified or vacated except under circumstances that were not present
5
The procedure employed should not be confused with a Tenn. S. Ct. R. 31 §§ 2(g) & 23 Mini-Trial because
that ADR proceeding does not contemplate a binding ruling by the “neutral” or judge, as was the case here. Moreover,
a Mini-Trial is to be preceded by an Agreed Order that should be consistent with Appendix D to Tenn. S. Ct. R. 31.
6
Such a procedure is appropriately employed in mediation, and other ADR proceedings, to facilitate a resolution
of the dispute; however, in all such proceedings the neutral is merely a facilitator of discussions between the parties and,
most importantly, is not authorized to make a binding ruling to dispose of the issues in dispute. The only way such a
proceeding can bring closure is when the parties voluntarily agree to settle their dispute. That is not the case here and
we question the propriety of trial counsel agreeing to allow their adversary to present evidence to the trier of fact without
knowing what is being presented when the resulting decision by the court is binding on the parties.
7
Our previous criticism is found in Smith v. Smith, 989 S.W .2d 346 (Tenn. Ct. App. 1998), King v. King, No.
M2001-00275-COA-R3-CV, 2001 W L 1589131 (Tenn. Ct. App. December 13, 2001) and Thomas v. Thomas, No.
M2001-01226-COA-R3-CV, 2002 W L 1787950 (Tenn. Ct. App. August 2, 2002). The concurring opinion in Thomas
noted that the appeal marked this court’s third occasion to review the 22nd Judicial District’s use of a procedure this
court characterized as “not a good idea.” W e went on to recommend that in the future, “should either or both of the
parties propose this procedure, trial courts should simply say no.” Id. at * 8. Litigants and courts “have ample options
for alternative dispute resolution under Tenn. S. Ct. R. 31 without jury-rigging a procedure like the one used in this case.”
Id. at * 8.
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in Smith. See Tenn. Code Ann. § 29-5-310, 313 and 314. This court found that the proceedings
conducted by the trial court were ill advised because they differed in many important respects from
an arbitration authorized by the Uniform Arbitration Act. “It appears to us that some of the
provisions of the Act were adopted as safeguards, to prevent parties from being victimized by the
very finality that makes arbitration the procedure of choice for certain types of disputes. Thus, an
agreement to arbitrate must be in writing, Tenn. Code Ann. § 29-5-302(a).” Id. at 348. Not only was
there no written agreement to arbitrate, the attorneys presented differing accounts as to the nature
of the purported agreement. Counsel for the appellant testified by affidavit that he and opposing
counsel “had agreed that the decision of the judge following the in camera proceeding would be
final, and the ‘case would forever be concluded based on his ruling.’” Id. at 348. Appellee’s counsel
filed his own affidavit in which he explained the circumstances that led him to suggest that some
method of ADR be used to decide the case, but denied that he had ever agreed to waive his right to
appeal an unfavorable outcome. The wife, Ms. Smith, filed an affidavit, in which she stated that her
attorney told her that if the decision was adverse, the process of appellate review was still available.
Id. at 348. Due to the confused state of affairs appearing in the Smith record, this court had little
option but to find that everyone had agreed that “the prior hearing held in chambers between the
Court and the parties and the Court's ruling based on that hearing, would be held do novo (sic).”
Thus, it was reviewed by this court as an appeal from a bench trial, not from an ADR proceeding.
The ill advised practice and resulting confusion continued in King v. King,
M2001-00275-C0A-R3-CV, 2001 WL 1589131 at *3 (Tenn. Ct. App. Dec. 13, 2001), wherein this
court considered a procedure very similar to the one above and that used here.8 In King we
determined that the unorthodox procedure was not a mediation, as was argued by one party, but
instead "an agreed-upon method of presenting evidence to the trial court." Id. at *3. Similar
problems arose once again from the same trial court in Thomas v. Thomas. Due to the continuing
confusion concerning the uncertainty as to the type of procedure that had been employed in the trial
court, mediation or bench trial, the court couched its ruling as follows:
If, in fact, the parties below simply agreed to an alternative method for getting
evidence before the trial court upon which the court was to base its ruling, the result
of that agreement was a waiver of the right to present additional relevant testimony
through other witnesses with knowledge of the facts, the right to be present when the
other party testified, and the right to cross-examination, all of which are waivable.
Although the trial court apparently authorized court reporters to be present at the
separate presentation of each party, neither party took advantage of this offer. The
combination of this decision and the waiver of the right to be present during the other
party's testimony resulted in neither party knowing the details of the other's
testimony, even after-the fact, and the subsequent inability to preserve that testimony
for appellate review either through a transcript or a statement of the evidence.
8
King involved the same trial court and one of the same attorneys in Thomas.
-5-
The pivotal question, then, is whether the parties, through counsel, agreed:
(1) to a "mediation" process with the expectation that agreement of the parties was
necessary to resolution; or (2) to an unusual method of presenting evidence, while
still operating in the litigation model, with the expectation the court would resolve
the dispute based upon the evidence presented in this unusual procedure.
The record does not include a formal written agreement or agreed order
outlining the specifics of the parties' agreement. [footnote omitted] The trial court's
final order sets out all we know about the agreement. That order is silent on the
question of whether the parties agreed to resolution by agreement through mediation
or whether they agreed that the court would resolve their dispute, but certain
alterations in presentation of evidence would be made. However, the language used
by the trial court suggests that the parties, through their counsel, were aware that the
separate hearings with the trial court were "to offer testimony . . . present exhibits,
and other documentation."
Thomas, 2002 WL 1787950 at *3-4.9
While we encourage courts and litigants to engage in alternative dispute resolution
proceedings, such proceedings should be conducted in accordance with the procedures established
under Tenn. S. Ct. R. 31, especially when the trial judge is a participant. The purpose of Tenn. S.
Ct. R. 31 is stated in the Preamble of Appendix “A”:
These rules are intended to instill and promote public confidence in the
Alterative Dispute Resolution process under Tennessee Supreme Court Rule 31 and
to be a guide to Neutrals serving under Rule 31. As with other forms of judicial
system activity, Rule 31 proceedings must be built on public understanding and
confidence.
9
The court went on to explain:
The proceedings authorized by Rule 31 include, among others, mediation and judicial
settlement conference. Tenn. R. Sup. Ct. 31 § 2. Mediation is "an informal process in which a neutral
person, called a mediator, conducts discussions among the disputing parties designed to enable them
to reach a mutually acceptable agreement among themselves on all or any part of the issues in dispute."
Tenn. R. Sup. Ct. 31 § 2(f). A "judicial settlement conference" is "a mediation conducted by a judicial
officer other than the judge before whom the case will be tried." Tenn. R. Sup. Ct. 31 § 2(e). [footnote
omitted] As the definitions make clear, a mediation, including one conducted by a judicial officer, is
a settlement procedure; its purpose is to help the parties resolve their dispute by agreement, as an
alternative to resolution through the well-established procedures governing litigation. Nothing in the
definition of mediation or elsewhere in Rule 31 authorizes a mediator, including a judge acting as a
mediator, to resolve the dispute by imposing his or her judgment as to the correct resolution. [citations
omitted]. If the parties are unable in mediation to reach an agreeable solution, they retain their rights
to have the courts resolve their dispute through litigation. Id. at * 3.
-6-
Conducting ADR pursuant to Tenn. S. Ct. R. 31 provides established procedures for the
parties and the neutral or the trial judge to follow and affords the parties the safeguards intended by
those who crafted Tennessee’s alternative dispute resolution standards and procedures.
We submit, with all due respect, that the so-called “Alternative Dispute Resolution” process
employed by the trial court is not understood by the public or, for that matter, their counsel, as Smith,
King and Thomas reveal. More importantly, we submit that it does not foster confidence in the
judicial system. For the foregoing reasons, we recommend that the unorthodox practice be
discontinued and replaced by one of several options afforded under Tenn. S. Ct. R. 31 or by litigation
conducted in accordance with generally accepted practices and rules of procedure.
Standard of Review
Having determined that what transpired in the trial court was not an ADR proceeding but a
bench trial, we shall conduct our review of the proceedings in the trial court pursuant to Tenn. R.
App. P. 13. A trial court’s decision with respect to division of marital property is reviewed de novo
with a presumption of correctness as to factual determinations unless the evidence preponderates
otherwise. Tenn. R. App. P. 13(d), Miller v. Miller, 81 S.W.3d 771, 774 (Tenn. Ct. App. 2001).
So long as the facts do not preponderate against the finding of the trial court, the appellate court must
affirm. Denton v. Denton, 33 S.W.3d 229, 231 (Tenn. Ct. App. 2000).
What constitutes marital property and the value of a party’s interest in marital property is a
question of fact. Powell v. Powell, 124 S.W.3d 100, 103 (Tenn. Ct. App. 2003). In adjudicating
the rights of parties in a divorce, trial courts are entitled to broad discretion, Cutsinger v. Cutsinger,
917 S.W.2d 238, 243 (Tenn. Ct. App. 1995), and such discretion is entitled to great weight. Powell
at 103. Equitable distribution of marital property is not a mechanical decision, and such a decision
is not necessarily inequitable because it is not precisely equal. Brown v. Brown, 913 S.W.2d 163,
168 (Tenn. Ct. App. 1994).
A trial court is afforded great latitude in the valuation of marital property, thus a value within
the range of values in evidence may be upheld even if the trial court does not explain the precise
method used to arrive at the value it has assigned. Ray v. Ray, 916 S.W.2d 469, 470 (Tenn. Ct. App.
1995). On the other hand, a valuation can be set aside even though it is within the range of proof,
if the valuation is against the preponderance of the evidence. Loyd v. Loyd, 860 S.W.2d 409, 411
(Tenn. Ct. App. 1993).
A trial court’s determination regarding the credibility of witnesses is accorded deference
since the trial court is in the best position to make this determination. Powell at 104-105. Absent
clear and convincing evidence to the contrary, the trial court’s decisions on witness credibility will
not be reviewed. Id. at 105.
-7-
Husband’s Medical Practice
Husband challenges the trial court’s characterization of his medical practice as a marital asset
and the award of $75,000 to Wife based on her contributions to the practice.10 Husband owned the
medical practice prior to the second marriage11 and he contends the medical practice remained his
separate property during the marriage. He further contends that an increase in the value of his
separate property – his medical practice – may only be considered marital property upon a finding
that Wife made a “substantial contribution” that can be quantified. He argues that the only evidence
of Wife’s contribution to the practice was testimony that she worked approximately 30 to 60 hours
per week from 1992 to 1997; yet, there is no evidence of the value of the practice at the beginning
and the end of the second marriage.
When a spouse seeks to include property in the marital estate that the other spouse claims is
separate, the spouse seeking to include the property has the burden of proving that the property fits
within the statutory definition of marital property. Kinard v. Kinard, 986 S.W.2d 220, 232 (Tenn.
Ct. App. 1998). Thus, “as a threshold matter, property must first qualify as marital property under
T.C.A. § 36-4-121(b)(1)(A) or T.C.A. § 36-4-121(b)(1)(B) before it can be subject to the court’s
powers of equitable division under T.C.A. § 36-4-121(a)(1).” Cutsinger, 917 S.W. 2d at 241. Our
courts do not have authority to make an equitable division of the property if the nonowner spouse
cannot prove that the property at issue is marital property. Id. at 241. An increase in the value of
separate property and the income derived from it can be treated as marital property if the nonowner
spouse made substantial contributions to the preservation and appreciation of the separate property.
Tenn. Code Ann. § 36-4-121(b)(1)(B); Cohen v. Cohen, 937 S.W.2d 823, 832 (Tenn. 1996);
Harrison v. Harrison, 912 S.W.2d 124, 126 (Tenn. 1995). Marital property is defined in Tenn.
Code Ann. § 36-4-121 to mean and include the following:
(1)(A) "Marital property" means all real and personal property, both tangible and
intangible, acquired by either or both spouses during the course of the marriage up
to the date of the final divorce hearing and owned by either or both spouses as of the
date of filing of a complaint for divorce, except in the case of fraudulent conveyance
in anticipation of filing, and including any property to which a right was acquired up
to the date of the final divorce hearing, and valued as of a date as near as reasonably
possible to the final divorce hearing date. . . . All marital property shall be valued as
of a date as near as possible to the date of entry of the order finally dividing the
marital property.
10
He presents four arguments. One, he asserts that the court erred in finding that the practice was a marital
asset. Two, he contends that there is no evidence of the value of the practice at the beginning of the second marriage
or of an increase in value of the practice and that instead the evidence showed that the practice was closed because it was
doing so badly. Third, he contends that the court’s award was not based on the increase in value of the practice, but
based on the uncompensated time W ife worked in the practice. Fourth, he asserts the court erred by not considering that
W ife enjoyed the fruits of the practice during the marriage.
11
He was awarded the medical practice as his separate property in the first divorce.
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(B) "Marital property" includes 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 vested and unvested pension, vested and unvested
stock option rights, retirement or other fringe benefit rights relating to employment
that accrued during the period of the marriage.
****
(D) As used in this subsection, "substantial contribution" may include, but not be
limited to, the direct or indirect contribution of a spouse as homemaker, wage earner,
parent or family financial manager, together with such other factors as the court
having jurisdiction thereof may determine.
A finding that a nonowner spouse’s contribution is “substantial” requires that the contribution
be real and significant. Mitts v. Mitts, 39 S.W.3d 142, 145 (Tenn. Ct. App. 2000); Denton v. Denton,
33 S.W.3d 229, 236 (Tenn. Ct. App. 2000). Whether substantial contributions to the preservation
and appreciation of separate property have been made by a spouse is a question of fact. Sherrill v.
Sherrill, 831 S.W.2d 293, 295 (Tenn. Ct. App. 1992).
The nonowner spouse who claims an increase in the separate property must prove that the
value of the separate property increased during the marriage. It thus follows that the value of the
property immediately before the marriage and at the time of the divorce must be proven. Swett v.
Swett, M1998-00961-COA-R3-CV, 2002 WL 1389614 at *10 (Tenn. Ct. App. June 27, 2002) (citing
Garfinkel v. Garfinkel, 945 S.W 2d 744, 747 (Tenn. Ct. App. 1996); Cutsinger, 917 S.W. 2d at 241.
Without proof of the value of the separate asset before the marriage, the trial court has no legitimate
basis on which to base an appreciation of the asset and therefore an equitable distribution of claimed
appreciation cannot be made. Cutsinger at 241 (citing Bryson v. Bryson, No. 88-94-II, 1988 WL
87685 at *3 (Tenn. Ct. App. Aug. 26, 1988)). “One who claims an interest in the increase in value
of the separate property of his spouse has the burden of showing the amount of such increase.”
Bryson at *3.
In Cutsinger the wife began working in her husband’s chiropractic clinic shortly after the
couple was married and continued to do so throughout the marriage. She was paid a salary while
working at the clinic. Id. at 239. The husband became ill and had to leave the practice for
approximately one year during which time the wife continued to work in the practice and kept it
running by obtaining the services of other chiropractors to treat the patients. Id. at 239. She argued
that her contributions entitled her to part of the purchase price when the practice was sold. The trial
court awarded the wife an interest in the practice, but this court reversed, finding that the wife did
not offer sufficient proof as to the value of the business prior to the marriage. Id. at 243. Her only
proof of appreciation was that when the couple was first married the practice served 4-5 patients per
day, but that when the couple divorced 35-40 patients per day were being treated. Id. at 242. She
asserted that this increase in patients proved an increase in value. This court, however, found that
there was no evidence that the “actual monetary value of the husband’s practice had risen to
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correspond with the increase in the number of patients” and was unwilling to infer that the business
had appreciated just because it was treating more patients. Id. 242. In reversing the trial court, this
court said:
Without such fundamental information, Wife's interest in the purchase price could
not be made without speculation as to the exact amount of appreciation of the
practice attributable to her services. Accordingly, we find that the trial court erred
in awarding wife a 30% interest in the purchase price of Husband's practice.
Id. at 242.12
The record before us is modest. There is no verbatim transcript of the proceedings. There
is however a brief Statement of the Evidence, four pages, and of course the final order. The
Statement of the Evidence tells us that:
There was also testimony as to Patrick Erwin Hartman’s medical practice. Donna
Woods Hartman worked at this medical practice during the course of the parties
second marriage. However Patrick Erwin Hartman closed his medical practice in
November 1997 due to a loss of hospital privileges as well as a declining practice.
At the time he closed the medical practice, he and Donna Woods Hartman were still
married and she was aware of the reasons for the closing of the medical practice.
Donna Woods Hartman filed for divorce July 27, 1999, and some 20 months after the
closing of the medical practice.
****
Judge Jim T. Hamilton also found in the Order dated February 25, 2003, that
the medical practice was a marital asset and awarded $75,000.00, to the plaintiff for
her 4 years of labor, 1992 through 1997, without receiving a salary or an hourly
wage.
The pertinent part of the final order reads as follows:
It further appeared to the Court that the medical practice which existed
throughout the marriage should be considered a marital asset as the Plaintiff clearly
contributed to the ongoing success of the medical practice.
The Court further finds that the Plaintiff is entitled to a distributive share of
this marital asset because of her efforts as an unpaid employee contributed to the
maintenance and success of said medical practice.
The Court finds that the value of this distributive asset awarded to the
Plaintiff is Seventy-five Thousand ($75,000) Dollars, which represents some four
years labor without monetary compensation beginning in 1993, after the parties
12
It was additionally noted that the wife had been compensated for her work in the practice. Cutsinger at 243.
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remarried in 1992, through 1997, when the Defendant closed his medical office
without the knowledge or consent of the Plaintiff and without any forewarning to her.
Testimony offered at [sic] in these proceedings show that the Defendant was
advised by his CPA to set up some type of account for the Plaintiff as she was
working some 30-60 hours per week. However, the Defendant never followed this
advise [sic] saying, “her keep is enough.” The Court finds that this statement is not
sufficient.”
The modest record before us fails to establish an evidentiary link between Wife’s services
to Husband’s medical practice and an award of $75,000. There is no evidence of the value of the
practice at the time of the second marriage and there is no evidence of the value of the practice at the
time of the second divorce. Thus, there is no evidence that Wife’s services caused an increase in the
value of Husband’s medical practice. Moreover, from the limited record before us, all we can
determine is that the practice was closed long before the divorce complaint was filed and that if the
remnants of the practice had any value it was in worse financial shape than when the parties married
for the second time in 1992.
To justify an award to Wife for working 30 to 60 hours per week in the practice from 1992
to 1997, there must be evidence that such contributions “substantially contributed to . . . [the]
preservation and appreciation” of Husband’s medical practice, Tenn. Code Ann.§ 36-4-121(b)(1)(B),
and there must be evidence of the value of such contributions. See Garfinkel, 945 S.W 2d at 747;
Cutsinger, 917 S.W. 2d at 241. The record before us is devoid of any proof that Wife’s services
contributed to an increase in the value of the medical practice. We, therefore, find that the evidence
preponderates against any award to Wife for her contributions to Husband’s medical practice and
vacate the award of $75,000 to Wife.
Division of Equity in Home and Allocation of Marital Debts
Husband asserts that the trial court failed to make an equitable distribution of the marital
assets and marital debts. Specifically, he asserts that the trial court erred by awarding one half of the
equity in the home to Wife without allocating responsibility for two marital debts. One of the debts
is an $18,500 loan Husband provided to his Wife near the end of the second marriage to enable her
to purchase a home to be her residence following the divorce. The other is a $10,599.12 debt for
which the parties are jointly liable.
“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). The Statement of the Evidence reveals that Husband submitted evidence concerning the two
marital debts. It reads in pertinent part:
The defendant, Patrick Erwin Hartman, Sr., further testified that the parties
have a joint loan at First Farmer’s and Merchants Bank with an approximate balance
of $10,599.12 as of September 2, 2001 plus accrued interest. The defendant asked
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the court to consider this note when making its decision to the interest of the plaintiff
in the real property located at Clifton Drive [the marital residence]. A copy of the
loan statement was exhibited by the defendant.
The defendant, Patrick Erwin Hartman, Sr., also testified that he had made a
personal loan of $18,500.00 to the plaintiff prior to the divorce so as to allow her to
purchase a home in Franklin, Tennessee. The Defendant also requested the court to
consider this amount in considering the division as to the [marital residence].
Though evidence was presented concerning the two debts, the final order does not mention
either debt. Moreover, there is nothing in the record to indicate that the debts were considered by
the trial court it was making a distribution of the marital assets and none of the previous orders
allocate the responsibility for the debts.
The relevant financial liabilities of each of the parties is one of many relevant factors for the
court to consider in making an equitable division of marital property. See Tenn. Code Ann. §
36-4-121(c)(2). To provide for an equitable distribution of marital assets when there are marital
debts, our courts are to consider four factors:
(1) the debt's purpose; (2) which party incurred the debt; (3) which party benefitted
from incurring the debt; and (4) which party is best able to repay the debt. Mondelli,
780 S.W.2d at 773. A careful application of these factors will insure the fairest
possible allocation of debt. It will also protect the spouse who did not incur the debt
from bearing responsibility for debts that are the result of personal excesses of the
other spouse.
Alford, 120 S.W.3d at 814 (citing Mondelli v. Howard, 780 S.W.2d 769 (Tenn. Ct. App. 1989)).
The record before us is similar to that in Alford wherein the court found the record deficient
with respect to two of the Mondelli factors. While finding it clear that the wife incurred the debts
and that the husband was in a better financial position to repay the debts, the Alford court noted
there was “not sufficient evidence in the record indicating the purpose of the debts or who benefitted
from incurring the debt.” Id. at 814. Based on that finding, the court remanded the case to the trial
court
to determine how the marital debts are to be allocated between these parties. In
making this determination, the trial court should be guided by the Mondelli factors
and should require the parties to present more evidence relevant to the factors set out
above. We note that the trial court has broad discretion and should do equity in
allocating debt as one part of the overall distribution of marital property. Because the
relevant financial liabilities of each of the parties is one of many relevant factors for
the court to consider in making an equitable division of marital property, on remand
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the trial court should reconsider its equitable distribution of the parties' marital
property. See Tenn. Code Ann. § 36-4-121(c)(2).
Id. at 814.
While the evidence fully supports the trial court’s finding that the equity in the marital
residence was $30,973, the record fails to establish that the four Mondelli factors were considered
in allocating the marital debts or in making an equitable division of marital property. Moreover, the
record fails to establish that the two marital debts were allocated. Accordingly, we reverse and
remand for further proceedings the equitable division of the marital property, specifically the equity
in the marital residence and the two marital debts at issue.
In Conclusion
This matter is remanded to the trial court for further proceedings consistent with this opinion
and costs of appeal are assessed against the parties equally.
___________________________________
FRANK G. CLEMENT, JR., JUDGE
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