Arp v. Arp

IN THE COURT OF APPEALS OF TENNESSEE
FILED
AT KNOXVILLE June18, 1999
Cecil Crowson, Jr.
Appellate C ourt
Clerk
ANGELA M AE ARP, ) C/A NO. 03A01-9808-CV-00273
)
Plaintiff-Appellee, ) POLK CIRCU IT
)
v. ) HON. LAWRENCE PUCKETT,
) JUDGE
RICHARD LEE ARP, )
) AFFIRMED AS MODIFIED
Defend ant-App ellant. ) AND REMANDED
ROBERT S. THOMPSON, LOGAN, THOMPSON, MILLER, BILBO, THOMPSON
& FISHER, P.C., Cleveland, for Plaintiff-Appellee.
B. PRIN CE M ILLER , JR., Clevela nd, for D efendan t-Appellan t.
O P I N IO N
Franks, J.
In this divorce action, the husband was dissatisfied with the
classification of property, the division of marital property, and the custody
arrangem ent ordered by the Trial Jud ge, and ha s appealed numero us issues to th is
Court.
The parties were m arried on January 6, 1990, an d two children w ere
born to the ma rriage.
The trial of the divorce was heard on March 13, 1998, and the wife
testified that when she was eighteen she met the husband and they immediately started
dating. They dated for six years before marriage, and lived together for four of those
years. During that time, the wife took care of the house and did cooking, and worked
at Goody’s Family Clothing Store as assistant manager. She also helped the husband
with his businesses, by cleaning Peoples Bank and picking up money or washing the
bays at the car wash.
The Trial Court, in resolving the issues, noted that the marriage was an
eight year marriage, and found both in good health and to have the ability and
vocationa l skills necessa ry to maintain a b usiness. Th e Court fo und that ne ither party
contributed to the educ ation, training o r increased e arning po wer of th e other, but b oth
parties worked in the businesses, contributing to one another’s enhanced financial
state. The Court found the husband to be the motivator behind the businesses, and
further that the wife made significant contributions, both as a homemaker and
business partner, toward acquisition, preservation and appreciation of marital and
separa te prop erties.
The husband presents eight issues for review, as follows:
1. The Court erred in the determination of separate property. The
evidence does not support the Court’s finding that the parties had been
in a partnership for six years prior to their marriage.
2. The Court erred in its valuation and division of Professional
Janitorial Supply Corporation.
3. The Court erred in finding that there was a $108,000.00 cash
asset which is a separate asset of the parties.
4. The Court erred in failing to find that the tax liabilities for the
real estate, com mercial and business p roperties, is a liab ility that should
have been addressed in the division of the assets and liabilities.
5. The Court erred in assessing Mr. Arp with one-half of the
elective ortho dontic proc edure that M rs. Arp incu rred imme diately
before trial and for credit card debt which she incurred after an order for
Tempo rary Mainten ance and Support.
6. The Court erred in the division of the marital estate.
7. Appellant respectfully submits to the Court of Appeals that the
division of the property attempted by the trial court cannot be complied
with because of the cross-collateralization agreement that the parties
executed to the People’s bank of Fannin County, Georgia.
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8. The Court erred in placing the care, custody and control of the
parties’ two minor children with their mother, Angela Mae Arp.
Our standard of review in this case is de novo upon the record of the
Trial Court, accomp anied by a presumption o f correctness of the Trial C ourt’s
findings, unless the eviden ce preponderates oth erwise. T.R.A.P. R ule 13(d).
First, the husb and insists the Court erred in the determ ination of se parate
prop erty.
At the time of the marriage, the husband owned an interest in several
pieces of property. Under T.C.A. §36-4-121(2)(A), all of these properties would be
considered separate pro perty, because they were own ed before marriage . The Court
found some of these properties to be separate property, some to be both separate and
marital property, and some to be marital property. Accordingly, the issue thus
become s whethe r the proper ty owned b efore ma rriage beca me marital p roperty due to
transmutation, commingling, or increase in value due to substantial contribution by the
spouse.
Two of the husband’s several parcels consist of land in Turtletown,
Tenness ee. The T rial Court aw arded part o f this prope rty to the husban d as separa te
property, and the rest to the husband as marital property. At trial, the wife did not
dispute that all of the Turtletown property was separate prop erty, and the Trial Court
was in error in dividing a portion of this property as part of the marital estate. Thus,
the award as marital property to the husband of 11.92 acres in Turtletown, valued at
$30,000.00, must be excluded from the marital estate and awarded to the husband as
sepa rate p rope rty.
The Ca mpbell pro perty consists of 2.2 acres of unimpro ved prop erty
which the husb and purchased f or $45,000.00 bef ore the marriage. The T rial Court
assigned a value to this property at the time of trial of $265,000.00, and awarded one-
fifth of the property to the husband as separate property, and four-fifths of the
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property to the husband as marital property. The evidence at trial revealed that the
parties had d one nothin g to this prop erty, but it had incre ased in valu e due to its
location and extension of public utilities. Accordingly, there is no basis to classify
this as marital property, since the wife made no contribution to the properties’ increase
in value. The increase in value was not due to any contributions by either the husband
or wife, but was due to the location and the economy. This is similar to the situation
in Harrison v. Harrison, 912 S.W .2d 124 (T enn. 1995 ), where the husband ’s separate
property increa sed substan tially in value due to the constru ction of an interstate
high way.
The Trial Court valued the Cherokee Hills house at $120,000.00, and
awarded half of it to the husband as separate property, and half of it to the husband as
marital property. The husband states in his brief that this was pre-owned property, but
does not set forth any reason why the property was wrongly classified as partial
marital property. The evidence d oes not preponde rate against the Trial Court’s
finding that fifty percent of the value of this property is marital, because the parties
did live in this house for a period of time, and wife made contributions to its increase
in value as a homemaker, and as a partner in the business. This is both direct and
indirect substantial contributions to the properties’ increase in value. The evidence
does n ot prep ondera te again st the Tr ial Cou rt’s deter minatio n. T.R.A .P. Rule 13(d).
Husband was operating all of his car washes before marriage, being 68
Car Wa sh, Tri-State C ar Wash , and Ap palachian C ar Wash . It appears tha t he only
owned half of the 68 Car W ash at the tim e of the m arriage, and he purch ased his
partner’s interest after the marriage. The Trial Court treated these businesses as
marital p rope rty.
In these pre-owned properties, the proceeds and debts have been
intermingle d with tho se of mar ital property, and th e husban d treated the p roperty in
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such as way as to evince a transmutation into marital property. The financial
transactions involving these parties and these businesses are not clearly delineated, but
the record indicates that the debts on the properties were consolidated with other
properties in 1992, after the marriage, so that only one payment was made. The
refinancing produced new debt which was used to renovate the Hillcrest Motel, which
is undisputed marital property. Later, the husband used these properties as cross-
collateral for the Ocoee Chevron, Car Wash, and Inn.
Wife d id the bo okkee ping fo r the car wash es and o ther bu sinesse s.
Husband testified that he is now doing all of the bookkeeping for the businesses, and
that it is a difficult job which takes a great deal of time. Both husband and wife had
access to all o f the busine ss accoun ts, and they took money out o f these acc ounts
whenever they needed it. Husband stated that while he and the wife were married,
“everything we did was -- we was together, I mean, husband and wife. I mean, I never
done anythin g withou t talking to her about it. Bu t she did thing s without talk ing to
me. But we never made any ventures in anything unless we talked about it and prayed
about it.”
The husband’s actions establish a partnership type of arrangement
between the husband and wife, in all of their business ventures. The proceeds and
debts of these businesses were extensively intermingled with marital proceeds and
debts, blurring any distinction between the properties. Accordingly, the evidence does
not pre ponde rate aga inst the T rial Cou rt’s classi fication .
Next, husband argues that the Trial Court erred in its evaluation and
division of the Profes sional Janitor ial Supply Co rporation. W e conclud e the Cou rt did
not err in its evaluation and division of the Corporation, though it erred in ordering the
release of a CD securing the debts of the Corporation. The value assigned by the Trial
Court to the respective interest in the C orporation is supported by the ev idence. In
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this distribution th e Trial Co urt ordered :
Husband shall have sixty days to secure the release of the Certificate of
Deposit and the proceeds from the sale of the jeep . . . or shall pay
Angela Mae Arp the sum of $11,432.60.
We find no e rror in the award of the C ertificate of Deposit to the w ife, but the Court
did err in ord ering that the C D be relea sed. Since th e wife is res ponsible fo r one-half
of the debt attributable to a one-third stock interest in the Corporation, this CD which
secure d the de bt and w as awa rded to the wif e, shou ld rema in as sec urity for th is debt.
We accordingly vacate that portion of the Trial Court’s Order that directs that the CD
be released.
Next, it is asserted that the Court erred in finding there was $108,000.00
cash assets, which w as a separate asset of the pa rties. We agree that the Trial Co urt’s
finding was in error. On October 1, 1997, the date of the deposition of the loan officer
of People’s Bank of Fannin County, Georgia, it was established that the husband had
on that d ay a total o f $108 ,173.26 in his pe rsonal a nd bus iness ac counts with th e bank .
The husband testified the account reflected the operating revenues of the business, and
that on a ny given date the y varied d ramatic ally, depen ding on incom e and e xpens es.
On the date of trial, February 13, 1998, the accounts had a balance of $68,645.64. The
Trial Court properly distributed these accounts as marital property, but erred in the
evaluation . Marital pro perty must be “ valued as o f a date as n ear as reaso nably
possible to the final divorce hearing date.” T.C.A.§ 36-4-121(b)(1)(A). The value on
the date of the divorce hearing should have been the value utilized by the Court, and
that amount must be substituted in the Court’s judgment for “cash on hand”.
Next, it is argued that the Court erred in failing to find that the tax
liabilities for the real estate commercial and business properties is a liability that
should have been addressed in the division of the assets and liabilities. The evidence
established the amount of business tax liabilities in the State of Georgia, and business
6
taxes in the State of Tennessee. Apparently, these assessments were introduced at
trial, but are not in the record before us. Accordingly, we cannot determine what tax
amou nt is attrib utable to each o f the pa rties.
“Marital debt should be allocated as are marital assets, and should be
considered when making an equitable division of property.” Herrera v. Herrera, 944
S.W.2d 379, 390 (Tenn. App. 1996). In this case, the tax debt was incurred by virtue
of property ownership, and while both parties might argue that taxes are not
beneficial, both parties did bene fit from the property own ership. The parties were
awarded substantial assets in the property division, though the husband was awarded
the greater share. Since the husband was awarded most of the marital property, he
shou ld be resp onsi ble f or most o f the tax a ttribu table to that property. Accor ding ly,
we hold that the equ itable way to d istribute the tax lia bility is to require eac h party to
pay the debt on the property which he or she received in the distribution, which we
cannot determine without the tax assessments. Accordingly, upon remand, the Trial
Cou rt is d irect ed to dete rmin e the alloc ation of ta x liab ility to each party.
Next, husband seeks relief from an assessment of one-half of an elective
orthodon tic procedu re that the w ife incurred immedia tely before trial, and for credit
card debt sh e incurred a fter the Ord er of Tem porary Ma intenance a nd Supp ort.
The Trial Court found the debt for the orthodontic procedure to be a
marital debt, which, with the e xception of the deb ts on the real property, the Court
assesse d the m arital deb ts almos t equally b etwee n the pa rties.
On April 25, 1997, the Trial Court entered an Order granting wife
temporary custody of the two children, and ordering the husband to pay $200.00 per
week as temporary ch ild support, as well as pro viding that h usband “ further ma intain
payment on the other bills and indebtedness including, but not limited to, the home
and utilities.” After this time, the wife had orthodontic surgery on her jaw, and she
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testified the surgery was for health reasons. The husband and wife had discussed the
wife having the su rgery five years earlier, but had put it off due to the w ife’s
pregnancy, and their lack of insurance coverage.
The w ife also incurre d credit c ard deb ts after th e Orde r went i nto eff ect.
She testified that part of th e debt wa s due to tran sfers of ea rlier debts to ca rds with
lower interest rates, and part was due to new purchases. She testified she needed the
cards because husband was no longer providing her with any money, other than the
stated child su pport.
Husband argues that since the wife created this debt, she should pay for
it. How ever, de bt, like pr operty, is c onside red ma rital if acq uired d uring th e marria ge.
See Herrera, p.389; Mondelli v. Howard, 780 S .W.2d 769, 77 3 (Ten n. App . 1989) .
The evidence does not preponderate against the Trial Court’s division of the
indebte dness.
Next, the husband insists the Court erred in the overall division of the
marital estate. As we have noted, the Trial Court made incorrect classifications of
separate property and the marital property, and adopted an incorrect value of cash on
hand and failed to include the tax assessment as liabilities. However, after
considering the Trial Court’s findings and the factors for equitable distribution set out
in T.C.A. §36-4-121(c), the division made by the Trial Court, after our modifications,
remains a fair and equitable division of the marital estate. As trial courts are given
wide discretion in the division of marital property, their division is entitled to great
weigh t on app eal, and we af firm the proper ty division , as mod ified. See Watters v.
Watters, 959 S.W.2d 58 5, 590 (Tenn. A pp. 1997).
The husband argues that the division of the marital property ordered by
the Trial Court cannot be effected because of the cross-collaterization agreement that
the parties executed at the People’s Bank of Fannin County, Georgia. While the
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cross-collaterization agreement complicates the property division, it does not render
the division inoperable.
The People’s Bank of Fannin County, Georgia, loaned the husband
100% of the construction costs of the Ocoee Convenience Store, Car Wash, and Motel
project. The project was built and had been operating for about a year at the time of
trial. The remaining loan balance on the project was $1,550,000.00, at the time of
trial, and the O coee prop erty was value d at $1,750 ,000.00. T he Oco ee property is
collateral for the loan, but so is all the other real property owned by either the husband
or husband and wife together. In the distribution, the Trial Court awarded the wife
property that is co llateral for the O coee proje ct.
The Pres ident of the Bank testif ied that the hu sband’s tota l obligation to
the Bank under this c ross-collateral a greemen t and unde r prior loans is a pproxim ately
$2,400,000.00. The husband’s past business successes and his personal involvement
in the venture, were the factors in the Bank’s decision to loan the husband this amount
of money for the Ocoee project, according to the Bank’s president. The president
stated the Bank would not release any of the collateral that secures the loan, and
further that he would consider a transfer from the husband to the wife as a sufficient
transfer to trigger a due on sale clause, though the transfer of a residence, as opposed
to commercial property, generally would not trigger such action. He testified that the
Bank could waive the due on sale clause, but he would have to analyze the situation at
the time of the Court’s transfer of property as to whether or not there was sufficient
collatera l to cove r the loan .
Any possible ramifications that may flow from the property division
cannot be a basis for denying the wife her equitable share in the marital estate. These
contractual relationships do not prevent the Court from awarding interest in properties
in a divorce case, and the transfer of the properties to the wife does not impair the
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Bank’s collateral interest. However, as the Trial Court ordered, the husband will be
required to hold the w ife harmless for any possible losses a s a result of the husband ’s
indebtedness to the Bank.
Finally, we conclude that the Court properly placed the minor children
with th eir moth er, whic h was in the T rial Judg e’s discr etion. Suttles v. Suttles, 748
S.W.2d 427, 429 (Tenn. 1988). The evidence preponderates strongly in favor of
placemen t of the childr en with the mother, as b eing in their b est interest.
In sum, the Trial Court’s distribution of property will be modified, as
indicated. Also, a tax liability will be assessed to each party upon remand, depending
upon the tax liability attributable to the property that each party was awarded, and the
order of th e Trial Co urt to release th e CD f rom the sa le of the N issan truck, as security
to the loan for Professional Janitorial Service, will be vacated.
The judg ment of th e Trial Co urt is affirme d, as mod ified, and the costs
assessed o ne-half to e ach party on a ppeal.
__________________________
Herschel P. Franks, J.
CONCUR:
___________________________
Houston M. Godd ard, P.J.
___________________________
H. David Cate, Sp.J.
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