Property owned during a marriage in Tennessee is classified as either separate property or marital property. This distinction becomes quite important for many spouses when considering divorce. The concept is worth understanding because only marital property is subject to equitable distribution during a divorce. Separate property includes property which was owned by a spouse before marriage; property which was acquired in exchange for property which was already owned prior to the marriage; income and appreciation of separate property; property acquired by a spouse through gift, bequest, devise or descent; pain and suffering awards; victim of crime compensation; future medical expenses; future lost wages; and property acquired by a spouse after an order of legal separation in which a court has completed a final disposition of property.
Where the separate property analysis gets tricky is a carve out section, T.C.A. § 36-4-121(b)(1)(B)(i). This section states: ” ‘Marital property’ includes income from, and any increase in the 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” This requires an understanding of substantial contribution and preservation and appreciation. Thankfully, the statute includes some more helpful information by defining a substantial contribution. A 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.” Preservation and appreciation are not further defined in the statute.
Let’s consider a few hypotheticals. In Marriage A, Wife was gifted a significant amount of publicly traded stocks from a family member prior to marriage. Husband paid taxes on Wife’s stocks when sold. Are the stocks marital property? In Marriage B, Husband bought a house before the marriage that was never used as the marital home. Wife’s name was never put on the deed. However, when the house needed repairs, Wife paid for the HVAC to be replaced. Is the house Husband’s separate property? In Marriage C, Wife purchased a house during the marriage and the house was foreclosed on. Can Husband be awarded dissipation?
There are two additional doctrines under Tennessee common law by which separate property may become marital property. These are transmutation and commingling. The Tennessee Supreme Court has explained these doctrines as: “Separate property becomes marital property [by commingling] if inextricably mingled with marital property or with the separate property of the other spouse. If the separate property continues to be segregated or can be traced into its product, commingling does not occur…. [Transmutation] occurs when separate property is treated in such a way as to give evidence of an intention that it became marital property.”
Examining some recent Tennessee cases may help understand the § 36-4-121(b)(1)(B)(i) separate property exception as well as the doctrines of transmutation and commingling. For example, In Jones v. Jones, the court determined that stock purchased prior to the marriage and the stock options held by the husband were separate property, but after the marriage occurred, income from the stock became marital property pursuant to the statute and the finding that the wife substantially contributed to the preservation and appreciation of the account. In Telfer v. Telfer, the Court determined a large division of the marital estate in favor of a wife was extreme and inequitable, resulting in an injustice to the husband, because, although the wife’s parent gifted business entities to the wife, the husband contributed to the management of the entities after the gift and marital funds were used to pay taxes for the entities. In Wade v. Wade, appreciation of stocks owned by th husband prior to marriage was properly classified as marital property where wife substantially contributed to the stocks’ preservation and appreciation not only by her indirect contributions as homemaker, wage earner, parent, and family financial manager, but by her direct contributions as monitor of the stocks during the period of her employment with a brokerage firm.
Thus, after examining the caselaw and depending upon what facts the court found important, this is how the hypotheticals above would likely play out: A: The stocks are marital property because by Husband paying taxes on the stock, the parties used marital funds to ensure it was preserved and could appreciate. B: This is a close case, it depends on the value of the house, the cost of the HVAC repairs, and whether the court feels that wife’s actions substantially contributed to the preservation and appreciation of the house. More likely than not, a court should find the House has become marital property due to Wife’s actions, thus the Wife should be entitled to split the value of the house that increased during the marriage, not the entire value of the house. C: Husband may be able to recover dissipation from Wife for half the value of the home at the time of the foreclosure. Dissipation of marital assets is defined in T.C.A. § 36-4-121(c)(5)(B).
In conclusion, most property at issue in a divorce is likely to be classified as marital property subject to equitable distribution. Even if property would otherwise be considered separate property, there are several instances that the property may be considered marital. Divorce is a big life decision. If you are considering divorce, you should consult with a local attorney and explore the possible ramifications, including taxes, custody, living arrangements, alimony, and others that are relevant to you.
1 See T.C.A. § 36-4-121. Distribution of marital property.
2 T.C.A. § 36-4-121(b)(2).
3 T.C.A. § 36-4-121(b)(1)(D).
4 Snodgrass v. Snodgrass, 295 S.W.3d 240, 256 (Tenn. 2009).
5 Jones v. Jones, 2016 Tenn. App. LEXIS 589 (Tenn. Ct. App. Aug. 12, 2016).
6 Telfer v. Telfer, 558 S.W.3d 643, 657 (Tenn. Ct. App. 2018).
7 Wade v. Wade, 897 S.W.2d 702 (Tenn. Ct. App. 1994).