Property Division in Tennessee Divorce

When couples go through the divorce process, issues that must be resolved to finalize the divorce often vary depending upon the specific circumstances of the divorcing couple. However, one of the issues that must always be resolved in every Tennessee divorce is that of property division. Property division and equitable distribution will be determined regardless of whether a divorcing couple has children and is often a point of great contention.

The manner of property division on divorce depends upon the law of the state in which the divorce proceeding occurs. There are two primary systems for dividing marital property utilized on a state-by-state basis throughout the United States: (1) community property; or (2) equitable distribution. In states utilizing the community property system, the property of both spouses is categorized as either “separate property” or “community property,” and community property is divided either equally or equitably. As of this writing, there are only nine states that utilize the community property system: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In states utilizing the equitable distribution system, the property of both spouses is categorized as either “separate property” or “marital property,” and marital property is divided equitably.

The vast majority of states, including Tennessee, utilize the equitable distribution system of marital property. In Tennessee, a court will first categorize the property of both spouses as either marital property or separate property. After the property of the spouses is categorized, courts in Tennessee will proceed with equitably distributing the property categorized as marital property prior to formally divorcing the spouses.

Marital property in Tennessee is generally defined as all real and personal property, both tangible and intangible, that was acquired during the course of the marriage and owned by either individual spouse or by both spouses up to the date of the final divorce hearing. The following specifies additional assets that may be considered as marital property:

• The income from or increase in value during the marriage of separate property if each party substantially contributed to its preservation and appreciation;
• The value of vested or unvested pension benefits or stock rights, as well as financial settlements arising from personal injury, workers’ compensation, or social security disability action; and
• Ownership interest in a business.
• Conversely, Tennessee Code T.C.A. § 36-4-121 specifically categorizes the following real and personal property as separate property if it was owned by a spouse before marriage:
• Assets held in individual retirement accounts (IRAs);
• Property acquired in exchange for property acquired before the marriage;
• Property acquired by a spouse at any time by gift, bequest, devise, or descent; and
• Pain and suffering awards, victim of crime compensation awards, future medical expenses, and future lost wages; and
• Property acquired by a spouse after an order of legal separation where the court has made a final disposition of property.

Under Tennessee law, the equitable distribution of marital property does not necessarily mean that the division of marital property will be equal. When making the equitable division of marital property, Tennessee courts consider all relevant factors, including:

• The duration of the marriage;
• The age, physical and mental health, vocational skills, employability, earning capacity, estate, financial liabilities and financial needs of each of the parties;
• The tangible or intangible contribution by one party to the education, training or increased earning power of the other party;
• The relative ability of each party for future acquisitions of capital assets and income;
• 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;
• The value of the separate property of each party;
• The estate of each party at the time of the marriage;
• The economic circumstances of each party at the time the division of property is to become effective;
• 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;
• In determining the value of an interest in a closely held business or similar asset, all relevant evidence, including valuation methods typically used with regard to such assets without regard to whether the sale of the asset is reasonably foreseeable. Depending on the characteristics of the asset, such considerations could include, but would not be limited to, a lack of marketability discount, a discount for lack of control, and a control premium, if any should be relevant and supported by the evidence;
• The amount of social security benefits available to each spouse; and
• Such other factors as are necessary to consider the equities between the parties.

Therefore, the trial judge generally exercises a significant degree of discretion, based on the application of the factors listed above, when making an equitable distribution of marital property in a Tennessee divorce. While an “equitable” distribution may often result in an equal or roughly equal distribution of marital property between the divorcing spouses, the trial judge generally has the discretion to order an uneven division of the marital property between the parties so long as that uneven division is supported by the evidence before the court and grounded in the application of the applicable factors governing the division of marital property under Tennessee law. As a result, it is not uncommon for divorcing spouses to receive unequal portions of the marital estate after trial in a Tennessee divorce.

Importantly, it should be noted that couples can generally divide their marital property in any manner they choose during divorce if they reach an agreement. When divorcing spouses reach an agreement on the division of their marital property, they must both execute a Marital Dissolution Agreement (MDA) formally setting forth their agreement on the division of marital property. The MDA is a legally binding contract between both parties and must be approved by the court prior to the finalization of the divorce.

Similarly, if a divorcing couple previously entered into an enforceable prenuptial or postnuptial agreement, then the process of equitable distribution may be significantly influenced and controlled by the terms of the prenuptial or postnuptial agreement. Under Tennessee law, antenuptial, prenuptial, or postnuptial agreements are generally binding upon any Tennessee court having jurisdiction over the spouses, provided that the agreement was entered into by the spouses “freely, knowledgeably and in good faith and without exertion of duress or undue influence upon either spouse.”

Although there are certain circumstances that can render a prenuptial or postnuptial agreement ineffective in a Tennessee divorce proceeding, a more detailed discussion on the enforceability of prenuptial and postnuptial agreements under Tennessee law is beyond the scope of this article.

The division of property in divorce can have extremely significant consequences that may impact your life for years or even decades after the divorce has concluded. If you are experiencing divorce or think you may need to plan for divorce in the future, you should seek the legal advice of a knowledgeable and experienced divorce attorney immediately.

Contact a Nashville attorney with Cole Law today at 615-490-6020 to schedule a consultation and learn about how Tennessee’s laws governing the distribution of property on divorce may impact you.