Division of Marital Property in a Tennessee Divorce

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During a Tennessee divorce, the court may equitably divide marital property between the spouses in proportions as the court deems just, without regard to the parties’ fault. It is important to note that equitable distribution does not mean “equal”, instead it means “fair”. The division of marital property includes the division of marital assets and debts.    Thus, it is critical you become informed about all of your and your spouse’s assets and debts.  Assets include all real estate and personal property (both tangible and intangible).  Assets can include houses, pensions, businesses, coin collections–almost anything.   The more you know, the greater possibility of receiving a fair settlement.

 

How are marital assets divided in a Tennessee divorce?

When attempting to the divide your marital assets, you must first find and value all of you and your spouse’s assets (equity in the house, value of pensions, value of antique furniture).  Next, you must determine whether the asset is separate property or marital property.  If it is separate property, the property typically remains with the person who owned it.  Separate property is usually acquired before the marriage or outside the marriage, such as by gift or inheritance.  Marital property is 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. Marital property can include increases in separate property that occurs during the marriage if your spouse contributed to its appreciation or preservation even if only indirectly.

 

In Tennessee, the division of marital property in a divorce is covered by statute, Tennessee Code Annotated 36-4-121.   To determine who gets what marital assets, the court will consider the following:

• Length of the marriage;

• Age, health, skills, and abilities of the parties;

• Contribution to the education or to the earning power of the other;

• Relative ability of the parties to acquire property in the future;

• Contribution to the value of the marital property or the separate property;

• Amount of separate property owned by each spouse;

• Premarital property;

• Financial conditions of each party;

• Tax consequences;

• Social Security benefits;

• Allowing the custodian and children to continue to live in the home permanently or for a period of time (most often until remarriage of the custodian or until the children turn eighteen); and

• Other factors that the court considers appropriate.

 

If you and your spouse can agree on how your marital assets will be divided, and if your agreement is fair and reasonable, it will usually be approved by the court.  If you and your spouse cannot agree on the distribution of your property, then the court will divide the property, provided you can prove or get a stipulation to one of the grounds to divorce.  If you cannot agree and prove or have a stipulation to at least one of the grounds for divorce, then you cannot get divorced. 

 

What happens if someone hides assets during a Tennessee divorce?

Sometimes spouses are tempted to hide assets or transfer them to others when they begin to contemplate divorce.  I strongly advise against this as hidden and fraudulently transferred assets are usually found.  If it is discovered that you have hidden assets or fraudulently transferred assets, you will likely look like a crook to the court.  This will likely result in the judge having trouble believing what you say about anything after that.  Also, the judge may also assess reimbursement of attorney fees and expenses incurred to recover the hidden or fraudulently transferred assets against you for your behavior.

 

How are taxes affect by property division in a Tennessee Divorce?

Sometimes there are important tax issues to consider.  Transfer of property (such as a bank account) from spouse to spouse during a divorce is usually not taxable, but transfer of income (for example, interest) from an asset can be taxable.  Be careful about capital gains. 

 

Under the right circumstances, the sale of a house by a couple can have an untaxed capital gain of Five Hundred Thousand ($500,000.00) Dollars or an individual seller can get half that.  This may affect your decision to sell your home before the divorce (as a couple) or after the divorce (as an individual).  See the taxes section below and talk to your tax advisor. 

 

How are marital debts divided in a Tennessee divorce?

Debts are the other side of assets and must be dealt with in a divorce.  If you cannot agree, then the court will generally consider several factors in dividing debt obligations.  Those factors can include:

• Who made the original debt?

• For what purpose was the debt made?

• Who received the benefit of the debt proceeds?

• Who will receive as a part of the division of marital assets the particular asset (if any) connected with the debt?

• Who is better able to pay the debt?

Despite an agreement for one spouse to pay a debt that is in both parties’ names, there can still be problems with the debt.  If the party responsible for the debt does not pay the debt, the other party can still be sued for the debt.  For example, the wife gets the house and the husband agrees to pay the mortgage.  The husband dies or goes bankrupt.  The wife may or may not be able to sue the husband.  In any case, the mortgage company can foreclose on the house if the payments go unpaid and sue the wife for any unpaid balance after foreclosure.  The best way to protect the wife in this case would be for the husband to refinance the property and to remove the wife from the debt if possible.  Sometimes this is financially impossible for large debts such as houses but can still be done with smaller debts such as second mortgages and car notes.

 

During your marriage, most of your debts were probably incurred jointly.  That means that both you and your spouse are responsible for the repayment of the debt.  When your divorce is finalized either through a settlement agreement or a court hearing, the court will make orders concerning who is to pay what debt.  If your ex-spouse does not make the required payments, you can usually take your ex-spouse back into court, but you cannot stop the creditor from trying to collect from you.  Your creditors are not parties to your divorce, so the order requiring your spouse to pay off the debt will not bind them.  This is because in the case of joint debt, creditors agreed to loan money or extend credit because you and your spouse both agreed in a signed contract that said you both will pay the money back. This means you can have a real problem if your spouse is financially irresponsible.  If your debts are not too high, some creditors may be willing to refinance loans so that only one spouse is responsible for repayment.  Refinancing a loan will typically help protect the spouse who is not held liable for a debt in the divorce decree.  If you believe that your spouse may be considering bankruptcy, you should schedule a divorce planning session with me so that I can help you take steps to try to protect you in the event that happens.  If your spouse files for bankruptcy, and you fail to take the necessary steps to protect yourself, you may be held solely financially responsible for all of your marital debts, even the marital debts that your spouse was ordered to pay in the final decree for divorce, without recourse. 

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