Tennessee case summary on classification law in divorce.
After 34 years of marriage, the husband and wife in this Montgomery County, Tennessee case were divorced. Early in the marriage, the husband had been a car salesman and served in the Army Reserves, while the wife owned her hairdressing business. But when children were born, the husband returned to active duty in the army. Since this prompted many moves, it was difficult for the wife to continue as a hairdresser.
Later, the wife worked in the school system, and the husband retired on a disability rating. He received disability benefits which he deposited into his personal account. With that money, he purchased a property which he leased to one of the parties’ daughters, and also purchased a truck. He kept this account separate, and it was funded only with the disability benefits and rent from the daughter.
At the time of the divorce, the husband’s income was over $10,000 per month, which included military retirement, social security, as well as the disability payments.
At that time, the wife still worked as a teacher’s aide for a special education pre-kindergarten class, and also received social security. Her gross income was just over $2000 per month. The wife pointed out that her work was physically demanding, and she was unsure how long she could continue.
The parties were able to come to an agreement as to most property issues, but the husband’s separate account was the stumbling block, and the court had to rule on it. The husband argued that it, as well as the property and truck purchased with it, were his own separate property. The wife, on the other hand, argued that it became marital property because the rent from the daughter was included. Even though that property originated with the disability benefits, the wife argued that the source made it marital in nature.
The trial court held that the bank account, property, and truck were the husband’s separate property. Even though the property was titled in the name of both spouses, it had been paid for entirely with the husband’s separate account. The trial court found no evidence that there was an intent to make a gift to the marital estate. The trial court also awarded alimony.
The case was appealed to the Tennessee Court of Appeals, which first turned to the issue of property division. The appeals court first conceded that the VA disability benefits were the husband’s separate property, as required by federal law. But it also pointed out that rent income earned during marriage is considered marital property.
The court cited a number of cases from federal courts and from various states for the proposition that VA benefits lose their protection under federal law when they are comingled with marital assets. In this case, when the husband comingled the assets with the rental income, the property became marital, and the husband had the burden of proof of showing that they remained distinct.
In this case, the husband did not meet the burden because the two sources of funds were not segregated. Therefore, the presumption is that the account is marital property.
The property itself was purchased entirely with VA benefits, but the court went on to hold that the assets cease to be exempt unless they remain “readily available as needed for support and maintenance.” In this case, when they were used to purchase real estate, the court found that they no longer met this test.
Therefore, neither the property, nor the truck purchased with the VA benefits were exempt, and the Court of Appeals held that they should be included in the marital estate.
For these reasons, the Court of Appeals reversed the lower court’s ruling on the nature of this property, and remanded the case. Since the issue of alimony was inextricably linked with this ruling, it asked the lower court to review the alimony ruling on remand.
Both parties asked for attorney’s fees for appeal, but both requests were denied.
No. M2020–00509-COA-R3-CV (Tenn. Ct. App. May 13, 2022).
See original opinion for exact language. Legal citations omitted.
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