# FILED May 11, 1999 Cecil Crowson, Jr. Appellate Cou rt Clerk IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

______________________________________________ ROBERT E. BELCH, Plaintiff-Appellant, Madison Chancery No. 51217 Vs. C.A. No. 02A01-9806-CH-00165 DELISA ALSUP, INDIVI DUALLY AND AS EXECUTRIX OF T HE ESTATE OF DANITA ANNE BELCH, AND AS ADMINISTRATRIX OF THE ESTATE OF DALTON RAY HAWKINS, AND AS TRUSTEE OF THE DANITA ANNE BELCH CHILDREN’ S TRUST; KATHY PIERCE, KENNETH H AWKINS; DEBRA WADLEY; HNR CORPORATION; CARRIAGE HOUSE SUBWAY #2992, INC.; SUBWAY OF LEXINGTON, INC.; SUBWAY STORE # 12491, INC., Defendants-Ap

pellees.

______________________________________________ _____________________________ _ FROM THE MADISON COU NTY CHANCERY COURT THE HONORABLE JOE C. MORRIS, CHANCELLOR Lloyd R. Tatum; Tatum, Tatum & Weinman of Henderson

For Appellant Harold F. Johnson of Jackson For Appellees

REVERSED IN PART, AFFIRMED IN PART AND REMANDED Opinion filed:

W. FRANK CRAWFORD,

PRESIDING JUDGE, W.S.
CONCUR: ALAN E. HIGHERS, JUDGE DAVID R. FARMER,

JUDGE This appeal involves a

suit to set aside all

eged fraudulen

t transfers of pr

operty and to determine ownersh

i p interests in property. Plaintiff/Appellant, Robert E. Belch (hereinafter Plaintiff or Belch), appeals from the order of the trial court in favor of Defendan ts/Appellee s,2

Delisa Als up, Kathy Pierce, Kenneth Hawkins and Debra Wadley (hereinafter Defe ndants or by name). FACTS Plaintiff is the surviving spouse of Danita Hawkins Belch who died September 21, 1994. Mrs. Belch was also sur

vived by the Defe

ndants, four children by her previous husband Dalton Hawkins, deceased. Dalton and Danita Hawkins owned stock in corporations operating Subway Restaurant

franchises in Union City, Lexington, and Jackson, Tennessee. They also owned as tenants by the entirety thir ty-five acres o

f real property

in Madison County, Tennessee, on which

was located a trailer, barn, and a house. They occ

upied the house on t

he property as the

ir home until Mr. Hawkins’s death in 1989, and Danita Hawkins continued to live on the property until her marriage to Rober

t Belch in January 1992. UponDalton Hawkins’s death, Danita Hawkins became the owner

of the real property as surviving tenant by the entirety, but it is unclear from the record how the Hawkins owned the stock in the Subway Restaurant corporations. It appears from the record that Dalton Hawkins died intestate, and if the stock in the corporations was not ownedas tenants by the entirety but as tenants in common, Defendants would have acquired an interest in the corporate stock

upon Dalton Hawkins’s death. On the other hand, if the stock was ownedas tenants by the entir ety, Danita Hawkins would have been the sole owner as the surviving tenant by the entirety. After the Belches married in January 1992, Danita wasdiagnosed with cancer in March 1992 and began a treatment regimen. During their marriage , the B elches participated in the operation of the aforementioned Subwayrestaurants. The Belches also purchased the Subway franchise in Selmer, Te nnesse e, in November, 1993, and they incorporated another Subway franchise located on Oil Well Road in Jackson in June 1994. In 1994, Mrs. Belch’s medical condition began to decline rap idly , and her marria ge to Robert Belch also began to deteriorate. The Belches separated in July 1994, and Danita Belch filed for divorce on September 12, 1994. The divorce proceedings terminated upon Danita’s death on September 21, 1994. It is undisputed tha

t in the months leadin

g up to her death, M

rs. Belch divested

herself of most of the property she held, incl uding the real property and her interests in the Subway1 We are not clea r on this terminology

for an original c

omplainant. It app

ears that this is an amendment to

the complaint, alth

ough not permitted b

y court ord er. In any event , this issue was tried

by consent of the p

arties. 3 restaur ants. On July 1, 1994, Mrs. Belch transferr

ed almost all of her

personal p

ropert y including her

interests in four of the Subway restaurant corporations to her children by means of a trust agreeme

nt. On July

13, 1994, Mrs. Belch executed deeds conveying t

he real propert

y locatedin Madison County to three of her children. The deeds were recorded on September 21, 199 4, the date of Mrs. Belch’s death. Under the terms of her Will, Danita Hawkins Belch beque athed to Robert Belch her i nterest in the Selme

r Subway corpora

tion if he assumed a

ll debts of the operation and did not challenge the validity of the will. On November

16, 1995, Robert Belch filed a petition to set aside the fraudulent transfers; to compel an accounting by Delisa Alsup, executrix of the Danita Belch’s estate; to remove Delisa Alsup as executr

ix and to compel an a

ccounting of the c

orporate and pa

rtnership assets. Namedas defendants were Delisa Alsup, individu ally and as exec utrix of the estate

of Danita Anne Belch and

as executrix of the estate of Dalton Ray Hawkins and as trustee of the Da

nita Anne Belch Children’s Trust; Kathy Pierce; Kenneth Hawkins; Debra Wadley; Bobby Rogers; HNR Corporation; Carriage House Subway #2992, Inc.; Subway Store of Lexington, Inc.; and Subway Store #12491, Inc. The various defendants filed answers, and on May 9, 1997, Robert Belch filed a “Counterclaim for Declaratory Relief” 1 in which he sought a judicial declaration that he and Danita

Belch had owned the Selmer, Tennessee, Subway corporation as tenants by the entirety andthat upon Danita’s death, ownership in fee simple passed exclusively to Robert Belch. Subsequently, on Au gust 12, 1997, Robert

Belch filed an amended complaint in which he sought to set aside,

as fraudulent, th

e gifts and transf

ers of personal property m ade to the Danita Anne Belch Childre

n’s Trust; a

declaration that he was an express or implied partner with Bobby and Beverly Rogers; and a declaration that he and Danita

Belch held owner

ship interests in certain other Subway corporations as tenants by the entirety and that

as a result, Mrs. Belch’s ownership passed outside of her estate directly to Mr. Belch. Defendants

Bobby Rogers, Beve

rly Rogers and HN R Corporation were dismissed by final order granting su

mma ry ju dgment entered in the trial court on September 11, 1997. Plaintiff filed a notice of appeal on September 11, 1997, but the separate appeal as to

the Rogers4

and HNR Corporation has not yet been heard by this Court. A non-jury trial was held in August 1997. On December 30, 1997, the trial court filed its findings of fact,

which wereincorporated into the final judgment entered on March 20, 1998. In that order, the trial court determined that theappellant was not a partner or otherwise an owner in any of the Subway restaurant corporations as he had alleged except for his fifty percent ownership

in the Selmer corp

oration. The cour

t also held that th

e transfers made by Danita Belch to her children were not fraudulent. The appellant timely filed a notic

e of appeal on Ap

ril 14, 1998, and the cause is properly before this Court for consideration. ISSUES ON APPEAL The following issue

s have been rais

ed on appeal: 1. Whether t

he trial court erred in failing to set aside the transfers of real and personal property made by Danita Anne Belch to her children; 2. Whether the trial court

erred in failing to declare that Robert Belch was a joint owner or partner with his wife of certain businesses; and 3. Whether the trial court erred in failing to declar

e that Robert Belc

h and Danita Belch owned certain businesses as tenants by the entirety. This action wa s tried bef ore the Chancer

y Court of Madison Cou

nty sitting without a jury. Pursua nt to Rule

13(d) T.R.A.P., this Court’s review of the findings of fact by the trial court shall be de novo upon the record, accompanied by a presumption of correctness, unless the preponderance of the evidence is otherwise.

I. Whe ther the

trial court err

ed in failing to set as

ide the transfers of

real and personal property made by Danita Anne Belch to her childre

n: T.C.A. § 31-1-105 p

rovides: Any conveyances ma

de fraudulently

to children or others, with an intentto defeat the surviving spouse of his distributive or elective share, is voidable at the election of the surviving spouse. Until July 1994, Danita Belch’s estate was comprised principally of two assets: the 35

acres of land on which she and her children had lived and her ownership interests in the various Subway restaurant cor

porations. On July 1, 1994, Danita Belch established the “Danita Anne Belch Childrens’ Trust.” The initial trust pr operty consisted s

olely of her owne

rship interests in the various Subway

corporations, an

d the property pla

ced in trust is desc

ribed as: 666 b Shares o f Common Stock (or 66 b % of all stock issued) in Carriage House Subway No. 2992, Inc. 500 Shares (or 50% of

all stock issued) o

f Common Stock in Subway of Lexington, Inc.,5 500 Shares (or 50% of

all stock issued) o

f Common Stock in Subway of Union City, Inc., and 250 Shares (or 25% of

all stock issued) o

f Common Stock in Subway #12491, Inc. (Jackson-Oil Well Road) Emphasis Ours. Two weeks after establishing the Trust, Danita Belch executed separate deeds dated July 13, 1994 to transfer the 35 acres of real property to three of her children: Delisa Alsup, Kathy Pierce and Kenneth Haw

kins. However, the children did not register the deedsuntil September 21, 1994, the date of t

heir mother’s de

ath. Belch asser

ts th at al l of these transfers were fraudulent conveyances. There can be no fixed rule for determining when a transfer or gift is fraudulent to the surviving s pous e. Instead, eac h case must be dete

rmined on its own fa

cts and circumsta

nces. Sherrill v. Mallicote , 417 S.W.2d 798 (Tenn. App. 1967). In Warren v. Compton , 626 S.W.2d 12 (Tenn. App. 1981), this Court, relying upon the Sherrill case, enumerated five factors which courts should weigh when considering the fraudulent intent of the donor-spouse. They are: 1. Whether the tr

ansfer is made wi

thout considerati

on; 2. The size of the

transfer in rela

tion to the total asse

ts of the donor-spo

use; 3. The time between the transfer and the death of the donor-spouse; 4. Relations which existed b etween the husband and wife at the time of the transfer; and 5. The source from which the property came. Id. at 17. In Finley v. Finley , 726 S.W.2d 923, 924 (Tenn. App. 1986), the Ea stern Section of th

is Courtnoted two additional considerations: (1) whether the transfer was illusory, and (2) whether the surviving spouse was adequately provided for in the will. In regard to the tra

nsfer of the rea

l property, we do n

ot find th at the con veyance was made with the intent to defraud. The deeds recite that consideration, albeit nominal, wa s paid for each conveyance. Moreover, it is undisputed that the property had been in the Hawkins family for quite some time, having been owned by Danita Hawkins Belch and her first husband Dalton Hawkins and used by themto rear their children. Moreover, the proof is uncontroverted that a division of this property was agreed upon between the children and the H awk inses, and the children actually took possession of their respective parcels. We do not find in th e record any proof as to the value of th e land in relation to the value of Danita Belch’s entire estate, although it is apparent that the legal transfers occurred approximately two months before Danita6

Belch’s death and at the time when her marriage to Robert Belch had deteriorated. In regard to the other criteria, we find the transfers of real property were not illusory as that te rm has be en defined by this Court. In Warren , this Court determin ed that “illusory”

is defined to mean:

“deceiving by false

appearances; nominal as distinguished from substantial. As used in defining a transfer of property we treat

the word as meaning that the transferor re

ta in ed such elements of ownership

and control over the p

roperty as renders the purported transfer deceptive, incomplete and mislead ing - a pretended transfer rather than a real transfer.” 626 S.W.2d at 19. The Warren court cautioned others called upon to weigh the foregoing factors not to take

a math ematical approa

ch by tallying the f

actors in favor o

f each party an

d either affirmi

ng o r set ting aside a conveya

nce based on the s

um total. Heeding th

is caveat and co

nsid ering th e foregoing factors, the Court is of the opinion that the tra nsfers of real property were without improper motive or intent; if anything, the legal transfe rs were long overdue. Our conclusion is supported by ample evidence in the record. In 1988, when both Da

nita and Dalton Ha

wkins were living,

the Hawkins and th

eir children had discussed dividing the real property among the children. Danita Hawkins had even drawn on a plat how the property should be divided. When Danita and Robert Belch married, they moved into a house on Michelle Drive in Jackson, away from the property at issue

. Thereupon, Delisa Hawkins Al sup moved into

the main house on the property at issue and made rent pay ments to her mother in the amount of the mortgage payment. Another child, Kath y Hawkins Pierce, ran horses on the property, and Kenneth Hawkins even posted his portion of the property for hunting purposes. From the evidence presented, it appears to the Court that the transfers of the real property by Danita Belch to three of her children on July 13, 1994, were not done to defraud and we

re not illusory tra

nsacti ons. Accordingly, we affirm the trial court’s determination in regard to this issue. The Court next turns its attention to the issue of Danita Belch’s tr

ansfer of her ow

nership interests in the various Subway restaurant corporations to the Childrens’ Trust. When applying the foregoing factors to the conveyanc es of ownership in

terests in the Subway corporations, we determine that the conveyances were fraudulent. Sha res of stock in four separate Subway7

corporation s - Lexin gton, Union City, Jackson-Carriage House and Jackson-Oil Well Road -

were placed into the Childrens’ Trust, for which no consideration was paid. While it is unclear

as to what interest in the corporations she actually owned and there is no evidence as to the value of her inte rests in relat ion to the value of h er entire estate

, it is evident that he

r ownership int erests in t he various Subway corporations constituted the bulk of her assets and were transferred at a time in which both her health and her marriage were deteriorating. Moreover, it appears that the transfer of her owners hip interests was i llusory. While she

supposedly transferred

her ownership interests in the Subway corporations on July 1, 1994, thereafter, she attendeda Subway franchisee’s business meeting in Chicago on July 20. Also, there is no proof that she ever notified her co-owners Bobby and Beverly Rogers regarding the supposed change in ownership. Such conduct or lack thereof is not suggestive of one who has divested herself of her ownership intere

st in a business. In a

ddition, the provisi

on in Danita Belch’ s will bequeathing her interest in the Selmer Subway to Robert Bel ch if he assumed all debts of the business and if he d

id not contest the wi

ll does not adequa

tely provide for Robert Belch under the requirements of Findley . For the foregoing reasons, we reverse the trial court and find that Danita Belch’s transfe

r of her ownersh

ip in terests in the various Subway corporations to the Childrens’ Trust was done with a fraudulent intent and must be set aside.

II. Whether the trial court erred in failing to declare that Robert Belch was a joint owner orpartner with Danita Belch of certain businesses: Robert Belch contends that

he was a joint owner or

partner in the Subway corporations which operated restaurants in Lexington, Union City and at Jackson-Carriage House. The trial court found otherwise, and we affirm. It is conceded that Robert Belch worked in and was involved in the day-to-day operations of the restaurants; he attended meetings and conventions and was even authorized to sign checks and hire and fire employees. However, we are unaware of any prec edent where one’s involvement

in the management

or daily operations of a corporation , without more, ope

rates to make one an owner of a corporation. Each of the aforementioned restaurants is ow

ned and operate

d by a separate

corporation, incorporated

under the laws of

this S tate. Partnerships and corporations are separate legal8

entities in the eye

s of the law. A par

tnership is an asso

ciation of two or mo

re persons to

carry

on as co-owners a business for profit. Tenn. Code Ann. § 61-1-1 05(a). While the intent to form

a partnership may be implied , the recordshows that the parties intended that the various restaurant businesses be operated as cor poratio ns. See, Lambert v. S&L Plumbing Co., Inc. , 935 S.W.2d 411 (Tenn. App. 1996). Therefore, an y contention that Be

lch became a pa

rtner with the true owners through his involve ment inthe businesses is without support in law. Belch, himself, testified that he did not recall any time at which either Beverly or Bobby Rogers stated any intention to enter into a partnership with him. Beverly Rogers testified that she never inten ded forRobert Belch to be an owner in any form or fashion, and there was no evidence presented that Danita Hawkins Belch ever intended for Robert Belch to be made an owner. Robert Belch alternativ

ely contends that

he became a co-owner by virtue of his marriage to D anita Hawkins Belch. In support of this contention, Belch relies upon corporate minutes datedJanuary 7, 1992 and January 4, 1993, which indicate that he was to be compensated at the

samerate of pay as Danita Hawkins Belch and Beverly and Bobby Rogers, the true owners, were to be compensated. However, such an assertion has the effect of er od ing his position that hi s allegedownership vested upon marriage; Robert Belch and Danita Hawkins did not mar

ry until January 17, 1992, ten days after one of the three separate Subway corporation boards of directors had agreed upon his rate of compensation. Robert Belch introduced two memoranda dated July 25, 1993, in which he was listed as

an owner of some unna

med Subway restau

rant, and he also introduced three memoranda related to store manager be

nefits, dated in

September 1993 an

d signed by Danita

and Robert Belch and by Beverly and Bobby Rogers. Beverly Rogers, the corporate secretary for the various Subway restaurant corporations at issue, testified that Robert Belch had typed the memoranda and that she had never seen any document where Robert Belch was listed as an owner other

than those prepared by Belch himself. Moreover, Robert Belch was never an officer in any of the Subway corporations at i

ssue, nor did he pos sess any indices. III. Whether the tria

l cour t erred in failing to declare that Robert Belch and Danita Belch owned certain businesses as tenants by the entirety. The trial court found that Robert and Danita Belch did not own any of the S ubwa y9

Restaurants

as tenants by the entirety. We will first cons ider Ro bert Belch’s assertion that he and Danita Belch owned the Selmer S u bway Restaurant as tenants by the entirety and that he became the sole own er as the surviving tenant by the entirety upon her death. The trial court found that each owned fifty percent of the unissued stock in the Selmer store. The record reflec

ts that in Decembe

r 1993, Robert and

Danita Belch purc

hase d the Subway Restaurant located in Selmer, Tennessee for $80,000.00. Danita and Robert Belch each contributed $20,000.00 of their own money toward the purchase price and then secured a loan from Central State Bank for $40, 000.00 for the bal

ance of the purc

hase price. The

y jointl y executed a promissory note for the $40,000.00 loan. Although the Buy and Sell Agreement and the subsequent Bill of Sale listed the buyers

as Robert and Danita Belch, it is undisputed that a corporate charter was filed with the Tennessee Sec retary o f State incorporating the business as Subway of Selmer No. 12193, Inc. The sales and use tax application filed with the Tennessee Department of Reve nue lists the business as Subway of Selmer No. 12193, Inc. Randy Pedigrew, a Jackson lawyer, testified that he handled the incorporation for the parties, and that the agre ement was that ea

ch party would own

fifty percent of the issued stock. He prepared a stock certificate

for 250 shares for Danita Belch and

a stock certificate fo r 250 shares for Robert Belch. He testified that Danita Belch signed the certificates as secretary f

or the corporati

on and that Robert Be

lch was to come by his office and sign the stock certificates as president of the corporation, but that he never did do so. It is legally permissible for husband and wife to

own real and personal property in any

manner they choose, such as tenants in common, tenants by t he enti rety, individually, in p artnership, as life tenants, remaindermen, or in any other manner. Griffin v. Pri nce , 63 2 S.W.2d 532 (Tenn. 1982). Tenancy by the entirety i s a form of proper ty ownership unique

to married persons. It is well

-settled that both

real and person

al property

may be owned by spouses

as tenants by the entirety. Catt v. Catt , 866 S.W.2d 570, 573 (Tenn. App. 1993). The essential characteristic

of a tenancy by the entirety is that each spouse is seized of the whole or the entirety and not of a share or a divisible part. Upon the death of one spouse, ownership in tenancy by the entirety property immediately vests in the survivor. Grahl v. Davis , 971 S.W.2d 373, 378 (Tenn. 1998).10 The Griffin Court held, “Words of a conveyance or legal instrumentwhich would make two other perso

ns joint tenants under the common law or tena

nts in common . . . will c reate tenancy by the entirety in a husband and wife.” Id . at 535. In Lamberth v. S&L Plumbing Co., Inc ., 935 S.W.2d 411 (Tenn. App. 1996), this Court said:

Creation of an est ate by the entire ties is a question of

intent; it may be inferred from the circumstances, “b u t should rest upon convincing evidence and never upon conjecture.” Id. at 412 (quoting fro

m Oliphant v. McAmos , 197 Tenn. 367, 373, 273 S.W.2d 151, 154 (Tenn. 1954). The evidence in t he record befo

re us does not p

re ponderate against the trial court’s finding that Robert and Danita Belch each owned fifty percent of the stock in Subway of Selmer No. 12193, Inc. The parties chose to operate as a corporation, and the unrefuted testimony is that the stock was to be issued to each of them individually for fifty percent inter es t in the corporation

. Under this state of the record, there is no “convincing evidence” that the parties ownedthe Selmer Subway Restaurant or the stock in the corporation, Subway of Selmer No. 12193, Inc., as tenants by the entirety. Robert Belch also assert

s that he and Danit

a Belch owned an interest in theJackson-Oil WellSubway corporation as tenants by the entirety. Robert Belch is named in

the charter as the incorporator

of the Jackson-Oil Well corporation which was filed with the Secretary of State on July 7, 1994. The reco

rd reveals that three checks were drawn on Robert and Danita Belch’s joint checking accou

nt to pay initial rent expenses, to pay the incorporation fee and to open a corporate checking accou

nt. However, the

re is no proof in

the record regardingthe ownership of the shares of stoc

k or who held the fr

anchise. The re

cord contains no proof as to leasing arrangements

or who made the ini

tia l inv estment in the corporation. Moreover, testimony revealed that Robert Belch had no involvement in the actual ownership and operation of the corporation. Danita Belch apparently believed that she owned 250 shares of stoc k in the Jackson-Oil

Well Subway corporation on July 1, 1994, when she attempted to trans

fer those shares to the Childrens’ Trust, but we find no proof in the record of any ownership interest by Robert Belch. In the absence of any proof to the contrary, we must affirm the trial court’s determination that Robert and Da nita Be lch did not own the Jackson-Oil Well Subway Restaurant or stock in the corporation as tenants by the entirety.11 Finally, the Court turns its attention to whether the Danita Belch and Robert Belch owned the Subway corporations operating restaurants in Lexington, Un ion City and at Jackson-Carriage House as tenants by the entirety. The evidence clearly preponderates against a finding that the Belches jointly owned those Subway corporations. Each of the corporations had bee n in existen ce for m any years before Robert and Danita Belch married, and were, in fact, founde d during Mrs. Belch’s marriage to Dalton Hawkins. There was no proof of any intent on the part of Danita Belch, m

uch less the other

owners, to allow Robert Belch an ownership interest in the Subway corporations operating restaurants in Lexington, Union City and at Jackson-Carriage House. We concur in the trial court’s finding that Robert Belch an d Da nita Belch each owned

a fifty percent int

erest in the Selmer Subway Resta urant and that Robe

rt Belch owned no in

terest as tenant by the en

tirety in any of the

other restaura

nts. In sum, we reverse the trial court’s judgment th

at Mrs. Belch’s transfer to the trust was notfraudulent and affirm the trial court’s findings in all other respects. The case is remanded to the trial court to

determine what interest in the corporate stock of the Union City, Lexington, Jackson Carriage House, and Jackson Oil Well Road Subway businesses Mrs. Belch transferred to the trust, and to enter the appropriate or der setting asi

de the transfers. Costs of appeal are assessed one-ha

lf to Plaintiff and o

ne-half to Defe

ndants.

_________________________________ W. FRANK CRAWFORD, PRESIDING JUDGE, W.S. CONCUR:

____________________________________ ALAN E. HIGHERS, JUDGE

____________________________________ DAVID R. FARMER,

JUDGE