1 

### IN THE SUPREME COURT OF TENNESS EE

AT KNOXVILLE Septem ber 3, 2003 Session

STANLEY DAVID ALFORD v. PAMELA WARD ALFORD

Appeal by pe rmissio n from the Court of App eals, East ern Sect ion Domestic Relations Court for Hamblen County No. 4940 Joyce Mills Ward, Judge

No. E2001-02361-SC-R11-CV - Filed Novem ber 6, 2003

We granted permissi on to appe al in this divorce case to determine: (1) whether the Court of Appeals erred in apply

ing a “joint benefit” definition of marital debt and holding that debt incurred by Wife during the pa

rties’ te n-y ear sep aration

was marital debt ; and (2) whether the Court of Appeals correctly

allocated this debt when it held that Husband should be required to pay Wife’s marital debts. We h oldthat debt s incurr ed by either o r both spous es dur ing th e cours e of a ma rriage

are properl

y c lassifie d as marit

al debt; th

erefor e the deb ts a t issue i n t hi s ca se a re m ari tal . In allocating marital d

ebts, trial courts should consider the following four factors: (1) the debt’s purpose; (2) which party incur red the debt; (3) which party benefittedfrom incurring the debt; and (4) which party is best able to repay the de

bt. Because t

he record d oes not contain sufficient evidence to deter

mine how th

e debts in this case s hould be allocated, this case is remanded to the trial court to determine the p rope r allocation of the marital debts. The trial court’s determination shall be guided by

the four factors set out above.

Tenn. R. App. P. 11; Judgment of the Court of Appeals Affirmed in Part; Reversed in Part ; and Remanded to the Trial Court

F RANK F. D ROWOT A , III, C. J., delivered the opinion of the court, in which E. R IL EY A NDERSON , A DOLPHO A. B IRCH , J R ., J ANICE M. H OLDER , and W IL LI AM M. B ARKER , JJ., joined.

Janice H. Snider, Morristown, Tennessee, for the appellant, Stanley David Alford.

Douglas R. Beier, Morristown, Tennessee , for the appellee, Pamela Ward Alford.2 OPINION

Factua l and Proc

edural Bac

kground

The parties i n this case, Pamela Ward Alford (“Wife”) and Stanley David Alford (“Husband”) have an unusual marital history. They were married on November 2, 1979, rema ined married for more than twenty

years, but they

spent about half of that

time living a

part, se paratin g in 1989. They had one

daughter, who is now an adult. After they separated, Wife filed for

divorce in 1990, but withdrew the divorce complaint. The parties agreed to remain marr ied “in name only”for their daughter’s sake. Both pa rties agree that Husband’s income wa s and is significantly g reater than Wife’s. No formal agreement was re ached as to child or spousal support

. Husband voluntar ily paid $200 per month in child support until their daught er turne d eighteen. He a

lso mainta

ined hea lth insurance on their daughter, paid her medical bills, and paid for her college tuition. Wife agrees that Husband typically

gave her any

financial assistance she requested.

Husband filed for divorceon July 1, 1999. The divorce trial was held on January 12, 2001 and a final judgment was entered April 20, 2001, g ranting Husband a divorce on t he ground o f inapprop riate marital conduct, specifically “Wife’s deceptionin joint financial matters.” The trial court noted that “[s]he had, without his knowledge or consent, acquired a secondmortga

ge on their homeof approximately $10,000.... After the action for divorce was filed, Husband learned that Wife had obtained credit cards in his name, made substantial charg es and defaulted on the pay ments.”

The trial cou

rt’s judgme nt awarded each party an automobile and the furnishings and household

goods in each party ’s possession. The trial court ordered that Wife’s debts be paid out of the marital estate and that marital assets be divided equally

.
Husband filed a motion to alte r or ame nd th e judgment, and the trial cou rt modifie d its judgment such that Husband was ordered to pay Wife’s debts up to $9,000. After the de b ts were paid, the parties were to add the values of their sepa rate 401(k)s and investment accounts, and “transfer sufficient shares from Husba nd to Wife to reflect equal value to both parties.”

One of the debts Husband was ordered to pay was a VISA cre dit card debt, not to ex c eed $3,500. Husband a

llegesthat this debt was incurred in 1999 or 2000, after the parties’ daug hter had tu rn ed ei gh te en on Ju ne 15 , 1 99 8. Wi fe di sp ut es th at cl ai m i n h er te st im on y:

Wife: Some of it was debt to replace debt, essentially . You can move a card balance from one account to another, like I have a previous balance.... The Court: So, even though these debts were incurre d in ‘99 and ‘00, you’re saying it’s possible that debt was incurred act ually before that time a

nd y ou were

just juggli ng? Wife: That is correct. That’s absolutely correct.3

Wife did not produce any c redit ca rd statem ents at trial. The only evide nce regarding the purpose of the credit c ard debt

was her testimony

that “in so me case s, I tr

ansfer red over some debt s to the new account, previous debts. I bought some gifts for

family, my

daughter, things for my self. Used it on business a couple of times.” Hus band was also ordered to pay a C ommercial Credi t Plan loan, not t

o exceed $ 1,000. Wif

e obtaine d this loan in her sole name around 1997. No evidence was introduced concerning the purpose of the loan.

Fi na ll y, Husband w as ordered to pay a loan against Wife’s 401(k), not to exceed $4,500. This loan was taken in 1998. At trial, Wife testified that she “used it to pay off some bills that

I had incurred. I don’t recall now wha t it – what they were .” However, no documents or other evidence were introduced to show the purpose of the debt.

The Court of Appeals affirmed the judg ment of the

trial cou rt. Husband filed for permission to appeal to this Court and permission was granted.

Standard of Review

Defining marital d

ebt and de

terminin g what

factors should guide the allocation of marital debt are questions of law. We review questions of law de novo with no pre sumption of correctness. Union Carbide Corp. v. Huddleston , 854 S.W.2d 87, 91 (Tenn. 1993). Our review of findings of fact is de novo upon the record, with a pres umption of correctness, unless the evidence preponde rates otherwise. Tenn. R. A

pp. P. 13(d

); Hass v. Knighton , 676 S.W.2d 554, 555 (Tenn. 1984).

Analysis

The Court of Appeals relied upon Mondelli v. Howard , 780 S.W.2d 769 (Tenn. Ct. App. 1989), for guidance in identify ing and allocating marital debt. The Mondelli opinion stated that “[i]n dual property jurisdictions like Tennessee, the c ourts also distinguish between marital and separate debts and divide only the marital debts.... Marital debts are those debts incurred during the marriage for the joint benefit of the pa rties,... or the acquisition of marital property .” Mondelli , 780 S.W.2d at 773. Mondelli adopted the following factors to be used for dividing marital debt between the divorcing spouses: (1) the de bt’s purpose; (2) which party incurred the debt; (3) which party

benefitted from incurring the debt; and (4) w hich party is best able to r epay the debt. Mondelli , 780 S.W.2d at 773.

Applying these

standards to the present case, the Court of Appeals found that “there is no question that these debts were properly classified by the tria

l court as marital.... While Wife’s testimony as to the purpose of the de bts was somewhat vague, the trial court found that ‘[h]er credit card debts were incurred to maintain living expenses and payme nt obligations.’” After considering the four Mondelli marital debt allocation factors, the Court of Appeals held that the1 Spo uses wh o wish to legally sep arate a nd ha ve their p rop erty divid ed w ithout d ivorc e can do so

.

Te nnesse e Co de A nnota ted § 36-4 -121 (b)(1 )(A) ( 200 1) p rovid es that “[i]n the case of a complaint for l egal (con tinued ...)

4 evidence did not preponderate ag ainst the trial court’s finding that Husband should be responsible for repay

ing the debts.

After carefully

considering the matter, we rejec t the Mondelli analy sis to the e

xtent that it requi res a t rial c ourt t o engage i n a prel imin ary determ inati on of w hethe r debt incur red du ring a marriag e is marit

al or sep arate b ased on a

“joint be nefit” te st. We belie

ve that su ch a test

would create substantial confusion and difficulty in determining what debts would meet the standard. For examp le, if one

spouse inc

urs debt d uring th e marria ge to pu rchase a new au tomobile, w ould the purchase be for the joint benefit of both parties? I f the automobile was used to drive children to sch ool, would that c hange t he resu lt? The “j oint benefi t” tes t woul d requ ire tr ial co urts t o go through a difficult and unnecessa ry inquiry , and we d

ecline to adopt it.

“Marital debt” is not defined by any Tenne ssee statute and has never before been defined by this Court. However, mar ital debts are subject to equitable division in the same manner as marital property. Cutsinger v. Cutsinger , 917 S.W.2d 2 38, 243 (T enn. Ct. Ap p. 1995); Mondelli
, 780 S.W.2d at 773. We take this opportunity to define “marital debt” c onsistent with the definition of “marital property ” in Tennessee. “Marital property ” is defined by statute a s “all real and personal property , both tangible and intangible, acquired by either or both spouses during the

course o f the mar

riage up to the da

te of the final divo

rce hea ring and owned by

either o r both spouses as of the date of filing a complaint for divorce ....” Tenn. Code Ann. § 36-4-121(b)(1)(A) (2001). We now hold that “marital debts” are all debts incurred by either or both spouses during the course of the marriage up to the da te of the final divorce hearing.

Other jurisdictions, such as Montana and Missouri, have used a similar approach - developing a bright-line definition of marital debt by referencing the state’s de finition of marital property. For example, in In re Marriag e of Scof

field , the Monta

na Supre me Court be gan its discussion of marital debt by examining Montana ’s definition of marital property , which “includes property

acquired by

either party

during the marriage.” In re Marriag e of Scof

field , 852 P.2d 664, 66 7 (Mont. 19 93). I t then def ined mar ital debt a s “all de

bt incurr ed by either p arty during the marriage.” Id

. The debts at issue were incurred to support Wife’s children f rom another marriage, and we re held to be marital debts. The Missouri courts have likewise relied upon the state’s definition of marital property , “all property acquired by

either spouse subsequent to the marriage,” to define marital de bt as “debt incurred subsequent to the marriag e.” In re Marriage of Welch , 795 S.W.2d 640, 643 (Mo. Ct. App. 1990).

Accordingly , the debts incurred by Wife in the present case are marital beca use they wer

e incurred during the course of the ma rriage. Unless a court has made provisions for the distribution of property in a dec ree of legal separa

tion, a period of separation before divorce ha s no effect on the classification of debt as marital or se parate. 1 Separated parties are still married.1 (.. .cont inu ed) separation, the court may mak e a f inal dis posit ion of the mari tal propert

y ei ther at t he t ime of

ent eri ng an order of lega l s eparat

ion or at t he t ime of

ent eri ng a f

inal divor ce decr ee, i f an y. If the mari tal propert

y i s di vided as par t of the order of leg al separ ation, any propert y acqui red by a spous e ther eaft er is deemed separate property of th at spo use.” B ecau se we h ave d efined marital d ebt to corre spo nd with the statuto ry definitio n of m arital pro perty, it follows that

debt is separate i f it

is incurr ed after an order of legal separation that includes a fi nal property divisi on.

5 As the tri al court

in this cas e stated , “[t]hey cannot be

both marr

ied and di vorced. Courts shou ld not concern themselves with the ty pe of living arrangements c hosen by adult parties to the union.” T

hese par ties chos e to rema

in marrie d for man

y y ears al though th ey lived apa rt and did not seek a legal separation. The de bts they incurred dur

ing that time remain marital just as the property they

acquired during that time remains marital.

Having determined that these are mar ital debts, we next consider how the debts should be allocated betwee

n Husband

and Wife. Tenness ee cour ts should us e the fou

r facto rs listed i n Mondelli as guidelines in the equitable distribution of marital debt: (1) the debt’s purpose; (2) which party incur

red the debt; (3) which party benefitted from incurring the debt; and (4) w hich party is best able to re

pay the debt. Mondelli , 780 S.W.2d a t 773. A ca

reful a pplicatio n of these factor s will insur

e the fa irest poss ible alloc ation of d ebt. I t will also p

rotect th e spouse w

ho did not incur the debt from bearing responsibility for debts that are the result of personal excesses of the other spouse.

The record in this case is deficient with respect to two of the Mondelli factor s. While it is clear that Wife incurred the debts and that Husband is the par ty best able to repa

y the debts, there is not sufficient evidence in the record indicating the pur pose of the debts or who benefitted from incurring the debt. Thus, we remand this case to the tr ial court to determine how the marital debts are to be allocated between these pa rties. In making this determination, the trial c ourt should be guided by

the Mondelli

factors and should require the parties to present more evidenc e releva nt to the fa

ctors se t out above . We note th at the tri al court has broa d discre tion and sh ould do equity in alloca ting deb t as one pa

rt of the o verall d

istributio n of marit

al prope rty . Beca use the relevant financial liabilities of each of the par ties is one of many re

levant factors for the court to conside

r in making

an equita ble divisio n of marit

al prope rty , on rema

nd the tria

l court sh ould reconsider its equitable distribution of the parties’ marital property

. See Tenn. Code Ann. § 36- 4-121(c)(2).

Conclusion We hold that all debts incurred by e ither or both spouses during the course of the marriage up to the date of the final divorc e hearing are proper ly classified as mar

ital debts . Accordingly , the debts incurred by Wife in this case are marital debts. In a llocating marital debts, courts should apply the four Mondelli factors. Because the record in this case contains6

insufficient proof relevant to two of the four Mondelli factors, this case is remanded to the trial court for allocation of the marital debts, consistent with this opinion. The costs of this appeal are assessed against Mr. Alford.

___________________________________ FRANK F . DROWOTA, II I, CHIEF JUSTICE