FILED

June18, 1999

Cecil Crowson, Jr.

Appellate C ourt

Clerk

 IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

ANGELA MAE ARP, ) C/A NO. 03A01-9808-CV-00273

)

Plaintiff-Appellee, ) POLK CIRCUIT

)

v. ) HON. LAWRENCE PUCKETT,

) JUDGE

RICHARD LEE ARP, )

) AFFIRMED AS MODIFIED

Defendant-Appellant. ) AND REMANDED

ROBERT S. THOMPSON, LOGAN, THOMPSON, MILLER, BILBO, THOMPSON

& FISHER, P.C., Cleveland, for Plaintiff-Appellee.

B. PRINCE MILLER, JR., Cleveland, for Defendant-Appellant.

O P I N I O N

Franks, J.

In this divorce action, the husband was dissatisfied with the

classification of property, the division of marital property, and the custody

arrangement ordered by the Trial Judge, and ha s appealed numerous issues to this

Court.

The parties were married on January 6, 1990, and two children were

born to the marriage. 

The trial of the divorce was heard on March 13, 1998, and the wife

testified that when she was eighteen she met the husband and they immediately started

dating. They dated for six years before marriage, and lived together for four of those

years. During that time, the wife took care of the house and did cooking, and worked
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at Goody’s Family Clothing Store as assistant manager. She also helped the husband

with his businesses, by cleaning Peoples Bank and picking up money or washing the

bays at the car wash.

The Trial Court, in resolving the issues, noted that the marriage was an

eight year marriage, and found both in good health and to have the ability and

vocationa l skills necessa ry to maintain a business. The Court found that ne ither party

contributed to the educ ation, training or increased e arning power of the other, but both

parties worked in the businesses, contributing to one another’s enhanced financial

state. The Court found the husband to be the motivator behind the businesses, and

further that the wife made significant contributions, both as a homemaker and

business partner, toward acquisition, preservation and appreciation of marital and

separate properties. 

The husband presents eight issues for review, as follows:

1. The Court erred in the determination of separate property. The

evidence does not support the Court’s finding that the parties had been

in a partnership for six years prior to their marriage.

2. The Court erred in its valuation and division of Professional

Janitorial Supply Corporation.

3. The Court erred in finding that there was a $108,000.00 cash

asset which is a separate asset of the parties.

4. The Court erred in failing to find that the tax liabilities for the

real estate, commercial and business properties, is a liability that should

have been addressed in the division of the assets and liabilities.

5. The Court erred in assessing Mr. Arp with one-half of the

elective orthodontic proc edure that Mrs. Arp incurred immediately

before trial and for credit card debt which she incurred after an order for

Temporary Maintenance and Support.

6. The Court erred in the division of the marital estate.

7. Appellant respectfully submits to the Court of Appeals that the

division of the property attempted by the trial court cannot be complied

with because of the cross-collateralization agreement that the parties

executed to the People’s bank of Fannin County, Georgia.
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8. The Court erred in placing the care, custody and control of the

parties’ two minor children with their mother, Angela Mae Arp.

Our standard of review in this case is de novo upon the record of the

Trial Court, accompanied by a presumption of correctness of the Trial Court’s

findings, unless the evidence preponderates otherwise. T.R.A.P. Rule 13(d).

First, the husband insists the Court erred in the determination of separate

property.

At the time of the marriage, the husband owned an interest in several

pieces of property. Under T.C.A. §36-4-121(2)(A), all of these properties would be

considered separate property, because they were owned before marriage . The Court

found some of these properties to be separate property, some to be both separate and

marital property, and some to be marital property. Accordingly, the issue thus

become s whethe r the property owned before ma rriage became marital property due to

transmutation, commingling, or increase in value due to substantial contribution by the

spouse.

Two of the husband’s several parcels consist of land in Turtletown,

Tenness ee. The Trial Court awarded part of this property to the husband as separa te

property, and the rest to the husband as marital property. At trial, the wife did not

dispute that all of the Turtletown property was separate property, and the Trial Court

was in error in dividing a portion of this property as part of the marital estate. Thus,

the award as marital property to the husband of 11.92 acres in Turtletown, valued at

$30,000.00, must be excluded from the marital estate and awarded to the husband as

sepa rate prope rty.

The Campbell property consists of 2.2 acres of unimproved property

which the husband purchased for $45,000.00 before the marriage. The Trial Court

assigned a value to this property at the time of trial of $265,000.00, and awarded onefifth of the property to the husband as separate property, and four-fifths of the
4

property to the husband as marital property. The evidence at trial revealed that the

parties had done nothing to this property, but it had incre ased in value due to its

location and extension of public utilities. Accordingly, there is no basis to classify

this as marital property, since the wife made no contribution to the properties’ increase

in value. The increase in value was not due to any contributions by either the husband

or wife, but was due to the location and the economy. This is similar to the situation

in Harrison v. Harrison, 912 S.W.2d 124 (Tenn. 1995), where the husband’s separate

property increa sed substantially in value due to the construction of an interstate

highway.

The Trial Court valued the Cherokee Hills house at $120,000.00, and

awarded half of it to the husband as separate property, and half of it to the husband as

marital property. The husband states in his brief that this was pre-owned property, but

does not set forth any reason why the property was wrongly classified as partial

marital property. The evidence does not preponde rate against the Trial Court’s

finding that fifty percent of the value of this property is marital, because the parties

did live in this house for a period of time, and wife made contributions to its increase

in value as a homemaker, and as a partner in the business. This is both direct and

indirect substantial contributions to the properties’ increase in value. The evidence

does not prepondera te against the Trial Court’s determination. T.R.A.P. Rule 13(d). 

Husband was operating all of his car washes before marriage, being 68

Car Wa sh, Tri-State Car Wash, and Appalachian Car Wash. It appears tha t he only

owned half of the 68 Car Wash at the time of the marriage, and he purchased his

partner’s interest after the marriage. The Trial Court treated these businesses as

marital prope rty.

In these pre-owned properties, the proceeds and debts have been

intermingled with those of marital property, and the husband treated the property in
5

such as way as to evince a transmutation into marital property. The financial

transactions involving these parties and these businesses are not clearly delineated, but

the record indicates that the debts on the properties were consolidated with other

properties in 1992, after the marriage, so that only one payment was made. The

refinancing produced new debt which was used to renovate the Hillcrest Motel, which

is undisputed marital property. Later, the husband used these properties as crosscollateral for the Ocoee Chevron, Car Wash, and Inn.

Wife did the bookkeeping for the car washes and other businesses. 

Husband testified that he is now doing all of the bookkeeping for the businesses, and

that it is a difficult job which takes a great deal of time. Both husband and wife had

access to all of the busine ss accounts, and they took money out of these accounts

whenever they needed it. Husband stated that while he and the wife were married,

“everything we did was -- we was together, I mean, husband and wife. I mean, I never

done anything without talking to her about it. But she did things without talking to

me. But we never made any ventures in anything unless we talked about it and prayed

about it.”

The husband’s actions establish a partnership type of arrangement

between the husband and wife, in all of their business ventures. The proceeds and

debts of these businesses were extensively intermingled with marital proceeds and

debts, blurring any distinction between the properties. Accordingly, the evidence does

not preponde rate aga inst the Trial Court’s classification. 

Next, husband argues that the Trial Court erred in its evaluation and

division of the Professional Janitorial Supply Corporation. We conclude the Court did

not err in its evaluation and division of the Corporation, though it erred in ordering the

release of a CD securing the debts of the Corporation. The value assigned by the Trial

Court to the respective interest in the Corporation is supported by the evidence. In
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this distribution the Trial Court ordered: 

Husband shall have sixty days to secure the release of the Certificate of

Deposit and the proceeds from the sale of the jeep . . . or shall pay

Angela Mae Arp the sum of $11,432.60.

We find no e rror in the award of the Certificate of Deposit to the wife, but the Court

did err in ordering that the CD be relea sed. Since the wife is responsible for one-half

of the debt attributable to a one-third stock interest in the Corporation, this CD which

secured the debt and was awa rded to the wif e, should rema in as security for this debt. 

We accordingly vacate that portion of the Trial Court’s Order that directs that the CD

be released.

Next, it is asserted that the Court erred in finding there was $108,000.00

cash assets, which was a separate asset of the pa rties. We agree that the Trial Court’s

finding was in error. On October 1, 1997, the date of the deposition of the loan officer

of People’s Bank of Fannin County, Georgia, it was established that the husband had

on that day a total of $108,173.26 in his pe rsonal and business ac counts with the bank. 

The husband testified the account reflected the operating revenues of the business, and

that on any given date they varied dramatic ally, depending on income and expenses. 

On the date of trial, February 13, 1998, the accounts had a balance of $68,645.64. The

Trial Court properly distributed these accounts as marital property, but erred in the

evaluation. Marital property must be “valued as of a date as near as reasonably

possible to the final divorce hearing date.” T.C.A.§ 36-4-121(b)(1)(A). The value on

the date of the divorce hearing should have been the value utilized by the Court, and

that amount must be substituted in the Court’s judgment for “cash on hand”.

Next, it is argued that the Court erred in failing to find that the tax

liabilities for the real estate commercial and business properties is a liability that

should have been addressed in the division of the assets and liabilities. The evidence

established the amount of business tax liabilities in the State of Georgia, and business
7

taxes in the State of Tennessee. Apparently, these assessments were introduced at

trial, but are not in the record before us. Accordingly, we cannot determine what tax

amount is attributable to each of the pa rties. 

“Marital debt should be allocated as are marital assets, and should be

considered when making an equitable division of property.” Herrera v. Herrera, 944

S.W.2d 379, 390 (Tenn. App. 1996). In this case, the tax debt was incurred by virtue

of property ownership, and while both parties might argue that taxes are not

beneficial, both parties did bene fit from the property ownership. The parties were

awarded substantial assets in the property division, though the husband was awarded

the greater share. Since the husband was awarded most of the marital property, he

should be responsible for most of the tax attributable to that property. Accordingly,

we hold that the equitable way to distribute the tax liability is to require each party to

pay the debt on the property which he or she received in the distribution, which we

cannot determine without the tax assessments. Accordingly, upon remand, the Trial

Court is directed to determine the alloc ation of tax liability to each party.

Next, husband seeks relief from an assessment of one-half of an elective

orthodontic procedure that the wife incurred immediately before trial, and for credit

card debt she incurred a fter the Order of Temporary Ma intenance and Support.

The Trial Court found the debt for the orthodontic procedure to be a

marital debt, which, with the exception of the debts on the real property, the Court

assessed the marital debts almost equally between the pa rties. 

On April 25, 1997, the Trial Court entered an Order granting wife

temporary custody of the two children, and ordering the husband to pay $200.00 per

week as temporary child support, as well as providing that husband “ further ma intain

payment on the other bills and indebtedness including, but not limited to, the home

and utilities.” After this time, the wife had orthodontic surgery on her jaw, and she
8

testified the surgery was for health reasons. The husband and wife had discussed the

wife having the surgery five years earlier, but had put it off due to the wife’s

pregnancy, and their lack of insurance coverage.

The wife also incurred credit c ard debts after the Orde r went into eff ect. 

She testified that part of the debt wa s due to transfers of earlier debts to ca rds with

lower interest rates, and part was due to new purchases. She testified she needed the

cards because husband was no longer providing her with any money, other than the

stated child support.

Husband argues that since the wife created this debt, she should pay for

it. However, debt, like property, is considered marital if acquired during the marriage. 

See Herrera, p.389; Mondelli v. Howard, 780 S.W.2d 769, 773 (Tenn. App. 1989). 

The evidence does not preponderate against the Trial Court’s division of the

indebtedness. 

Next, the husband insists the Court erred in the overall division of the

marital estate. As we have noted, the Trial Court made incorrect classifications of

separate property and the marital property, and adopted an incorrect value of cash on

hand and failed to include the tax assessment as liabilities. However, after

considering the Trial Court’s findings and the factors for equitable distribution set out

in T.C.A. §36-4-121(c), the division made by the Trial Court, after our modifications,

remains a fair and equitable division of the marital estate. As trial courts are given

wide discretion in the division of marital property, their division is entitled to great

weight on appeal, and we affirm the property division, as modified. See Watters v.

Watters, 959 S.W.2d 585, 590 (Tenn. App. 1997).

The husband argues that the division of the marital property ordered by

the Trial Court cannot be effected because of the cross-collaterization agreement that

the parties executed at the People’s Bank of Fannin County, Georgia. While the
9

cross-collaterization agreement complicates the property division, it does not render

the division inoperable.

The People’s Bank of Fannin County, Georgia, loaned the husband

100% of the construction costs of the Ocoee Convenience Store, Car Wash, and Motel

project. The project was built and had been operating for about a year at the time of

trial. The remaining loan balance on the project was $1,550,000.00, at the time of

trial, and the Ocoee property was valued at $1,750,000.00. The Ocoee property is

collateral for the loan, but so is all the other real property owned by either the husband

or husband and wife together. In the distribution, the Trial Court awarded the wife

property that is collateral for the Ocoee proje ct.

The President of the Bank testified that the husband’s tota l obligation to

the Bank under this cross-collateral agreement and unde r prior loans is approximately

$2,400,000.00. The husband’s past business successes and his personal involvement

in the venture, were the factors in the Bank’s decision to loan the husband this amount

of money for the Ocoee project, according to the Bank’s president. The president

stated the Bank would not release any of the collateral that secures the loan, and

further that he would consider a transfer from the husband to the wife as a sufficient

transfer to trigger a due on sale clause, though the transfer of a residence, as opposed

to commercial property, generally would not trigger such action. He testified that the

Bank could waive the due on sale clause, but he would have to analyze the situation at

the time of the Court’s transfer of property as to whether or not there was sufficient

collatera l to cove r the loan. 

Any possible ramifications that may flow from the property division

cannot be a basis for denying the wife her equitable share in the marital estate. These

contractual relationships do not prevent the Court from awarding interest in properties

in a divorce case, and the transfer of the properties to the wife does not impair the
1 0

Bank’s collateral interest. However, as the Trial Court ordered, the husband will be

required to hold the wife harmless for any possible losses a s a result of the husband’s

indebtedness to the Bank.

Finally, we conclude that the Court properly placed the minor children

with their mother, which was in the Trial Judge’s discretion. Suttles v. Suttles, 748

S.W.2d 427, 429 (Tenn. 1988). The evidence preponderates strongly in favor of

placement of the children with the mother, as being in their best interest.

In sum, the Trial Court’s distribution of property will be modified, as

indicated. Also, a tax liability will be assessed to each party upon remand, depending

upon the tax liability attributable to the property that each party was awarded, and the

order of the Trial Court to release the CD from the sale of the Nissan truck, as security

to the loan for Professional Janitorial Service, will be vacated.

The judgment of the Trial Court is affirmed, as modified, and the costs

assessed one-half to e ach party on appeal.

__________________________

Herschel P. Franks, J.

CONCUR:

___________________________

Houston M. Goddard, P.J.

___________________________

H. David Cate, Sp.J.