Court Opinion

ID: 1058848
Source: CourtListenerOpinion
Date Created: 2013-10-09 18:32:46.200485+00
Date Added: 2024-06-11T09:33:30.633278
License: Public Domain

IN THE SUPREME COURT OF TENNESSEE
                              AT KNOXVILLE
                                 September 3, 2003 Session

          STANLEY DAVID ALFORD v. PAMELA WARD ALFORD

              Appeal by permission from the Court of Appeals, Eastern Section
                      Domestic Relations Court for Hamblen County
                           No. 4940    Joyce Mills Ward, Judge

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

        We granted permission to appeal in this divorce case to determine: (1) whether the Court of
Appeals erred in applying a “joint benefit” definition of marital debt and holding that debt incurred
by Wife during the parties’ ten-year separation 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 hold that debts incurred by either or both spouses during the course of a marriage
are properly classified as marital debt; therefore the debts at issue in this case are marital. In
allocating marital debts, trial courts should consider the following four factors: (1) the debt’s
purpose; (2) which party incurred the debt; (3) which party benefitted from incurring the debt; and
(4) which party is best able to repay the debt. Because the record does not contain sufficient
evidence to determine how the debts in this case should be allocated, this case is remanded to the
trial court to determine the proper 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

FRANK F. DROWOTA , III, C. J., delivered the opinion of the court, in which E. RILEY ANDERSON,
ADOLPHO A. BIRCH, JR., JANICE M. HOLDER, and WILLIAM M. BARKER, JJ., joined.

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

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

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                                             OPINION

                              Factual and Procedural Background

        The parties in this case, Pamela Ward Alford (“Wife”) and Stanley David Alford
(“Husband”) have an unusual marital history. They were married on November 2, 1979, remained
married for more than twenty years, but they spent about half of that time living apart, separating 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 married “in name only” for
their daughter’s sake. Both parties agree that Husband’s income was and is significantly greater
than Wife’s. No formal agreement was reached as to child or spousal support. Husband voluntarily
paid $200 per month in child support until their daughter turned eighteen. He also maintained health
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 divorce on July 1, 1999. The divorce trial was held on January 12, 2001
and a final judgment was entered April 20, 2001, granting Husband a divorce on the ground of
inappropriate marital conduct, specifically “Wife’s deception in joint financial matters.” The trial
court noted that “[s]he had, without his knowledge or consent, acquired a second mortgage on their
home of approximately $10,000.... After the action for divorce was filed, Husband learned that Wife
had obtained credit cards in his name, made substantial charges and defaulted on the payments.”

        The trial court’s judgment 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 alter or amend the judgment, and the trial court modified its
judgment such that Husband was ordered to pay Wife’s debts up to $9,000. After the debts were
paid, the parties were to add the values of their separate 401(k)s and investment accounts, and
“transfer sufficient shares from Husband to Wife to reflect equal value to both parties.”

       One of the debts Husband was ordered to pay was a VISA credit card debt, not to exceed
$3,500. Husband alleges that this debt was incurred in 1999 or 2000, after the parties’ daughter had
turned eighteen on June 15, 1998. Wife disputes that claim in her testimony:

       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 incurred in ‘99 and ‘00, you’re saying
       it’s possible that debt was incurred actually before that time and you were just
       juggling?
       Wife: That is correct. That’s absolutely correct.

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        Wife did not produce any credit card statements at trial. The only evidence regarding the
purpose of the credit card debt was her testimony that “in some cases, I transferred over some debts
to the new account, previous debts. I bought some gifts for family, my daughter, things for myself.
Used it on business a couple of times.”       Husband was also ordered to pay a Commercial Credit
Plan loan, not to exceed $1,000. Wife obtained this loan in her sole name around 1997. No
evidence was introduced concerning the purpose of the loan.

        Finally, Husband was 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 what 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 judgment of the trial court. Husband filed for permission
to appeal to this Court and permission was granted.

                                        Standard of Review

        Defining marital debt and determining what factors should guide the allocation of marital
debt are questions of law. We review questions of law de novo with no presumption 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 presumption of correctness, unless the evidence preponderates
otherwise. Tenn. R. App. 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 identifying and allocating marital debt. The Mondelli opinion stated that
“[i]n dual property jurisdictions like Tennessee, the courts 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 parties,... 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 debt’s purpose; (2) which party incurred the
debt; (3) which party benefitted from incurring the debt; and (4) which party is best able to repay
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 trial court as marital.... While Wife’s
testimony as to the purpose of the debts was somewhat vague, the trial court found that ‘[h]er
credit card debts were incurred to maintain living expenses and payment obligations.’” After
considering the four Mondelli marital debt allocation factors, the Court of Appeals held that the

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evidence did not preponderate against the trial court’s finding that Husband should be
responsible for repaying the debts.

        After carefully considering the matter, we reject the Mondelli analysis to the extent that it
requires a trial court to engage in a preliminary determination of whether debt incurred during a
marriage is marital or separate based on a “joint benefit” test. We believe that such a test would
create substantial confusion and difficulty in determining what debts would meet the standard.
For example, if one spouse incurs debt during the marriage to purchase a new automobile, would
the purchase be for the joint benefit of both parties? If the automobile was used to drive children
to school, would that change the result? The “joint benefit” test would require trial courts to go
through a difficult and unnecessary inquiry, and we decline to adopt it.

        “Marital debt” is not defined by any Tennessee statute and has never before been defined
by this Court. However, marital debts are subject to equitable division in the same manner as
marital property. Cutsinger v. Cutsinger, 917 S.W.2d 238, 243 (Tenn. Ct. App. 1995); Mondelli,
780 S.W.2d at 773. We take this opportunity to define “marital debt” consistent with the
definition of “marital property” in Tennessee. “Marital property” is defined by statute as “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 and owned by either or 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 date 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 definition of marital
property. For example, in In re Marriage of Scoffield, the Montana Supreme Court began 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 Marriage of Scoffield, 852
P.2d 664, 667 (Mont. 1993). It then defined marital debt as “all debt incurred by either party
during the marriage.” Id. The debts at issue were incurred to support Wife’s children from
another marriage, and were 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 debt as “debt incurred subsequent to the marriage.” 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 because they were
incurred during the course of the marriage. Unless a court has made provisions for the
distribution of property in a decree of legal separation, a period of separation before divorce has
no effect on the classification of debt as marital or separate.1 Separated parties are still married.

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             Spo uses who wish to legally sep arate and have their p roperty divid ed without divorce can do so .
Tennesse e Co de A nnotated § 36-4 -121 (b)(1 )(A) (200 1) provides that “[i]n the case of a complaint for legal
                                                                                                            (continued...)

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As the trial court in this case stated, “[t]hey cannot be both married and divorced. Courts should
not concern themselves with the type of living arrangements chosen by adult parties to the
union.” These parties chose to remain married for many years although they lived apart and did
not seek a legal separation. The debts they incurred during that time remain marital just as the
property they acquired during that time remains marital.

        Having determined that these are marital debts, we next consider how the debts should be
allocated between Husband and Wife. Tennessee courts should use the four factors listed in
Mondelli as guidelines in the equitable distribution of marital debt: (1) the debt’s purpose; (2)
which party incurred the debt; (3) which party benefitted from incurring the debt; and (4) which
party is best able to repay the debt. Mondelli, 780 S.W.2d at 773. A careful application of these
factors will insure the fairest possible allocation of debt. It will also protect the spouse who 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 factors. While it is
clear that Wife incurred the debts and that Husband is the party best able to repay the debts, there
is not sufficient evidence in the record indicating the purpose of the debts or who benefitted from
incurring the debt. Thus, we remand this case to the trial court to determine how the marital
debts are to be allocated between these parties. In making this determination, the trial court
should be guided by the Mondelli factors and should require the parties to present more evidence
relevant to the factors set out above. We note that the trial court has broad discretion and should
do equity in allocating debt as one part of the overall distribution of marital property. Because
the relevant financial liabilities of each of the parties is one of many relevant factors for the court
to consider in making an equitable division of marital property, on remand the trial court should
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 either or both spouses during the course of the
marriage up to the date of the final divorce hearing are properly classified as marital debts .
Accordingly, the debts incurred by Wife in this case are marital debts. In allocating marital
debts, courts should apply the four Mondelli factors. Because the record in this case contains

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             (...continued)
separation, the court may make a final disposition of the marital property either at the time of entering an order of
legal separation or at the time of entering a final divorce decree, if any. If the marital property is divided as part of
the order of legal separation, any property acquired by a spouse thereafter is deemed separate property of that
spouse.” B ecause we have d efined marital d ebt to corre spond with the statutory definition of marital pro perty, it
follows that debt is separate if it is incurred after an order of legal separation that includes a final property division.

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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, III, CHIEF JUSTICE

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