Facts: After the divorce trial, the trial court awarded the marital residence, which it valued at $235,000, to Wife, with the instruction that Wife was to “be responsible and hold harmless Husband” on the debt encumbering the property, which included a first mortgage and a second mortgage line of credit totaling $233,792. Husband appealed the trial court’s failure to require Wife to refinance the mortgage debt into her name.
On Appeal: The Court of Appeals reversed the trial court.
Husband argued the trial court erred in ruling that Wife merely be responsible for the mortgage debt of the marital residence instead of requiring her to refinance the mortgage debt in her name alone.
It is not uncommon in divorce cases to turn over the ownership of a marital asset to one party while the parties remain jointly liable for the debt associated with the asset. In such instances, courts and lawyers have devised several ways to address this problem. The court may order, or the parties may agree, that the person awarded the property will refinance it or obtain a new loan in his or her own name and then use the proceeds to pay off the existing joint debt. The court may also order, or the parties may agree, that the property will be owned jointly until a date certain when the property must either be financed or sold. Finally, the parties or the courts may include a “hold harmless” provision in the decree or marital dissolution agreement in which the parties are required to indemnify and hold each other harmless from any and all future obligations stemming from ownership of the property they receive.
Husband argued the proof at trial established that he clearly has less of an ability to acquire capital assets and income in the future and that, coupled with the effect on his credit of the two mortgages encumbering the marital residence, the trial court’s failure to order Wife to refinance the indebtedness or to obtain a new loan in her name alone would make it virtually impossible for him to obtain a mortgage in the future for any other home. The Court agreed, writing:
Tennessee Code Annotated § 36-4-121(c)(4) requires the court to consider “the relative ability of each party for future acquisitions of capital assets” in its division and distribution of marital property. We are concerned that failing to make any provision for Husband’s release from the debt encumbering the marital residence may be contrary to § 36-4-121(c)(4). As a consequence, we remand the case for the court to determine a reasonable time for Wife to secure Husband’s release from indebtedness and to amend the final decree accordingly.
Information provided by K.O. Herston: Knoxville, Tennessee Matrimonial, Divorce and Family Law Attorney.