Facts: After a 26-year marriage, Wife was awarded a divorce on the grounds of inappropriate marital conduct. During the marriage, the parties lived beyond their means. By the time of divorce, there were significant debts to divide. The Court of Appeals found:
The evidence showed that the parties spent everything they earned, and then some. Wife testified that all her spending was for the benefit of the children, and that she would not skimp on them so long as Husband continued to “throw money out the window” by drag racing.
Husband admitted he purchased some real property to house is auto repair business, financed that purchase by using the marital home as collateral for the loan, and did not tell Wife he had used the marital home in that manner.
The parties divided much of the marital estate by agreement but left the trial court to divide certain items, including the division of much of the marital debt. In the end, the trial court divided the marital assets and debts such that Wife received assets totaling $264,155 (74%) compared to Husband’s $93,600 (26%). This was largely the result of Husband being assigned $134,154 or marital debt compared to Wife’s $53,370. Husband appealed.
On Appeal: The Court of Appeals affirmed the trial court.
All debts incurred by either or both parties during the course of a marriage are properly classified as marital debt, and are subject to equitable division in the same manner as marital property. When dividing marital debt, however, Tennessee courts are supposed to consider the same statutory factors used to divide marital property but must also consider (1) which party incurred the debt and the debt’s purpose; (2) which party benefited from incurring the debt; and (3) which party is best able to assume and repay the debt. When practicable, the debts should also follow the assets they purchased.
In light of the foregoing, the Court of Appeals noted that much of the marital debt was incurred by Husband in furtherance of his “money-losing” drag racing “hobby” (Court’s words, not mine). The big ticket item was the mortgage debt on the marital home, about which the Court said the following:
Husband decided to buy a piece of property for [his auto repair business] without consulting Wife, and he used the marital home as collateral for the purchase without even informing her that he was doing so. His action resulted in an increase on the mortgage debt from less than $30,000 to $127,719. Husband admitted that he made a bad decision. Among the factors the trial court is directed to consider in dividing marital property is “[t]he contribution of each party to the acquisition, preservation, appreciation or dissipation of the marital or separate property . . .” Tennessee Code Annotated § 36-4-121(c)(5). In this case, there is no doubt that both parties made substantial contributions to the acquisition of the marital properties, but Husband’s “bad decision” dissipated the value of one of the prime assets of the parties, the equity in the marital home. The evidence therefore does not preponderate against the trial court’s decision to make Husband responsible for 60% of the mortgage debt.
Finally, as the title indicates, there was an issue about alimony in solido (sort of). The trial court’s “letter ruling” awarded Wife the entirety of her 401(k) retirement account, noting that Husband’s portion of that asset “goes to the Wife as alimony in solido.” Husband argued this was error because there was no evidence the trial court considered the statutory factors that must be applied before alimony is awarded. Husband was correct but still lost. Why? Here’s where things get tricky.
Although the court’s unsigned letter ruling did speak of Wife’s 401(k) account in terms of alimony in solido, the final order in the record signed by the trial judge does not mention alimony, but instead treats its award of the 401(k) account to Wife as a division of marital property. “A court speaks only through its written judgments, duly entered upon its minutes.” Further, “the signature of the judge is mandatory to effectuate a judgment or order of final disposition.”
We therefore need not consider whether alimony was appropriate in this case, but only whether the award of the 401(k) account to Wife is consistent with an equitable division of the entire marital state. . . .
However, Husband managed all the finances for the family starting in 1998, and he had enough income left over after paying for family and business expenses to contribute to a savings account or open a retirement account. Instead, he chose to use any surplus for his hobby. We cannot fault him for doing what he enjoyed, but the proof showed that he raced for at least ten years and that he lost on the average about $9,000 each year, thereby incurring total losses of greater magnitude than the value of the 401(k) account. We are therefore unable to conclude that it was inequitable to allow Wife to retain the full benefit of the retirement account that she established during the parties’ marriage. More importantly, we cannot find that the trial court’s distribution of the whole marital estate was inequitable.
The Court noted the following in a footnote: “Another document in the record, also titled Final Decree of Divorce, drafted by Wife’s attorney, but not signed by the trial judge, declares, consistent with the court’s letter ruling, that the 401(k) and the two checks are awarded to Wife as alimony in solido.”
Ouch. Crash and burn.
Information provided by K.O. Herston: Knoxville, Tennessee Divorce And Family Law Attorney.