Facts: During this eight-year marriage, Wife was a stay-at-home mother to the parties’ two children. Husband worked as a software engineer earning $155,000 a year.
Husband asked the trial court to sell the marital residence because Wife could not refinance the mortgage into her name.
The trial court awarded the marital residence to Wife with the responsibility to pay the mortgage debt, noting it would be difficult for Wife and the children to relocate and that a comparable residence would cost more in rent than the monthly mortgage payment on the marital residence. The trial court did not require Wife to refinance the mortgage into her name.
On Appeal: The Court of Appeals affirmed the trial court.
In Tennessee divorces, courts cannot disturb the rights of the parties’ creditors to collect joint obligations from either or both of the divorcing parties.
It is not uncommon in divorce cases to turn over the ownership of a marital asset to one party while both parties remain jointly liable for the debt associated with the asset. While it is possible to order one party to make the monthly payments on a joint debt, the court cannot absolve the other party from his or her liability to the creditor.
Tennessee courts and lawyers have devised several ways to address this problem. The court may order that the person awarded the property refinance it or obtain a new loan in his or her name and then use the proceeds to pay off the existing joint debt.
The court may also order that the property be owned jointly until a date certain when the property must either be refinanced or sold.
The court may include a “hold harmless” provision in the judgment requiring the parties to indemnify and hold each other harmless from any future obligations stemming from ownership of the property they receive.
The Court of Appeals found this an appropriate case for joint ownership but amended the trial court’s ruling to include an indemnification clause:
[T]he evidence preponderates in favor of the trial court’s finding that Wife would be unable to refinance the mortgage on the marital residence in order to place the debt solely in her name due to her lack of employment history.
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[B]ased on the trial court’s allocation of the debt encumbering the marital residence to Wife, we conclude that this is a proper case in which to modify the trial court’s final decree to add a provision stating that Wife will indemnify and hold Husband harmless from his obligation concerning the mortgage on the marital residence until such time as the debt is paid in full or Wife is able to refinance such debt in her sole name.
The trial court’s judgment was affirmed as modified.
K.O.’s Comment: For more on the competing arguments on this issue, see my comment on Ingram v. Ingram.