Commingling Money & Assets with Marital Property in Tennessee Divorce
In Tennessee divorce law, commingling money, funds, or assets with marital property causes separate property to become marital property subject to equitable division in divorce.
Commingling Money, Assets, or Funds in Tennessee Divorce: Keeping Premarital Property Separate
The property that a spouse acquires before marriage is typically considered separate property if the spouse gets divorced in Tennessee. At divorce, the separate property is awarded to whichever spouse originally owned the property before the marriage. Separate property can become marital property if it is commingled with property that belongs to the other spouse, or if it is commingled with property acquired by either spouse during the marriage. When property is commingled, it is “mixed together . . . to such an extent that [the property] cannot be separated.” Tennessee courts describe commingled property as that which is “inextricably” mingled. If the property, however, remains segregated or can be traced back to its original source, no commingling occurs and the separate property cannot be divided by the court as marital property. The following three cases describe the methods used by Tennessee courts to determine whether separate property has lost its separate character due to commingling.The marriage between Mr. Pope and Mrs. Pope in Pope v. Pope began to slowly deteriorate when Mr. Pope started wearing women’s underwear on a regular basis. Pope v. Pope, No. 88-58-II, 1988 WL 74615 at *1 (Tenn. Ct. App. July 20, 1988). Mr. Pope claimed that his eccentric habit made him “feel better.” Unfortunately, Mr. Pope’s strange penchant for women’s clothing was a sign of more serious issues. Mrs. Pope filed for divorce shortly before Mr. Pope pled guilty to a charge of raping his granddaughter. Despite Mr. Pope’s deviant behavior, the parties amassed a substantial marital estate of over $600,000 during their thirty-six years of marriage. The trial court awarded the couple’s house and farm to Mrs. Pope as alimony in solido and divided the remaining assets between Mr. Pope and Mrs. Pope as marital property. The marital assets divided between the parties included cash and a Ford truck that Mr. Pope owned separately before the marriage.
Mr. Pope appealed the trial court’s order of alimony and property division. The Tennessee Court of Appeals used the doctrine of commingling to find that Mr. Pope inextricably mingled his assets with marital assets acquired after he married his wife. Mr. Pope never took any sort of action to segregate the cash assets or the truck that he brought into the marriage. In contrast, the Court noted that Mrs. Pope had kept $20,000 given to her by her father before the marriage in a separate bank account. The assets that were intentionally segregated by Mrs. Pope remained her own separate property at divorce. Mr. Pope’s premarital assets, on the other hand, were so entangled with the couple’s marital assets that the court noted an attempt to untangle his assets from the marital estate “would be a fruitless and largely arbitrary exercise.”
To Remain Separate Funds, They Cannot Be Inextricably Mingled with Marital Funds Even If in Separate Accounts
Eldridge v. Eldridge, 137 S.W.3d 1 (Tenn. Ct. App. 2002) is a more complicated example of commingling. When the parties married, Mrs. Eldridge owned a business in Chicago, and Mr. Eldridge worked for Ducks Unlimited. They both owned a substantial amount of separate property. The marriage was “stormy,” and the divorce trial was equally discordant. After the trial court entered its divorce decree, Mrs. Eldridge raised a number of issues on appeal. She claimed that the trial court was biased and that the decree of the trial court gave an appearance of impropriety. In addition, Mrs. Eldridge also appealed the trial court’s division of marital property and marital debt. Specifically, she claimed that the trial court incorrectly classified portions of Mr. Eldridge’s pre-marital investment accounts as separate property.
The first account at issue was a separate account that contained a balance of over $1.5 million acquired by Mr. Eldridge through various gifts and inheritances before the marriage, as well as $500,000 in marital funds that he deposited into the account during the marriage. The second account at issue was a separate account with a balance of $1.5 million that Mr. Eldridge obtained before the marriage through inheritance and gifts, as well as $234,000 earned during the marriage by Mr. Eldridge by working for his mother. Mr. Eldridge also used a joint marital account that he held with Mrs. Eldridge as a conduit account to transfer funds between his two separate accounts.
The trial court classified Mr. Eldridge’s first separate account as a mixed asset, awarded $235,000 to Mr. Eldridge as separate property, and divided the remainder between the parties as marital property. The second marital account was also classified as a mixed asset. The trial court awarded $525,000 of the second account to Mr. Eldridge as separate property and classified the remainder as marital property. The joint account was classified as marital property by the trial court.
The Tennessee Court of Appeals disagreed with the trial court and held that all three of the accounts were marital property. In its opinion, the appellate court described a number of actions by Mr. Eldridge that caused his separate funds to become commingled. First, Mr. Eldridge failed to keep his separate funds in the accounts segregated, and he used the funds to pay expenses and purchase marital property while marital funds were also in the accounts. Second, Mr. Eldridge never attempted to distinguish the money earned on investments made from the marital funds that were deposited into the separate account. Mr. Eldridge argued that Mrs. Eldridge had no access to the accounts and that the money he paid in marital expenses outweighed any deposits of marital property that were made into the account. The Tennessee Court of Appeals held that these arguments did not change the fact that Mr. Eldridge’s separate funds were inextricably mingled with marital funds in the separate accounts.
Can an Accountant Segregate and Divide Gains on Separate Pre-marital Property?
In contrast to Pope and Eldridge, consider Smith v. Smith, 93 S.W.3d 871 (Tenn. Ct. App. 2002). Mrs. Smith was a nurse who retired and started a nonprofit animal shelter after she married Dr. Smith. Dr. Smith made over $500,000 a year and held six retirement accounts before the marriage. Two of these six accounts were partially funded during the marriage in the amount of $253,500. The two accounts were worth $650,000 total at the time of the marriage and appreciated to over $2.2 million by the time the parties filed for divorce. The trial court held that the money deposited into the two accounts before the marriage was Dr. Smith’s separate property. In contrast, the trial court found that the appreciation on the funds deposited both before and after the marriage was marital property because the funds were commingled.
The Tennessee Court of Appeals disagreed with the trial court and held that the funds were not commingled in the two accounts. The appellate court relied on the testimony of the accountant hired by Dr. Smith as an expert witness. Dr. Smith’s witness applied an average rate of return on the accounts to determine the value of appreciation on the deposits made before marriage and then after marriage. The calculations made by Dr. Smith’s accountant allowed the court to segregate and divide the gains on Dr. Smith’s separate pre-marital property from the couple’s joint post-marital property in the account. The doctrine of commingling was not applied because the appreciation from Dr. Smith’s pre-marital contribution was not inextricably mingled with the post-marital funds contributed to the account.
A spouse who wants separate property to remain separate during a marriage and in the case of divorce should be careful to not mix the separate assets with marital assets. Property can be mixed or intertwined by an act as simple as depositing money into a joint marital account. If these funds can be clearly traced and segregated, the spouse with separate property has a stronger argument that the property was not commingled. For these reasons, a forensic accountant is a valuable asset to any spouse who desires to “untangle” his or her assets and prove the assets have not been inextricably mingled with marital property.
Resources, References and More:
- Property Division in Tennessee Divorce
- Tennessee Property Division Divorce Laws & Factors | Answers to FAQs
- Property Division – Tennessee Family Law Blog for analysis, commentary, updates and case law summaries
- Tennessee Alimony Law
- Your First Steps: 7 Steps Planning Your Tennessee Divorce | Free eBook