Appreciation of Separate Property: The Forensic Accountant’s Full Employment Act

On October 20, 2020, with Anne Hamer, we presented at the Tennessee Society of CPAs Forensic and Valuation Services Conferences.  Appreciation of Separate Property: The Forensic Accountant’s Full Employment Act is a substantive presentation on the subtleties of classification.  Classification is the determination of whether an asset is separate property or marital property subject to division by the Tennessee divorce courts.  Under Tennessee family law, the appreciation of separate property can be classified as either marital or separate property.

Presenters:

• Anne Hamer | Nashville and Memphis
• Miles Mason, Sr. | Miles Mason Family Law Group, PLC, Memphis

In this series of blog posts, we share portions of the presentation materials.  Within the Tennessee Family Law Blog, they are tagged Forensic Accounting, Property Division Classification, and Business Valuation when appropriate.

Cases discussed are organized into type of asset as follows:

Financial Assets:

• Premarital Balances, But Not Gains, in Retirement Accounts Were Separate Property
• For Property to Transmute, Substantial Contribution Must Relate Directly to the Asset
• Whether Retirement Benefits are Vested Irrelevant for Determining Separate or Marital
• Support During Marriage Was One Factor of Substantial Contribution When It Resulted in Preservation of Asset
• Investment Advice and Use of Word “Ours” Were Insufficient to Transmute Wife’s Trust Fund

Real Estate:

• Dramatic Appreciation in Property Value Was Result of Freeway Coming Through and Not Spouse’s Substantial Contribution; Therefore Property Interest Remained Separate
• Causing Fire Doesn’t Count as a Substantial Contribution and Property Remains Other Spouse’s Separate Property
• Premarital Property Remained Separate Property Despite Couple Securing Line of Credit

Businesses:

• Nonowner Spouse Fails to Prove Appreciation of Chiropractic Practice
• Employment Not a Substantial Contribution to Family Business
• Professional Goodwill of Medial Practice is Separate Property
• Lawyer’s Assets May Be Marital Property But Professional Goodwill is Separate Property
• Enterprise Goodwill of Dental Practice is Separate When Intertwined with Professional Goodwill

Other Assets (Cash, Personal Property):

• Property Lost Prior to Divorce No Longer Exists and Can’t Be Marital Property
• Gifts to Wife During Marriage Are Her Separate Property

We begin with the relevant statute:

Tennessee Code Annotated 36-4-121. Distribution of marital property.

(B) (i) “Marital property” includes income from, and any increase in the value during the marriage of, property determined to be separate property in accordance with subdivision (b)(2) if each party substantially contributed to its preservation and appreciation;

(ii) “Marital property” includes the value of vested and unvested pension benefits, vested and unvested stock option rights, retirement, and other fringe benefit rights accrued as a result of employment during the marriage;

(iii) The account balance, accrued benefit, or other value of vested and unvested pension benefits, vested and unvested stock option rights, retirement, and other fringe benefits accrued as a result of employment prior to the marriage, together with the appreciation of the value, shall be “separate property.” In determining appreciation for purposes of this subdivision (b)(1)(B)(iii), the court shall utilize any reasonable method of accounting to attribute postmarital appreciation to the value of the premarital benefits, even though contributions have been made to the account or accounts during the marriage, and even though the contributions have appreciated in value during the marriage; provided, however, the contributions made during the marriage, if made as a result of employment during the marriage and the appreciation attributable to these contributions, would be “marital property.” When determining appreciation pursuant to this subdivision (b)(1)(B)(iii), the concepts of commingling and transmutation shall not apply;

(iv) Any withdrawals from assets described in subdivision (b)(1)(B)(iii) used to acquire separate assets of the employee spouse shall be deemed to have come from the separate portion of the account, up to the total of the separate portion. Any withdrawals from assets described in subdivision (b)(1)(B)(iii) used to acquire marital assets shall be deemed to have come from the marital portion of the account, up to the total of the marital portion;

(Emphasis added.)

Please see the blog posts featured in this series:  Appreciation of Premarital Retirement Accounts Separate Property Again Thanks to Tennessee Divorce Law Change

For more case law examples and research, please visit the following pages on MemphisDivorce.com:

• Tennessee Family Law Blog: Classification Cases
• Appreciation of Real Estate: What Is “Substantial Contribution” in Tennessee Divorce Law?
• Appreciation of Investment Property: What Is Substantial Contribution in Tennessee Divorce Law?
• Forensic Accountants’ Full Employment Act: Appreciation of Separate Property