Financial Planner Commissioned Future Trail Income Divided as Asset

Tennessee alimony divorce case summary after 27 years married.

Erin Alford Fuller v. Roger Darnell Fuller

The husband and wife in this Bradley County, Tennessee, divorce case were married in 1988 and had two children before the wife filed for divorce in 2014.  By the time of the divorce, the daughter had attained the age of majority, and the son was 17 years old.  The trial in the case was held in November and December 2015.

Both the husband and wife had worked outside the home during the marriage.  The wife had worked as an X-ray technician since 1992, and earned a maximum of $27 per hour.  Her highest annual income during the marriage was in 2011, when she earned almost $50,000.  In 2015, she completed nursing school and became a registered nurse.  At the time of trial, she was earning $22 per hour as a nurse, and expected her income to increase.

During the early years of the marriage, the husband had worked as a petroleum engineer, and his income reached approximately $100,000 per year.  When the parties moved to Tennessee in 2001, the husband became a certified financial planner.  He worked two years for a brokerage firm before starting his own financial planning business.  In that business, he earned two types of income.  First, he earned direct commissions from the sale of financial products.  He also received “trail” income.  The trail income, which came from funds and accounts he managed, constituted the majority of his income.  In 2014, he earned $50,000 in direct commissions, and $220,000 in trail income.

The parties jointly owned an office building which they had purchased for $316,000.  The husband’s financial planning business rented space their and paid $3,000 per month in rent.  There was also another tenant in the building.

After trial, the lower court entered a divorce judgment.  The wife was awarded the marital residence and the husband was awarded the office building.  It then held that the “trail income” was a marital asset separate from the goodwill of the business.  It valued that asset at $400,000 and awarded the wife a judgment for half of that amount.

The trial court named the mother the primary residential parent of the son, with the father enjoying 80 days per year of parenting time.  The court set the husband’s income based upon his prior two years’ revenues and awarded child support based upon that amount.  It also awarded the mother $1500 per month in alimony due to the income disparity between the parties, the wife’s need, and the husband’s ability to pay.  The husband then appealed to the Tennessee Court of Appeals, raising a number of issues.

The appeals court first turned to the valuation of the financial planning business and how the trail income should be treated.  The lower court had treated the sole proprietorship as a marital asset.  The husband argued that this was improper, since the business owned no tangible assets and depended completely on his efforts to generate income.  He argued that the sole value was the goodwill of the business, and that earlier cases had treated the goodwill of a sole proprietorship as an individual asset.

The wife argued, and the trial court had agreed, that the trail income was not the same as goodwill, since it was an asset that could be sold or assigned at any time, independent of the goodwill of the business.  There was evidence that the trail income could have been sold for twice its annual value.  The appeals court also agreed and held that because the income could be transferred at any time, that it was not part of the goodwill of the business, but was instead a separate asset.

The appeals court also affirmed the trial court’s valuation of the asset, namely about twice the amount of the annual income.  For these reasons, the Court of Appeals affirmed the lower court’s order with respect to the trail income.

The appeals court then looked at the permanent parenting plan and determined that the lower court had acted properly.  It then turned to the question of the father’s income and child support.

The trial court had based its ruling on the revenue of the husband’s business, and the husband argued on appeal that it should have considered the expenses necessary to generate the revenue.  The Court of Appeals agreed that the lower court had not acted properly, and reversed for that reason.  But the Court also found another error in the calculation.  The trail income had already been divided as a marital asset, but this income was also used in computing the husband’s income.  It pointed to a Tennessee statute stating that marital property, once divided, cannot be counted as income for child support or alimony purposes.  In this case, the trial court had done exactly that by counting the trail income both as a marital asset and as future income to the father.  Since this was erroneous, the Court of Appeals remanded the case for a new computation of income.

The husband had made a number of arguments as to why a grant of alimony was improper.  But since the alimony award had also been based upon the computation of the husband’s income, the Court of Appeals held that these arguments were premature.  Since the case was being remanded, the Court of Appeals asked the lower court to compute alimony based upon the correct income amounts.  Therefore, it vacated the alimony award and remanded that portion of the case as well.

For these reasons, the Court of Appeals vacated part of the lower court’s order and remanded the case, but kept in place the property division of the trail income.

No. E2016-00243-COA-R3-CV  (Tenn. Ct. App. Dec. 21, 2016).

See original opinion for exact language.  Legal citations omitted.

To learn more, see Alimony Law in Tennessee.