Tennessee Mandatory Injunction Law – Willful, Deliberate Violations, PART FOUR

This is the final segment in our four-part series on Tennessee’s mandatory injunction law. As with Part One, Part Two, and Part Three, we continue to focus on judicial interpretation, application, and enforcement of injunctive orders in divorce and legal separation cases.

How are spouses who violate the divorce injunction held accountable? Mainly through contempt proceedings and equitable property divisions. Take a look.

Borrowing from 401k During Divorce, Wells v. Wells

Tennessee mandatory injunction law: Willful, deliberate violations.

During a Shelby County divorce, the husband borrowed $15,000.00 from his 401k (a marital asset valued at $31,559.99). Although the wife alleged he violated the injunction, husband’s excuse seems to have allayed the judge’s concerns. To a degree. Wells v. Wells, W2009-01600-COA-R3-CV, 2010 WL 891885 (Tenn. Ct. App. 2010).

The husband admitted to borrowing from his 401k and to spending marital funds on their daughter’s four wheelers and racing activities. But that he did not “willfully intend to violate a court order.” He also claimed to have never received written notice of the injunctive order.

In the property division, the trial court split husband’s 401k equally. However, the $12,824.48 balance remaining on the loan was charged from his share. It could have been worse. The husband was not charged the full amount of the loan plus interest, something the trial court could have ordered, among other things. Affirmed on appeal.

For general information about retirement plans and pensions as marital property, read about Division and Valuation of Pension Interests in Tennessee Divorces.

Transferring Interests in Real Property, Jolley v. Jolley

Is there a clear example of a spouse being sanctioned for a direct, deliberate injunction violation? Yes. Consider the case of Jolley v. Jolley, M2011-02550-COA-R3-CV, 2013 WL 4111454 (Tenn. Ct. App. 2013). Jolley shows how important it is for the spouses to maintain the status quo, a primary objective of the injunction statute. Instead, this husband acted on marital property without his spouse’s consent and without court permission. His action wasn’t minor indiscretion. It was deliberate and substantial.

The Jolleys had been married 28 years when, in March 2010, the wife filed her complaint for divorce. During the marriage, the husband and a Mr. Goines became joint tenants on 34 acres of land in Dekalb County. Although Mrs. Jolley’s name was not on the deed, husband’s joint tenancy was still a marital interest.

Transfer By Quit Claim Deed

In August 2010, the husband transferred all of his interest in the acreage by quit claim deed to his sister and brother-in-law as grantees. He clearly violated the statute. T.C.A. § 36-4-106(d)(1)(A) provides that parties are enjoined from “transferring, assigning, borrowing against, concealing or in any way dissipating or disposing, without the consent of the other party or an order of the court, of any marital property.”

Separate Lawsuit to Partition Real Property

Not only did husband’s quit claim deed violate the injunction, his transfer partitioned the joint tenancy. In November 2010, Mr. Goines filed a partition action in the Dekalb County court to divide all interests in the acreage among the owners: Mr. and Mrs. Jolley, the sister and brother-in-law, and Mr. Goines. Mrs. Jolley claimed her interest, but Mr. Jolley disavowed any and all interest in the real property and was dismissed from the action. The partitioning court then ordered the property sold at auction. A later hearing would determine each party’s respective interest in the sale proceeds.

Divorce Settlement Conference and Consent Decree

The Jolleys reached agreement in April 2011 after participating in a judicial settlement conference. They filed a consent decree awarding specified assets to the wife with the remainder to the husband through a catch-all provision. Wife’s contempt action against husband was dismissed. The Dekalb County acreage was not mentioned.

The following month, each filed a proposed final decree. Mrs. Jolley claimed the acreage proceeds, to this the husband objected. But after he failed to appear at the hearing, the court entered the wife’s proposed decree. The husband then filed a Rule 60 motion to set aside the final decree. The motion was denied for two reasons:

• Waiver: Husband waived any interest in the acreage. He had taken one position in the partition action (averring no interest whatsoever in the property); and had taken a “diametrically opposed position” in the divorce (seeking all proceeds).
• Unclean Hands: Husband did not file his petition with clean hands, the consequence of violating the mandatory injunction.

Husband appealed, arguing the trial court erred in not awarding him the proceeds of the sale per the consent decree catch-all provision.

Given he came to the court with unclean hands, the appeals court held the motion properly denied. The lower court’s decision to award all of the proceeds from the sale to the wife was well within its discretion.

What is the clean hands doctrine?

The Court of Appeals offered this legal maxim: “He who seeks equity must do equity and that he who has done inequity cannot have equity.” The trial court has discretion to determine whether a spouse has done inequity or not. Here, unclean hands was a result of “deliberate” misconduct, “a contemptible charge” that directly violated the injunction. Therefore, husband “should be estopped after the fact to obtain an interest in the property subject to the partition suit …” The proceeds of the sale were determined to be wife’s separate property and the husband was assessed the costs of appeal.

Transferring or Borrowing Against Marital Assets, Slagle v. Slagle

Another clear example of a spouse violating the divorce injunction is found in Slagle v. Slagle, E2011-00785-COA-R3-CV, 2012 WL 152503 (Tenn. Ct. App. 2012).

Injunction against transferring or borrowing against marital assets.

The Slagles were married over 30 years. She was 14 when they met and began dating. They had a child the following year and were married in 1980. They had lived in South Africa, St. Maarten Island, and later Tennessee. In 2007, the wife was an accountant keeping the company records for husband’s travel and resort business.

In April, she caught him shredding records. He was agitated. She requested divorce, he threatened her. Once he was out of the country, she took $28,000.00, left the marital home, and filed for divorce on April 30. On May 3, the husband was served along with the injunctive order. The following day he started converting marital assets into cash and moving money into his accounts, including an offshore account in St. Maarten.

What unilateral action did husband take?

• He withdrew $110,000.00 from his company’s account (leaving a $484.00 balance);
• He withdrew $15,000.00 from a personal checking account (leaving a $5,215.00 balance);
• He obtained a loan for $200,150.00 secured by a money market account;
• He borrowed $200,000.00 from another bank, secured by two CDs; and
• He transferred $248,506.44 from an IRA into a new retirement annuity in his name, among other things.

Injunction Violation: Held in Contempt

The wife cited him for contempt for violating the injunction. Civil contempt results from disobedience of a court order. A pre-trial contempt hearing was held where husband testified he suffered a $500,000.00 loss due to a bad business investment. But when asked to provide details, he took the Fifth Amendment against self-incrimination and refused to identify investors in the joint venture. He testified that “these people deal in cash,” but offered no documentation to support the loss.

Mr. Slagle was found in contempt for transferring and borrowing against marital property in willful violation of injunction law. He was ordered to either pay the purge amount of $498,154.81 or spend 140 days in jail. Instead, he fled the country and did not appear or testify at the divorce trial.

Equitable Property Division

The wife was granted divorce on grounds of husband’s inappropriate marital conduct. The marital estate, valued at 2.2 Million, was divided equally. However, husband was found to have dissipated the marital estate by over $600,000.00 after the divorce was filed (that was in addition to having dissipated the marital estate by $776,000.00 for his business in the preceding four years). The wife was awarded $327,508.50 in specific marital assets and another $722,391.50 as the balance of her half of the marital property. The husband also paid her legal fees out of his share, another $73,000.00. The kicker? Because of his “reprehensible” conduct, he was still in contempt.

Along with alimony and child support, husband appealed the contempt order and property division. First he argued that the other spouse failed to prove he was served a copy of the injunction. Secondly, he argued his transactions during divorce proceedings were ongoing business commitments made in the ordinary course and not willful violations of a court order (an exception to the mandatory injunction. T.C.A. § 36-4-106(d)(1)(B)). The Court of Appeals affirmed the trial court’s property division and civil contempt order.

Selling or Disposing of Marital Assets

Two divorce cases from 2008 illustrate potential repercussions for violating the injunction by selling or disposing of marital assets.

Accurate Statements of Assets and Liabilities, Mathias v. Mathias

In the first divorce, the wife filed in January after a 28-year marriage. Before trial, the husband liquidated marital assets without her consent or court permission. Mathias v. Mathias, E2006-02294-COA-R3-CV, 2008 WL 539227 (Tenn. Ct. App. 2008).

Procedurally, during discovery each spouse files a statement of assets and liabilities. Instead of including the sold items in his list of marital assets, husband made a note of reference: He sold two Sea Doos (jet skis) with trailer and Polaris ATV with trailer; He received $8,000.00 and $2,000.00, respectively, in proceeds; He noted to whom they were sold, on what date, and for what reason (to pay for wife’s move and alimony).

The sales occurred during the pending divorce, but before trial. No testimony about the sales was offered at trial. (As the appeals court pointed out, Mr. Mathias was found in contempt for not paying alimony which belied the claim he sold marital assets to pay spousal support.)

Selling or disposing of marital assets in violation of Tennessee divorce injunction

The trial court awarded husband the sold items using wife’s valuation from her statement of assets and liabilities: $15,000.00 and $5,000.00, respectively. Husband appealed.

The Court of Appeals affirmed the trial court’s equitable distribution of the marital estate. Selling marital assets during a pending divorce without the other spouse’s consent violated the injunction. Period. And selling assets does not strip them of their marital character, as husband argued here. See T.C.A. § 36-4-121(b)(1)(A).

Consent to Sale Was Not Consent to Spend Proceeds, Armstrong v. Armstrong

In another divorce from a long-term marriage (about 27 years), a spouse took unilateral action against proceeds of a sold marital asset. In Armstrong v. Armstrong, the wife violated the injunction, dissipated the marital estate, by spending down proceeds from the sale of their marital home. Armstrong v. Armstrong, M2006-02713-COA-R3-CV, 2008 WL 624862 (Tenn. Ct. App. 2008).

The problem was not selling the marital home, which was by mutual consent. The problem was with her disposing of the proceeds which, despite the consensual sale, remained marital funds. (Although the divorce was filed in 2003, for various reasons the hearing was not held until October 2006. The wife did not file a statement of assets and debts.)

The marital home was sold in December 2004 with Mrs. Armstrong taking all $32,017.65 in proceeds. However, she depleted those funds before the 2006 hearing. She testified to spending the proceeds on medical bills, ones not covered by husband’s insurance. But she did not offer any receipts, cancelled checks, bills, or statements as proof.

The trial court divided the marital estate equitably with 40% to husband and 60% to wife, crediting the sale proceeds against her share. Proceeds she had already substantially depleted. She appealed.

The Court of Appeals affirmed the division, having found wife’s trial testimony “confusing, often contradictory and not supported by documentation.” Stated otherwise, she lacked credibility.

Similar to Mathias, this wife argued unsuccessfully that because the home sale proceeds were spent (allegedly) on medical bills before the divorce hearing, the trial court erred by crediting the proceeds to her side of the ledger.

Clarification. Marital property owned at the time of filing or acquired during divorce is within the injunctive order. Both spouses have a duty to preserve the marital estate during pendency of their divorce. A spouse can use “current income” to maintain the marital standard of living or operate a business without violating the injunction. Proceeds from the house sale were neither income nor business expense. Therefore, a court order or the other spouse’s consent was necessary before taking action against the marital funds. The wife was assessed the costs of appeal.

There’s one more case to mention briefly.

Knowledge of Sale Is Not Consent, Hopkins v. Hopkins

Newlyweds at age 16, after 30 years of marriage the wife was granted a divorce. The husband alleged she had disposed of a living marital asset, a stud horse, during divorce proceedings and violated T.C.A. § 36-4-106(d). Hopkins v. Hopkins, E2001-02849-COA-R3-CV, 2002 WL 31387297 (Tenn. Ct. App. 2002)

At the divorce hearing, Mrs. Hopkins testified to having sold two horses in her possession, care, and control. One horse was sold before the divorce; no violation. Evidence of a $3,500.00 sale of the second stud horse in April 2001, while divorce was pending, conflicted with wife’s testimony she sold it in April 2000. Her purpose in selling the stud horse was to provide their daughter with the down payment on a house. Husband appealed, arguing wife wrongfully disposed of a marital asset. The Court of Appeals agreed with him. The wife violated the injunction.

Although she argued her husband knew of the sale, she “offers no evidence that he consented” to it. The horse was a marital asset as were the proceeds of the sale. Mr. Hopkins was credited one half of the proceeds, or $1,750.00, against his alimony obligation.

SUMMARY

What have we learned since the divorce injunction became law in Tennessee? During court proceedings:

• Life Insurance: Ordinarily, it’s a violation to change a life insurance beneficiary from the other spouse to someone else, even if the divorce is abated (dismissed) on a spouse’s death.
• Void or Voidable: A spouse’s action against marital property in violation of the injunction should be voidable, not void per se.
• Hidden Assets: Concealing a marital asset, such as a pension check received before the divorce decree, is a violation.
• Income and Cash Flow: A spouse with no income may draw down his or her pension to cover ordinary and regular living expenses – this is cash flow. The retirement fund remains a marital asset, though, and withdrawn funds are subject to redistribution at trial.
• Contempt: A spouse who violated the injunction may be held in civil contempt, left choosing between incarceration or paying the purge amount.
• Judicial Discretion and Equitable Powers: The court has authority to craft a remedy. In divorce, judicial discretion (broad) and equitable powers (substantial) combine to make the potential consequences of violating the statutory order regrettable.
• Unclean Hands: Tennessee divorces are proceedings in equity. Doctrines like unclean hands apply and can estop, or preclude, the violator from seeking equity in the division of property.
• Timing: The injunction is invoked the instant the other spouse is served with process.
• Dissipation: Waste is intentional, purposeful conduct by a spouse that reduces the marital estate. A finding of dissipation is unlikely, though, where asset management decisions were simply unsuccessful. Dissipation is not determined in hindsight either.
• Consent: Consent to sell a marital asset is not consent to spend the proceeds. Similarly, knowledge of the sale is not consent to the sale.
• Restoration: A spouse who violated the injunction by selling a marital asset may be ordered to restore the asset or the proceeds.
• Transferring: Quit claiming marital property to a third party without spousal consent or court order is an intentional, direct, deliberate violation.
• Disclosure: Every marital asset should be listed in the statement of assets and liabilities. Including items sold or transferred before the divorce hearing.
• Borrowing: Willfully, deliberately, and unilaterally encumbering marital property is a violation.
• Asset Identification: Before taking action, make sure the item is not a marital asset. If there is any possibility a separate asset has transmuted or been commingled with marital property, then talk to an attorney.
• Recordkeeping: Keep detailed records. Save receipts, cancelled checks, bills, statements, and relevant documentation with which to evidence how marital assets were properly maintained as required by law.

Of course, both parties are equally capable of violating the injunction. Essentially, opportunity and potential for misconduct boils down to who is in possession and control of what asset. Are additional restrictions prudent? Request the court add to or modify the automatic injunction.