TN Mandatory Injunction Law – Dissipation, PART THREE
This is Part Three in our Tennessee mandatory injunction law information series. In it we look to ways dissipation of marital assets could violate the injunction in divorce or legal separation. A related concern is a spouse’s failure to preserve a marital asset, also briefly discussed.
Was foreclosure of rental properties dissipation of marital assets?
Our focus is on how Tennessee’s courts have interpreted and applied the mandatory injunction to specific facts and circumstances. In other words, what have we learned from decided cases about the automatic injunction? The controlling statute is T.C.A. § 36-4-106(d). Since the law went into effect in 2001 and was amended in 2014, much has been happening.
Read Part One and Part Two. For general information about property division in divorce, visit the discussion on Property Division Laws & Factors in Tennessee Divorce.
Maintaining Marital Assets in Divorce
Imposed on both spouses equally, the mandatory injunction is automatic in every action for divorce or legal separation in Tennessee. The statute proscribes many acts and omissions, one of which is dissipating, or diminishing, marital property. Not only does one spouse’s dissipation interfere with the court’s ability to equitably divide and distribute the marital estate, it can unfairly place the innocent spouse in a financially vulnerable position. Neither is acceptable.
Among its numerous restrictions, T.C.A. § 36-4-106(d)(1)(A) specifically enjoins the spouses “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.” Dissipation and the related claim of failure to preserve marital assets were key issues in the following divorce.
Neither Dissipation of Marital Property Nor Failure to Preserve, Hayes v. Hayes
Married six years, in 2008 the wife filed for divorce in the Circuit Court of Shelby County. He was a home builder; she was a real estate agent. They blended their talents by building and selling homes and acquiring rental properties. As the real estate market collapsed, their relationship soured with the economy. Hayes v. Hayes, W2010-2015-COA-R3-CV (Tenn. Ct. App. Oct. 18, 2012).
Dissipation of the rentals was raised in a five-day trial. The wife obtained an ex parte restraining order preventing the husband from interfering with the rentals. She withdrew $41,000.00 from her retirement account (which held marital funds) and used the funds to pay the mortgage in an unsuccessful attempt to avoid foreclosure. They lost the rentals and the $41,000.00.
The husband argued that the wife violated the mandatory injunction because:
- Foreclosure on their rentals was a failure to preserve marital assets and dissipated the marital estate; and
- Withdrawals from investment accounts containing marital assets without his consent was dissipation.
When does excessive spending by a spouse result in a finding of dissipation?
When does excessive spending by a spouse result in a finding of dissipation? Husband also argued wife’s using investment accounts to repay loans to her father, pay her divorce attorney, and buy “excessive clothing and manicures” also amounted to dissipation of marital assets. Rejecting his argument, the Court of Appeals held no evidence showed wife’s behavior was any different after the marriage than before. Besides, “[i]t is unlikely that expenditures … typical or commonplace during the marriage will constitute dissipation, especially when the other spouse acquiesced in them.” Citing Altman v. Altman.
The appeals court affirmed the trial court. No dissipation. No failure to preserve marital assets. No violation of the mandatory injunction. Let’s take a look at how the appeals court arrived at its conclusions, starting with a spouse’s obligation to preserve marital assets.
What is failure to preserve a marital asset? Preservation of marital assets means “keeping them safe from harm; avoiding injury, destruction, or decay; maintenance … the saving of that which already exists, and implies the continuance of what previously existed.” Citing Flannery v. Flannery.
What is dissipation of a marital asset? Described as “waste,” dissipation typically involves “intentional and purposeful conduct that has the effect of reducing the [marital] funds available for equitable distribution.” Citing Long v. Long (discussed next). The party claiming dissipation has the burden of proving the other party intended to hide, deplete, or divert a marital asset.
Despite the following evidence, Mr. Hayes did not carry the burden of proving dissipation at trial:
- Wife’s testimony that her rental management was “disastrous” and that she did not stop paying the mortgage until she “got the appraisals on all the properties for the divorce and seeing the lack of value in all of them.”
- Husband testified the rentals were a “financial drain” and he occasionally borrowed against his credit cards to prop them up, but when he was manager they were less than 30 days behind.
In the court’s analysis:
- Both spouses ignored advice against purchasing the rentals;
- By Fall 2008, the real estate market was highly unstable; and
- The wife’s attempt to save the rentals was genuine. She finally concluded foreclosure was inevitable and continuing payments unwise.
Hindsight is 20/20! Ordinarily, there is no dissipation where the spouse’s management decisions were simply unsuccessful. Sometimes things just don’t work out. This was one of those times. With the “benefit of hindsight,” different choices may have left the spouses better off. Still, her management decisions did not amount to dissipation or failure to preserve marital assets. “Simple mismanagement of family finances is not dissipation, nor is using marital funds to prop up a failing business.” Citing Altman v. Altman.
In deciding Hayes, the court relied on another dissipation case. One in which the party seeking to sell a marital asset complied with the mandatory injunction. First, by seeking the other spouse’s consent to the sale of a marital asset and, second, by requesting the court’s permission when said consent was not given.
No Dissipation Proved, Long v. Long
The Longs’ divorce raised several interesting issues, including husband’s argument that the wife’s refusal to cooperate in his campaign to sell stock resulted in dissipation of marital assets. Long v. Long, M2006-02526-COA-R3-CV (Tenn. Ct. App. July 3, 2008). Take a closer look.
Refusing to Sell Marital Stock Was Not Dissipation
Married 17 years, the husband held a management position with a publicly traded construction supply company: Builder’s FirstSource (BFS). Part of his compensation was several thousand shares of BFS stock and stock options, all marital assets. The wife was both homemaker and primary caregiver to their three children, all minors at the time of the divorce.
After filing in May 2005, the wife was granted divorce on grounds of husband’s adultery. (He had dissipated marital assets with spending on his paramour and gambling, but that mostly preceded the mandatory injunction.)
During divorce proceedings with the automatic injunction in place, the husband predicted a substantial reduction in the BFS stock value. It was May 2006. He tried to persuade his wife, through the attorneys, to exercise the options and sell the stock. She refused to sell. In June 2006, he asked the court for permission to sell some of the “plummeting” stock. However, his motion was continued until their August trial.
The wife’s brother, who happened to be husband’s immediate supervisor, testified that BFS stock had fallen substantially in 2006. And that he had sold shares at the same time his sister was asked to sell. This the wife knew, but she testified that stock was a long-term investment. She disagreed with her husband and withheld consent to the sale.
Does dissipation occur when one spouse refuses consent to the other’s action plan if the consequence is devaluation of a substantial marital asset? The husband’s efforts to convince his wife to sell their stock were in vain. In May 2006, BFS stock was trading at $23.50 per share. By August it was valued at $16.40 per share. By his calculations, wife’s refusal to sell the stock cost the marital estate $141,644.00.
Making his case for an equitable property division, husband contended the wife dissipated marital assets. As a remedy, he sought reimbursement for half the loss in value from the wife’s share of the marital estate. The trial court initially awarded half of the stock and vested options to the wife, declining to consider whether refusal to sell the stock amounted to dissipation.
In his appeal, husband argued, among other things, that distribution of the marital estate was inequitable because the trial court did not consider wife’s dissipation of BFS stocks and options. This did not go well.
The Court of Appeals found husband’s argument to be without merit. First, T.C.A. § 36-4-121(c)(5) gives the trial court authority to take into account the “contribution of each party to the … preservation … or dissipation of the marital or separate property” in dividing the marital estate.
The husband did not accuse the wife of wasting or misusing marital funds. Instead, he claimed her “foolish refusal to sell the BFS stock resulted in the loss of its value” and that her inaction failed to preserve the marital asset. Here is where 20/20 hindsight comes in.
The appeals court acknowledged that husband’s BFS prediction came to fruition, the stock value tumbled. However, the other spouse “was not required to be clairvoyant or to simply accept Husband’s investment advice.” The court posed this question: If the husband had been wrong and the wife had been right, would he now be accused of dissipation?
Because the wife considered the stock a long-term investment. Because there was no evidence she intended to deplete the asset by refusing to sell. Because there was no evidence she carelessly wasted the property, his argument was without merit. The trial court did not err in its division of marital property. Interestingly, the mandatory injunction is not cited in the opinion.
Taking control of living marital assets without the other spouse’s consent or court permission can still violate the mandatory injunction.
In our final case, the court did find dissipation of marital assets by a spouse.
Living Assets and Horse Rings, Ferrell v. Ferrell
The Ferrell’s divorce is an example of dissipation, living assets, finger-pointing, and judicial ire.
This husband was “entrepreneurial,” dabbled in “real estate, tractors and horse equipment,” and brought $68,000.00 to the marriage (without offering supporting evidence). Once part-owner of a beauty school, the wife had liquidated her business interests. She brought $300,000.00, plus a $150,000.00 promissory note to the marriage. Ferrell v. Ferrell, M2003-02435-COA-R3-CV (Tenn. Ct. App. May 5, 2005).
The Ferrells were horse people. Married in 1998, she filed for divorce in 2002. Theirs was a short-term marriage. Each spouse alleged the other’s dissipation. Each cited the other for contempt for violating the mandatory injunction. In fact, both took marital property during the divorce without benefit of court order or other spouse’s consent. In doing so, each prevented the other from taking action regarding the assets taken.
Short Term Marriage Rule
With a marriage of short duration such as this, Tennessee’s equitable property division factors direct the court to return the spouses to their financial condition prior to the marriage, so much as is possible under the circumstances. This couple’s primary asset was the marital home which had a net value of $225,000.00.
They bought the land together. She provided $30,000.00; he provided $8,000.00. She contributed $224,000.00 to the actual building; instead of cash, he provided general contracting services and labor.
Despite similar behavior from both, the trial court found the husband had dissipated marital property. But not the wife. What was different? Start with the nature of the asset taken.
Without husband’s consent or court order, the wife took their horses and horse trailer with intent to sell. Horses are livestock, pets to many. They require a caretaker and 24-hour maintenance, making them a special kind of marital asset. Horse trailers are necessary for transporting equines.
Can the divorce court order a sold asset restored to the marital estate?
Without wife’s knowledge or consent or benefit of court order, the husband took the couple’s horse rings with intent to sell. He sold them for $600.00. Horse rings do not require feeding, veterinary care, grooming, exercise, or special mode of transportation.
The judge ordered both spouses to return the assets. The wife complied. She then requested permission to sell the horses and trailer which the court granted over husband’s impecunious objections. The court found her testimony to be credible and his “not credible.” Husband’s missteps included the following:
- He dissipated marital property by intentionally taking the horse rings to sell without wife’s knowledge or consent or judicial order;
- He followed through on his intent and sold the rings; and
- He failed to return the $600.00 sale proceeds when the court ordered restoration of the asset. (In divorce, converting marital property into cash does not change the asset’s character. The proceeds are still marital property!)
In dividing the marital estate, the court awarded the house to the wife and $74,000.00 cash to the husband as his share of the marital home. The husband appealed the trial court’s unequal property division and failure to find dissipation by the wife. Apparently, what’s good for the gander should be good for the goose.
Affirmed on appeal. Regarding equitable distribution of the marital estate, the court noted husband’s failure to specify any inequities, his dissipation of marital assets, and the trial court’s wide discretion in making these determinations. Besides, Tennessee is an “equitable division” state not an “equal” division one. Costs of appeal were taxed against the husband.
Lessons learned from Ferrell? First, when ordered to return a marital asset after violating the mandatory injunction, do as the court says. If already sold, then restore the proceeds. What raised the judge’s ire was not the value of the dissipated asset, but the party’s deliberate refusal to comply with a direct order from the bench. Is $600.00 worth a finding of dissipation which, in turn, could influence the court’s final determination on the property division?
Second, the nature of the asset may be a factor, especially when coupled with credible testimony from a spouse. Lastly, we cannot stress enough how important it is to keep detailed records of where the funds come from and what they were spent on, especially in marriages of short duration.
Part 3 of 4. Read Part 4.
