Langschmidt v. Langschmidt

• Decision Date: 09 July 2002
• Citation: 81 S.W.3d 741
• Parties: Martha Bowen LANGSCHMIDT, v. Carl H. LANGSCHMIDT.
• Court: Tennessee Supreme Court

Page 741

81 S.W.3d 741

Martha Bowen LANGSCHMIDT, v. Carl H. LANGSCHMIDT.

Supreme Court of Tennessee, at Jackson.

July 9, 2002.

John F. Heflin, III, and Kenneth P. Jones, Memphis, Tennessee, for the Appellant, Martha Bowen Langschmidt.

Kathy Laughter Laizure and Roscoe A. Feild, Memphis, Tennessee, for the Appellee, Carl H. Langschmidt.

OPINION

FRANK F. DROWOTA, III, C.J., delivered the opinion of the court, in which PANEL [E. RILEY ANDERSON, ADOLPHO A. BIRCH, JR., JANICE M. HOLDER, and WILLIAM M. BARKER], JJ, joined.

We granted permission to appeal in this divorce case to determine: (1) Whether the Court of Appeals erred in holding that the appreciation of a spouse's separate investment accounts during the marriage is separate property since the appreciation in value was entirely market-driven; (2) whether the Court of Appeals erred in failing to consider whether the commingling of marital earnings with separate property converts the separate property into marital property; (3) whether the increase in value of a spouse's separate Individual Retirement Account ("IRA") during the marriage is automatically marital property under Tenn.Code Ann. § 36-4-121(b)(1)(B) when the IRA is funded entirely with premarital earnings; (4) whether the Court of Appeals erred in holding that the trial court's division of the IRA was equitable; (5) whether the Court of Appeals erred in reversing the trial court's award of attorney's fees; and (6) whether the Court of Appeals erred in failing to remand this case for a determination of rehabilitative alimony. For the following reasons, we hold that the appreciation of a spouse's separate investment accounts remains separate property when the appreciation is entirely market-driven and the other spouse does not substantially contribute to the preservation and appreciation of the accounts. We also hold that the appreciation of a spouse's IRA during the marriage is separate property when funded completely with premarital earnings and absent substantial contribution by the other spouse to the preservation and appreciation of the IRA. Finally, we remand to the trial court to determine whether marital earnings were commingled with separate assets in this case, whether rehabilitative alimony is appropriate now that the above-mentioned assets are deemed separate property, whether an award of attorney's fees is appropriate, and whether the distribution of the remaining marital property is equitable given our decision in this case. Therefore the judgment of the Court of Appeals is affirmed in part and reversed in part, and this case is remanded.

FACTS AND PROCEDURAL BACKGROUND

The parties in this divorce case, Martha Langschmidt ("Wife") and Carl Langschmidt ("Husband"), were married on September 26, 1992. At the time of the marriage, Husband was sixty-one years old with no children and Wife was forty-four years old with two teenage sons. This was the second marriage for both parties; Wife's ending in divorce in 1990, the same year that Husband's previous wife died.

Serious problems developed in the parties' relationship soon after the marriage. On July 25, 1996, Wife moved out of the marital home. On April 4, 1997, Wife filed a complaint for divorce on the basis of irreconcilable differences. Husband filed an answer, also claiming irreconcilable differences. Both Husband and Wife later filed pleadings maintaining that the other spouse had engaged in inappropriate marital conduct.

At trial, Wife testified that, prior to the marriage, she worked full-time as a school teacher. However, upon the request of Husband, Wife quit her job and assumed the role of homemaker. Wife testified that prior to their marriage, Husband provided her with a list of his assets, excluding the value of his home, worth a total of 1.2 million dollars, establishing that he could provide for Wife, even though the parties had discussed Husband's reduction in the number of hours he would practice law during the marriage.

Wife's assets at the time of marriage included $67,622.92 equity in her home, $17,804.89 in her Individual Retirement Account ("IRA"), and $10,452.26 in her savings account, for a total of $95,880.07. At trial, Wife testified that she regularly deposited child support checks from her ex-husband into the parties' joint checking account. Wife also established that she performed various duties as a homemaker during the marriage: cooking most of the meals, shopping for the home, scheduling maintenance and repairs to the home, some cleaning and laundry, and handling the payment of household bills. Wife only worked a few hours per month, part-time, at a clothing store during the marriage, and while occasionally depositing that income into the parties' joint account, Wife typically used this income to buy gifts or clothing. During the marriage, Wife's IRA had increased in value from $17,804.89 to a value of $24,669.00, for a total appreciation of $6,864.11. At the time of trial, Wife was working full-time as a schoolteacher, earning between $24,000.00 and $25,000.00 per year.

At trial, Husband admitted that, prior to their marriage, he provided Wife with a list of his assets, valued at 1.2 million dollars, excluding the value of his home. Husband stated that these assets represented his savings and investments during many years of practicing law prior to the marriage. Husband testified that during the marriage he had arranged to scale back his hours at his law firm, while still drawing Social Security benefits. Husband deposited $1,750 of his earnings into the parties' joint checking account every two weeks so Wife could pay for marital expenses. The Husband's quarterly firm distributions were typically deposited into his separate checking account or money market account, although Husband testified that these earnings were used for marital expenses since the parties' spending often exceeded his monthly income. The record also revealed that Husband contributed $30,327.30 in marital income and $36,974.00 of separate funds into his employer-sponsored 401(k) retirement plan, which he subsequently rolled-over into his Raymond James IRA after the parties' separation.

Proof at trial established that the Husband's assets could be classified into two categories: IRA and non-IRA assets. During the marriage, Husband's Raymond James IRA increased in value from $381,232.00 to $833,019.00 (including the 401(k) rollover), for a total appreciation of $451,787.00. The Husband's JC Bradford & Co. IRA rose in value from $39,383.00 to $114,382.00, appreciating in value by $74,999.00. Husband did not make any contributions to these IRAs during the marriage. Husband's non-IRA assets, which included his money market account, a CD, bonds, separate bank accounts and various stocks, grew in value from a total of $812,626.00 to $984,254.00, representing an appreciation in value of $171,628.00.

The trial court found the issue of fault against the Husband and awarded the Wife an absolute divorce. In rejecting the Husband's contention that appreciation of his separate IRAs during the marriage was his separate property, the trial court held that, according to the language of Tenn.Code Ann. § 36-4-121(b)(1)(B), any appreciation in value of the parties' IRAs during the marriage was marital property subject to equitable division. The trial court awarded the Wife $259,945.50, representing half of the appreciation of Husband's Raymond James and JC Bradford & Co. IRAs, minus a credit of one-half of the $6,895.00 appreciation of the Wife's IRA. The trial court also held that the $171,628.00 appreciation in value of Husband's non-IRA assets was marital property. Finding the appreciation of the non-IRA assets to be completely market-driven, the trial court reasoned that the "nonmonetary" contributions of Wife to the marriage as a homemaker equaled Husband's contribution to the appreciation of these assets, and therefore the appreciation of the Husband's non-IRA property was marital property subject to equitable division. Therefore, the trial court awarded $85,814.00 to Wife, representing one-half of the value of appreciation of the Husband's non-IRA assets during the marriage. The trial court also held that, since the marriage was of relatively short duration and the monetary award was best handled by an equal distribution of marital property, periodic alimony was not appropriate in this case. Finally, on the issue of awarding attorney's fees to the Wife, the trial court found that, since Husband was found at fault, the Husband was in a better financial position than Wife to pay the fees, and since the husband's position regarding his IRA assets contributed to the fees generated in this case, Wife was entitled to an award of $24,774.06, representing two-thirds (2/3) of her attorney's fees minus a credit for $6,700.00 in unusual withdrawals from the joint checking account made by Wife after the parties' separation.

On appeal, the Court of Appeals reversed the trial court's determination that the appreciation of the Husband's non-IRA assets was marital property, finding that Wife did not substantially contribute to the preservation and appreciation of those assets as required by Tenn.Code Ann. § 36-4-121(b)(1)(B) (1996). A majority of the Court of Appeals affirmed the trial court's division of the appreciation of the Husband's separate IRAs. The Court of Appeals reasoned that Tenn.Code Ann § 36-4-121(b)(1)(B) provides that appreciation in a retirement benefit is marital property subject to the trial court's equitable division and Husband's IRA is a retirement benefit within the meaning of that statute. The majority also held that the equal distribution of the IRAs' appreciation in value was equitable. Dissenting in part, Judge W. Frank Crawford opined that Husband's IRAs should be treated the same as his non-IRA assets because they were entirely funded with premarital earnings. Finally, the Court of Appeals reversed the trial court's...