Dividing Property and Debt in Tennessee Divorce

Is Tennessee a Community Property State?

No, Tennessee does not follow community property rules. Like the majority of states, Tennessee is an equitable distribution state. A small group of states adhere to community property principles, but Tennessee is not one them.

Using an equitable distribution approach, a judge will divide a divorcing couple's property, fairly, although not necessarily equally. A judge will evaluate several factors to come up with a fair division of assets, including:

• the length of the couple's marriage
• each spouse's income and earning potential
• each spouse's age, physical and mental health
• whether one spouse made career sacrifices for the other spouse's education or job
• the value of each spouse's separate property
• the economic circumstances of each spouse at the time of property division
• the tax consequences of property division or alimony awarded to each spouse, and
• any other relevant factor.

A property award may not be an even 50/50 split. Ultimately, a judge will design an award that meets the needs of both spouses. See Tenn. Code § 36-4-121 (2020).

What Is Separate Property in Tennessee?

All of a couple's property is either marital or separate. Marital property is the property that the couple acquires together during their marriage.

Separate property belongs to one spouse alone and isn't subject to division in a divorce. This means a spouse's separate property stays separate after a couple splits. Separate, or non-marital property, is property that was owned by one spouse prior to marriage, is protected by a valid premarital agreement, or was acquired by a spouse during marriage as a gift or inheritance. Separate property can also be income earned on the separate property during a couple's marriage. For example, if one spouse owned a rental home prior to marriage and continued to rent out the property during marriage, the rental income may be construed as one spouse's separate property.

However, separate property can easily be turned into marital property through commingling (mixing separate and marital property). For property to retain its separate character, it's important that it's kept separate and treated as such throughout a couple's marriage.

Commingling can happen in a number of ways such as when one spouse deposits marital funds into a premarital bank account, or pays the mortgage on a separate property with marital income. In these situations, a judge might treat the premarital bank account and separate property as marital. The spouse wanting to keep that property separate would have to trace the separate source of the funds using detailed financial records.

Can I Keep My Inheritance After Divorce?

An inheritance is almost always treated as one spouse's separate property, regardless of when the inheritance was received. In most cases, a spouse will be able to keep his or her inheritance after a divorce. Nevertheless, if you've mixed your inheritance with marital funds, you might have to using tracing methods to determine which funds are part of the original inheritance and are separate.

Specifically, if one spouse used an inheritance to purchase a marital home, the other spouse may have a claim that the funds have been commingled and thus, are all part of the marital estate. While an inheritance is generally one spouse's separate property, how the inheritance was treated during the couple's marriage is crucial to determining how it's divided in a divorce.

Can I Keep My 401(k) After a Divorce?

401(k)s are almost always hybrid assets, meaning that portions of a 401(k) are separate and portions are marital. Any investments made or income earned on a 401(k) prior to a couple's marriage is that spouse's separate property. However, if a spouse continued to contribute to or earn income on a 401(k) during marriage, those portions of a 401(k) are marital property and will be divided accordingly in a divorce.

Dividing a 401(k) can be complicated and must be accomplished through a Qualified Domestic Relations Order (or QDRO). In most cases, you'll want an attorney to help you divide a 401(k) or other retirement funds in a divorce.

What Is Marital Property in Tennessee?

Virtually all property acquired during a couple's marriage is marital or jointly owned property. If property is classified as marital, that means it will be divided equitably between the spouses in a Tennessee divorce. Divorce laws in Tennessee allow spouses to share marital assets and debts, even if the property or debt is titled only in one spouse's name.

Who Keeps the Marital Home in a Divorce?

Generally, a marital home acquired during a couple's marriage belongs to both spouses, even if the home is only titled in one spouse's name. If marital assets were used to purchase, maintain, or improve the home, it's marital property.

This doesn't mean that a judge will award both spouses possession rights to the marital home in a divorce—that would be impractical. In many cases, a judge will order the spouses to list and sell the home and award each spouse one-half (or other equitable proportion) of the proceeds from its sale.

In cases involving minor children, a judge may award the marital home to the custodial parent (parent who primarily lives with the children). In this situation, the other spouse would be entitled to a buyout of his or her portion of the equity in the home.

A house buyout can be accomplished by awarding one spouse a larger portion of the marital property or the buyout can be paid off when the home is sold at a later date.

How Are Debts Divided in a Tennessee Divorce?

A couple's debts are divided like their assets—equitably. In some cases, a judge may award a low-earning spouse more assets and fewer debts than a spouse with a six-figure career as an executive.

If one spouse has mishandled or wasted assets (such as through gambling), a judge could assign the entire debt to the wasteful spouse or reimburse the other spouse.

How Is Property Divided in Tennessee?

A judge will divide a couple's property fairly or equitably. This may not result in an even split. See Tenn. Code § 36-4-121 (2020).

To determine a fair property division award, a judge may consider the following factors:

• the length of the marriage
• each spouse's age, physical, and mental health
• each spouse's vocational skills, employability, earning capacity, estate, financial liabilities, and financial needs of each spouse
• either spouse's tangible or intangible contribution to the other's career or education
• each spouse's future earning potential
• each spouse's contributions as a homemaker or wage earner
• the value of each spouse's separate property
• the estate of each spouse at the time of the marriage
• each spouse's current economic situation
• the tax consequences of property awarded to each spouse
• the amount of Social Security benefits available to each spouse, and
• any other relevant factor.

A judge may also consider the difficulty of dividing certain assets. For example, if one spouse started a business during the marriage, it's simpler to award the entire business to one spouse and award other property or money to the other spouse to compensate for his or her marital interest in the business.

A court won't typically divide a home and award each spouse partial possession of it. However, a judge could order the couple to sell the marital home and divide the proceeds. Alternatively, a judge could order the couple to wait until some future date to sell the home and divide the proceeds, and award one spouse a temporary right to live in the home. This often happens when the couple has minor children still living in the home.

Settlement Agreements in Tennessee

Divorcing couples can create their own agreements about dividing property either on their own or with the help of a mediator. A judge will have to approve any settlement agreement to ensure it's fair and serves the best interests of the couple's minor children, if any. Courts generally uphold such agreements as long as they are in writing and the agreement isn't extremely one-sided.

If a couple can't reach an agreement, they will have to go to court and ask a judge to decide their property issues at trial. The advantage to a settlement agreement is that it allows couples to resolve their divorce issues on their own terms. It also spares divorcing couples from the time, headache, and expense involved in going to trial.

If you have questions about property division in Tennessee, you should contact a local attorney for advice.