Frank Ray Baggett v. Anne Marie Baggett

Citations: 422 S.W.3d 537; 2013 WL 4606383; 2013 Tenn. App. LEXIS 550Docket: E2012-02013-COA-R3-CV

Court: Court of Appeals of Tennessee; August 26, 2013; Tennessee; State Appellate Court

Original Court Document: View Document

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Frank Ray Baggett and Anne Marie Baggett were married for eight years before Anne Marie filed for divorce. Subsequently, Frank sued Anne Marie for excluding him from A&F Computers, a business they established together, seeking his share of profits, damages, and partnership dissolution. Their cases were consolidated for trial, where the court confirmed the existence of grounds for divorce and classified, valued, and divided their property. The court ruled A&F was a sole proprietorship awarded to Anne Marie. Frank appealed the classification and property division, claiming it was inequitable. The appellate court affirmed the trial court's decisions.

The trial court's determination involved assessing the classification and value of A&F and other assets. Evidence presented at trial revealed that Frank, after his first marriage ended, and Anne Marie, post-divorce from her second husband, started A&F in 2002. Frank initially owned Intech, which he transferred to his ex-wife as part of their divorce settlement. To shield A&F from claims by his ex-wife and protect his social security benefits, he arranged for the business license to be in Anne Marie's name. Both parties worked full-time at A&F, with Anne Marie primarily handling finances while Frank focused on hardware and refurbishing computers. The business primarily generated income through computer repairs and trade-ins.

During the marriage, the parties shared income from A&F and approximately $2,200 monthly from Husband's TVA retirement and social security. In November 2004, they purchased a property in Soddy Daisy for their marital home, where Husband renovated a detached garage for A&F. Husband owned a motor home that was destroyed in a fire; in 2006, they bought a replacement Coachman for $46,000 using insurance proceeds, leaving a balance of about $20,000 incorporated into a home equity line of credit. Husband contributed a truck and $42,000 from a 401(k) to the marriage, loaned $15,000 to Wife's sister, financed a vacation, and invested in A&F. Wife had no separate assets at marriage. 

The couple shared A&F income and Husband’s retirement income; expenses for A&F were included in their mortgage and utility bills. A&F income was deposited into a joint account or kept in cash; Husband did not take a salary but used A&F income for personal expenses. Discrepancies arose regarding A&F's receipts: Wife reported $1,700 to $3,200 monthly (averaging $2,200), while Husband estimated annual gross receipts at $200,000, primarily from cash payments. Wife disputed the claim of A&F being cash-only but acknowledged cash was stored for personal use. At separation, Husband claimed $9,000 was in the safe, while Wife stated it was $6,000, which she split with him. The couple had not filed a joint tax return reflecting the claimed income. Bank statements prior to separation showed about $1,800 in the A&F account monthly, while Wife's new A&F account fluctuated between several hundred and $29,000. Tensions in the marriage escalated in February 2011, with Wife recalling repeated divorce discussions, while Husband denied any previous marital issues or requests for divorce.

Husband testified that he and Wife agreed to take a break, during which he traveled to Florida for about a week. Upon his return, Wife denied him access to the marital home due to his aggressive behavior, prompting Husband to live in the motor home he had rented. He claimed he offered to return to work at A&F but was threatened by Wife with police involvement, which deterred him from doing so. Wife managed the business finances, depositing all A&F payments into a new business account and transferring funds as needed for bills. She reported a gross income of $27,107 on her 2011 tax return, while Husband indicated he was "retired" with income from retirement and social security. The couple had previously filed joint tax returns, but these were not submitted as evidence. 

Wife expressed feeling insecure about Husband’s actions post-separation but did not attempt to prevent his involvement with A&F, though she barred him from their home. Initially, Husband visited the business weekly but contributed no work. In March 2011, he communicated through emails stating he would no longer engage with their joint accounts or the business, leaving future actions to Wife. Wife filed for divorce in May 2011 and obtained a protective order against Husband, citing threats. Although this order was later dismissed, Husband voluntarily agreed to a second protective order in September that restricted his access to the property and mandated no contact between them.

Husband attempted to start a new computer business, Intech, with assistance from his ex-wife, but it failed by December 2011, resulting in a reported loss of nearly $9,000. As their divorce trial approached in February 2012, neither party had mentioned A&F in their legal pleadings until Wife filed a motion regarding the business. Husband countered with motions for exclusive possession of the marital home and for the home’s sale, while Wife sought an injunction against his competing with A&F. The court denied all requests. On April 5, 2012, Husband initiated a partnership action against Wife, claiming exclusion from A&F for over a year.

Husband sought a 50% share of profits, an accounting, and equitable distribution of income and assets from the business A&F, which he claimed was a partnership. Wife acknowledged the partnership's existence until her separation in February 2011 but later operated A&F as a sole proprietorship. She agreed that if any partnership remained, its dissolution was necessary. Prior to trial, an inventory was completed, and Husband offered to buy A&F's assets for $1,500, contingent on being awarded the business and the marital home. At trial, Husband maintained he viewed himself as a co-owner, while Wife expressed uncertainty about the partnership status, stating they worked together but did not formally establish a partnership until later.

Post-separation, Wife independently managed A&F and covered all expenses, while Husband lived in a motor home on property owned by his ex-wife. Both parties sought the marital home and custody of their dogs. The trial court ruled A&F was a sole proprietorship owned by Wife, not a partnership, and divided the marital estate accordingly. Husband subsequently filed an appeal, raising several issues, including the trial court's classification of A&F and its division of marital assets. The appellate court's review of factual findings is de novo with a presumption of correctness unless evidence suggests otherwise. Legal conclusions, however, do not carry this presumption. The trial court's credibility determinations and discretion in property division are given significant weight.

Tenn. Code Ann. § 36-4-121(c) establishes the factors for equitable division of marital property, emphasizing that an equitable division does not necessitate equality. Appellate courts defer to trial courts unless the division lacks evidentiary support, involves a legal error, or misapplies statutory requirements. The husband's arguments focus on two main claims: (1) the trial court incorrectly classified A&F as a sole proprietorship rather than a partnership, and (2) the overall property division was inequitable. He contends that A&F constitutes an implied partnership under the Revised Uniform Partnership Act, citing that it was established during his prior divorce proceedings and registered under his soon-to-be wife’s name to avoid complications. Evidence presented includes that the business licenses were in the wife's name, all income was reported under her Social Security number, and they filed one joint federal tax return. The husband performed significant work to set up the business, which generated claims of $200,000 in annual income and accounts receivable. However, he later acknowledged that A&F likely had no accounts receivable since customers paid immediately for services. He maintained, nonetheless, that the business had consistently produced gross receipts of $200,000 prior to their separation.

A&F Computers is determined to be the separate property of Wife, with the trial court concluding that Husband and Wife were not partners in the business. The only tax returns presented were from Wife for 2011 and Husband's, indicating that the computer business is solely hers. A loan application for a vehicle lists Wife as the owner of A&F Computers and Husband as retired. Husband reported business income losses attributed to a different venture, and both parties signed the loan application, which the court treated as a proprietorship rather than a partnership. 

The court assigned A&F to Wife, with the business's equipment and inventory valued at $1,500, while Husband claimed significant accounts receivable, which he later agreed did not exist. He asserted that A&F generated $200,000 annually in gross revenue, but the court also agreed there were no accounts receivable. Additionally, A&F's old business account at DCCU, valued at $61.05, was assigned to Wife, and goodwill was not considered as part of the valuation since it is not applicable to sole proprietorships. The court found Husband's testimony regarding A&F to be not credible.

The court referenced Tennessee law defining partnerships and noted that without a written agreement, the burden to prove an implied partnership falls on the asserting party. Ultimately, the trial court found that A&F was not a partnership, a conclusion that this court respectfully disagreed with, though it did not alter the trial court's final holdings. The case of Lyles v. Lyles was cited as a relevant example of a partnership established through a written agreement.

The trial court classified and distributed the partnership A&F as part of the marital estate during the divorce proceedings. The wife contested the court's authority to dissolve the partnership. The appellate court affirmed the trial court's judgment, stating that the Uniform Partnership Act was not applicable, and the court derived its authority from T.C.A. 36-4-121. This statute provides broad discretion to courts in dividing marital property, defined as any real or personal property acquired during the marriage up to the final divorce hearing.

Partnership interests are included in the definition of marital property, and the court has the power to transfer property titles, order property sales, and distribute proceeds without limitations on the type of property. In this case, the partnership was owned exclusively by both spouses, and if awarded entirely to one party, its value is determined according to T.C.A. 36-4-121. The court noted that requiring an accounting under the Uniform Partnership Act would be unnecessary and futile.

The husband demonstrated the existence of the partnership by providing evidence of their joint efforts in building A&F, which was established after their marriage. Although the business was in the wife's name, both contributed to its operation and shared profits. The wife initially denied the partnership but admitted to it in her legal response, claiming it was dissolved when the husband stopped working post-separation. At separation, the wife took half of the cash from A&F, which she later shared with the husband.

The existence of a partnership can be implied when individuals engage in a profit-driven business relationship, combining their resources. The trial court's conclusion that A&F was not a partnership is deemed incorrect; however, domestic relations law governs the divorce context rather than partnership law. The court correctly classified A&F as an asset for valuation and distribution. Husband argues that A&F should be classified as marital property, regardless of its status as a partnership or sole proprietorship, asserting he is entitled to at least 50% of the marital assets. Tennessee divorce statutes differentiate between marital and separate property, requiring the trial court to classify property, allocate separate property, and equitably divide marital property without regard to marital fault. The court designated A&F as Wife's separate property but included its value in the marital property awarded to her, raising questions about its treatment. The trial court must consider various factors for equitable division, including the marriage's duration, the parties' financial circumstances, contributions to property acquisition, and other relevant factors.

The trial court detailed the property division between the parties, assigning a net value to the marital estate of $90,940.08. The Wife was awarded $56,931.86 (63% of the estate), while the Husband received $34,008.22 (37%). The Wife's assets included the marital home valued at $43,117.61 and various personal items, while the Husband's assets included a motor home valued at $29,000 and a van. The court noted that the perceived unequal allocation favored the Wife due to her greater need for the home to establish her business and residence. The Husband had previously utilized the motor home as his residence but had also dissipated marital assets amounting to $8,795. The court accepted the Wife’s account regarding cash in a safe at their home, totaling $6,000, as opposed to the Husband's claim of $9,000. Additionally, the Husband's retirement plan, which designated the Wife as a beneficiary, was valued at $300 per month, although this valuation was deemed speculative regarding future outcomes.

Husband's annual income consists of $17,034 from Social Security (net $15,876 after Medicare) and $11,064.26 from TVA retirement. He has the potential to start a computer business. Wife earns $2,200 monthly with expenses of $1,996, resulting in a net balance of $204. Husband is currently receiving Social Security benefits, while Wife will not receive them for over nine years. The court found Wife's testimony and evidence more credible than Husband's, who was evasive about personal loans and vague on specific events. He failed to substantiate claims regarding his assets and provided inflated values, particularly regarding items attributed to Wife.

The trial court emphasized that equitable property division does not require equal shares of every marital asset. It justified a division of less than 50/50 and deemed it equitable. Husband's proposed overall property division of $367,842.60 was unsupported by evidence, as many assigned values were speculative. Notably, he attributed the appraised value of the marital home to Wife without factoring in her mortgage obligations. The court classified A&F, a partnership between the spouses, as a marital asset with a valuation of $1,500 in equipment and inventory, plus $60 in a joint business account. The trial court awarded A&F to Wife, recognizing her sole operation of the business post-separation.

The court's classification of A&F as either marital or separate property did not render the overall division inequitable. Husband's claims regarding inflated "accounts receivable" were unsupported. Ultimately, the court ensured Wife had housing and a means to support herself, while Husband retained his unencumbered home and had options for income. The trial court considered the needs of the parties regarding pet ownership and found no errors in its decisions. After reviewing the distribution under Tenn. Code Ann. 36-4-121(c), the appellate court concluded it was not inequitable and affirmed the trial court's judgment, taxing costs to Husband and remanding for enforcement.