Tarver v. Tarver - 2019 - Marital Interest in Real Property & Imputed Income

SALLIE LUNN TARVER v. JOHN TAYLOR TARVER, ET AL.
Appeal from the Circuit Court for Shelby County
No. CT-000207-14 Robert Weiss, Judge
IN THE COURT OF APPEALS OF TENNESSEE AT JACKSON
January 16, 2019 Session
No. W2017-01556-COA-R3-CV
Filed 3/13/2019

Robert Vance testified as a forensic CPA in the bench trial.

“This appeal involves a unique divorce proceeding”. Throughout most of the parties’ 29-year marriage, the husband worked as vice president of his father’s railroad construction business, Shelby Railroad. Numerous properties, assets, and accounts were jointly titled in the names of the husband and his father (referred to as Grandfather in the appeal) over the years. When the wife filed a complaint for divorce, she named as defendants not only the husband but also Grandfather. Shortly thereafter, Grandfather drastically reduced the amount of money the husband was receiving from the company. The divorce trial was conducted over the course of twelve days. The trial court classified some of the disputed assets as belonging solely to Grandfather. It found that the husband had an ownership interest in land and building on which Shelby operated and included it in the marital estate subject to equitable division. The trial court imputed income to both the husband and the wife and ordered the husband to pay alimony and child support. The parties raise various issues on appeal regarding the classification, valuation, and division of marital property, the imputation of income for purposes of alimony and child support, and the alimony award. The wife sought an award of attorney’s fees on appeal. The Appellate Court affirmed the trial court’s decision in all respects and denied the request for attorney’s fees on appeal.

The major issues on appeal were:

• Was Husband offered incentives by his father to return to work which could make any benefits he received classified as marital?
• Did Husband own 10% of his father’s company?
• Did Husband own 50% of the land AND building that his father titled as joint tenants with the right of survivorship, and was it “early inheritance” and therefore separate ?
• What was Husband’s true income for support?

No Incentives?

John Kirk Tarver is the Husband and worked for his father John Taylor Tarver (“Grandfather”) at Shelby Railroad. Husband was fired and/or left many times over the years and in 2005, he leaves, but Grandfather induces him to return by “putting everything on the table” and if Husband did not return to work at Shelby Grandfather would not continue the business.

Wife and Husband had a discussion before Husband agreed to return to work to demand an ownership interest in either the company or the real property before he would agree to return. Husband and Grandfather strongly denied throughout the proceedings that Husband was offered any incentive for returning to work. The incentive aspect is very important since assets offered as a “carrot” for employment obtained during the marriage that might otherwise be a gift and therefore separate property could become classified as marital property instead.

Grandfather was embroiled in an eminent domain issue that was to produce $3,000,000 but would force the business to purchase new land and construct a new building. Land was acquired and Husband’s name was placed on the deed with Grandfather as joint tenants with the right of survivorship.

Rent Replaces Salary & Bonus

In 2010, Shelby began conducting operations from the newly constructed buildings. Although there was no written lease, Shelby began paying “rent” to Grandfather and Husband which was substituted for his usual bonuses. In 2010, Husband and Grandfather were paid rent of $130,000 per year. In 2011, 2012, and 2013, Husband and Grandfather were paid rent of $180,000 per year. Hundreds of thousands of dollars of rent was paid to Husband, but he claims he is not an owner of the land or buildings which is a curious predicament since his CPA admitted on the stand that you cannot claim rent or depreciate a property on your tax return that you do not own.

Husband was also paid an annual salary from Shelby and received over $250,000 per year in 2011, 2012, and 2013 classified as a combination of rent and salary payments. Shelby also either paid directly or reimbursed Husband and Wife for numerous personal expenses, such as the property taxes on their marital residence, uncovered medical expenses, family dining expenses, groceries, clothing, furniture, and personal travel. Shelby also provided Husband and Wife with vehicles for personal use and paid for all expenses. None of the personal expenses were taxed to Husband.

Spigot Was Turned Off

Wife files and Grandfather reduced rent to $2,400 and Husband only received his base salary of $80,000 with no bonuses and the personal expense spigot was turned off. Curiously, Grandfather then took a $300,000 “bonus” from Shelby and “loaned” money to Husband which he attempted to claim as a marital debt.

Company Ownership

The trial court found that although some records such as corporate tax returns indicated that Husband owned a 10% interest in Shelby, other records stated that he did not, and the weight of the evidence suggested that he did not. The trial court ruled no ownership.

I Gave Him a Future Inheritance of the Land but Not the Building

Grandfather acknowledged that Husband had an ownership interest in the land, adding, “I gave him 50 percent of the property”, but no ownership in the building constructed on the land. Both Husband and Grandfather flatly denied that Husband’s return to work at Shelby had anything to do with his name being placed on the deed and had no negotiations whatsoever about Husband’s return to work. They were attempting to establish a gift or “future inheritance” rather than sweat equity the latter of which would render the classification of the assets as marital.

On appeal, Husband argued that Grandfather only intended to make a gift to Husband of an interest in the underlying land, not the building. Husband received 1/2 of the rent from the property and its buildings, and he claimed 1/2 of the depreciation for the buildings on his tax returns. Trial court found that Husband was a joint owner of the real property and buildings, owning “a half interest” and that Husband acquired his ownership interest in the real property as an incentive to return to work for Shelby; therefore, marital property.

Imputed Income

The trial court imputed income to both Husband and Wife for purposes of alimony and child support and set Husband’s income $188,488 which was close to what I opined. The Court noted that Husband’s expert had “no major issues” with the calculations made by Wife’s expert (me!). Appellate Court found no error.