Mitts v. Mitts

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

June 2000 Session

BYRON LOWELL MITTS v. VIRGINIA ANN JONES MITTS

Appeal from the Circuit Court for Hamilton County

Nos. 97-D-2629 and 97-D-2635 W. Neil Thomas, III, Judge

FILED AUGUST 16, 2000

No. E2000-00374-COA-R3-CV

The trial court dissolved a marriage of over 26 years. Wife appeals, arguing (1) that the increase in

value of Husband’s separate property interest in two stock holdings is, in each instance, marital

property; (2) that the trial court erred in its award of alimony; (3) that the trial court erred in

calculating Husband’s child support obligation; and (4) that she is entitled to an award of attorney’s

fees, both at the trial level and on appeal. We affirm the trial court’s classification of the increase

in value of Husband’s Rivermont stock as his separate property. We also affirm the trial court’s

finding that no portion of the value of the Coca-Cola stock is marital property. We modify the award

of rehabilitative alimony so as to provide for a monthly payment of $2,000 for a period of four years

beginning with the first full month after the entry of the divorce judgment below. We find that Wife

is entitled to her attorney’s fees at both stages of this proceeding. We remand this case for the trial

court to determine if the child support obligation should be increased due to Husband’s lack of

standard visitation.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court

Affirmed in Part; Modified in Part; Reversed in Part; Case Remanded

CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which HERSCHEL P. FRANKS and

D. MICHAEL SWINEY , JJ., joined.

Phillip C. Lawrence and David H. Lawrence, Chattanooga, Tennessee, for the appellant, Virginia

Ann Jones Mitts.

Rosemarie L. Bryan and William R. Hannah, Chattanooga, Tennessee, for the appellee, Byron

Lowell Mitts.

OPINION

I. General Overview

Byron Lowell Mitts (“Husband”) and Virginia Ann Jones Mitts (“Wife”) were married in

1972. At the time of their divorce, Husband was 47 years old; Wife was 46. They had two children,

the younger of which, Byron Adam Mitts (“Adam”), was 17 at the time of trial. The older child has

reached the age of majority.

The trial court awarded Wife an absolute divorce upon stipulated grounds. The parties were

awarded joint custody of Adam, with Wife being designated as the primary residential custodian.

Husband was awarded “reasonable” visitation rights. The trial court ordered Husband to pay child

support of $642 per month, based upon a finding that his monthly gross income was $4,151. The

court awarded Wife rehabilitative alimony of $2,000 per month until Adam graduated from high

school in June, 2000, a period of approximately 14 months after the final divorce judgment was

entered. The trial court divided the marital property as follows:

Asset Value Wife Husband

Marital Residence $ 81,436 $ 47,500 $ 33,936

1996 Blazer 14,000 14,000

Furnishings 3,000 3,000

Insurance Policies 45,930 14,125 31,805

Total $144,366 $ 78,625 $ 65,741

The trial court ordered Husband to pay all balances owed on the parties’ jointly-held credit

cards and charge accounts. The court did not specify the sum of these debts, noting that the evidence

on this subject was “confusing.” It further held that the appreciation in value of Husband’s stock in

Rivermont Golf and Country Club, Inc. was the separate property of Husband. With regard to the

shares of Coca-Cola stock that Husband had owned jointly with his mother for a period of time

during the marriage, the court concluded that the stock was not marital property subject to division.

The trial court declined to award attorney’s fees to either party.

II. Standard of Review

Our review of this non-jury case is de novo upon the record with a presumption of

correctness as to the trial court’s factual findings, “unless the preponderance of the evidence is

otherwise.” Tenn. R. App. P. 13(d). The trial court’s conclusions of law are not accorded the same

deference. Brumit v. Brumit, 948 S.W.2d 739, 740 (Tenn. Ct. App. 1997).

III. Increase in Value of Rivermont Stock

The first issue Wife raises on appeal addresses the classification of the increase in value of

the Rivermont stock. Although Wife does not dispute that the value of the stock when it was

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transferred to Husband is his separate property, she argues that the increase in its value during the

marriage should be classified as marital property and equitably divided between the parties.

T.C.A. § 36-4-121(b) provides that marital property includes “any increase in value during

the marriage of, property determined to be separate property...if each party substantially contributed

to its preservation and appreciation....” T.C.A. § 36-4-121(b)(1)(B) (1996). To be considered

substantial, a spouse’s contribution to the preservation and appreciation of the property must be “real

and significant.” Brown v. Brown, 913 S.W.2d 163, 167 (Tenn. Ct. App. 1994). Whether a spouse

made substantial contributions to the preservation and appreciation of separate property is a question

of fact. Sherrill v. Sherrill, 831 S.W.2d 293, 295 (Tenn. Ct. App. 1992).

At the time of the parties’ marriage, Husband was employed by Rivermont Golf and Country

Club, Inc., a corporation that operated a golf course and country club in Chattanooga, Tennessee.

Husband worked as the general manager of the entire operation for most of the parties’ marriage.

He often worked long hours, especially during the spring and summer months. Husband performed

many duties, including hiring and scheduling employees, maintaining the grounds, working in the

pro shop, and organizing the golf tournaments.

The Rivermont corporation was formed in 1952 by Husband’s father, Russell Mitts, who

was, at the time of its formation, the sole shareholder of the corporation. For a number of years,

Rivermont leased the premises on which the golf course-country club was located. In 1967,

Rivermont purchased the property for $400,000. From 1978 to 1982, Russell Mitts made gifts of

Rivermont stock to each of his three children, including Husband. By 1982, each child had received

shares of stock representing a 9.44% interest in Rivermont. Russell Mitts remained the majority

shareholder. In March, 1997, Rivermont sold the land on which it operated the golf course and

country club to a developer who intended to use the property for residential development.

Rivermont auctioned off its equipment and inventory. When the developer received the property,

he removed the golf course, the clubhouse, the sprinkler system, and the swimming pool in order to

develop the property into a residential subdivision. In exchange for the property, Rivermont

received commercial properties with a net value of $6,500,000. Rivermont currently receives the

lease income from these commercial properties.

In finding that the increase in value of the Rivermont stock is Husband’s separate property,

the trial court relied upon the Supreme Court’s decision in Harrison v. Harrison, 912 S.W.2d 124

(Tenn. 1995). In that case, the husband owned separate property, which, because of the construction

of an interstate highway across the property, had increased in value from $7,000 to $1,361,750 at

the time of the divorce. Id. at 125. The parties agreed that the sole cause of the increase in the

property’s value was the construction of the interstate. Id. The trial court found, however, that the

increase in value should nevertheless be classified as marital property, citing Wife’s contributions

to raising cattle on the property and the use of marital funds to satisfy a debt secured by the property.

Id. at 126. The Supreme Court rejected the lower court’s conclusion, finding that T.C.A. § 36-4-

121(b)(1)(B) does not “permit the conclusion that any increase of value during marriage constitutes

marital property.” Id. at 127. (Emphasis in Harrison). The Supreme Court concluded that the

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increase in the property’s value was not marital property, finding that the increase was not

attributable, either directly or indirectly, to Wife’s efforts. Id.

The evidence does not preponderate against the trial court’s finding in the instant case that

the increase in value of Husband’s Rivermont stock is the separate property of Husband. While

Husband’s efforts in his role as general manager -- and Wife’s efforts in her role as parent and

homemaker -- most certainly contributed, directly or indirectly, to the success of the golf course and

the country club, the increase in value of the corporation’s stock resulted not from the golf course

and country club but rather from the attractiveness of the raw land as developable residential

property. Neither party by his or her efforts, directly or indirectly, contributed to the increase in

value of the underlying property as it is presently being used and for which it was purchased by the

developer. As such, the trial court correctly classified the increase in value as Husband’s separate

property. The rationale of Harrison applies to the fact of this case. This issue is found adverse to

Wife.

IV. Appreciation in Coca-Cola Stock

Wife contends that the increase in value of the Coca-Cola stock that Husband had owned

during the marriage should be classified as marital property. Although Husband did not own the

stock at the time of the divorce -- having conveyed it to his mother -- Wife argues that the increase

in value of that stock should be considered marital property because Husband fraudulently conveyed

the stock to his mother in anticipation of filing for divorce.

Wife did not allege at trial that Husband had committed a fraudulent conveyance.1 An issue

not raised at trial cannot be raised for the first time on appeal. Sparks v. Metropolitan Gov’t of

Nashville and Davidson County, 771 S.W.2d 430, 434 (Tenn. Ct. App. 1989). Even assuming that

the issue is properly before us, however, there is no indication that any part of the stock’s value

constitutes marital property. Wife does not dispute that the stock itself was Husband’s separate

property initially; moreover, there is no evidence that the increase in its value was a result of a

substantial contribution by either of the parties. Because the stock was Husband’s separate property,

the transaction between him and his mother is not directly relevant to the issue of the equitable

division of the parties’ marital property. This issue is also found adverse to Wife.

V. Alimony and Attorney’s Fees

The trial court awarded Wife $2,000 per month in rehabilitative alimony until June, 2000,

which was the expected graduation date of the parties’ minor child. Wife argues that the trial court

failed to award her an adequate amount of alimony for a sufficient duration.

1

As the trial court correctly pointed out, that court could not have set aside the conveyance even had it found

it to have been frau dulently mad e since Husba nd’s moth er is not a party to these pro ceedings.

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The amount and duration of alimony are issues with respect to which the trial court exercises

wide discretion. Garfinkel v. Garfinkel, 945 S.W.2d 744, 748 (Tenn. Ct. App. 1996). In making

an alimony determination, a court should be guided by the factors set forth in T.C.A. § 36-5-

101(d)(1)(A) - (L) (Supp. 1999). The “real need” of the requesting spouse “is the single most

important factor.” Cranford v. Cranford, 772 S.W.2d 48, 50 (Tenn. Ct. App. 1989). “In addition

to the need of the disadvantaged spouse, the courts most often consider the ability of the obligor

spouse to provide support.” Id.

The relevant statute, T.C.A. § 36-5-101, clearly reflects a bias in favor of rehabilitative

alimony. See T.C.A. § 36-5-101(d)(1) (Supp. 1999). However, it is also clear that rehabilitative

alimony is favored only in cases where rehabilitation is feasible. See id.

In its memorandum opinion, the trial court noted that although Wife’s income and expense

statement indicates that she needs $3,334 per month, that amount includes expenses being paid by

Husband. Thus, the court concluded that Wife’s monthly need is actually $2,192. Citing Wife’s

absence from the labor market for a significant amount of time and her lack of marketable skills

“except in the teaching arena,” the court awarded Wife rehabilitative alimony of $2,000 per month

until June, 2000. The court noted that “[Wife] testified that she would only need alimony until

Adam graduates from high school.”

The evidence reflects that Wife was employed for the first three years of the parties’

marriage, first as a bank teller and then as an elementary school teacher. The parties mutually agreed

that she would stay home after the children were born. This she did for the next 23 years. Wife

testified that she wished to stay at home until Adam graduated from high school so she could be

there for him as she had been there for the parties’ daughter and so she could continue to volunteer

at his high school. Regarding Wife’s need for alimony, the following exchange during her cross-

examination is pertinent:

Q Okay. So if the Judge were to rule that you needed some sort

of money to sustain yourself, and I’m not talking about child support,

you’d only need that until Adam graduated from high school, correct?

A I suppose. I would, I suppose.

The evidence does not preponderate against the trial court’s finding that rehabilitative

alimony is appropriate in this case. Wife was 46 years old at the time of trial and was in good health.

She has a bachelor’s degree in education and can return to the teaching profession once she renews

her certification. We find, however, that the evidence preponderates against the trial court’s finding

that a period of approximately 14 months is sufficient to rehabilitate Wife. Although we

acknowledge that Wife agreed -- albeit somewhat ambivalently -- on cross-examination that she

“suppose[d]” that she would only need support to sustain herself until Adam graduated from high

school, the conclusion that Wife could be rehabilitated by that time flies in the face of the other

evidence in this case, such as the relatively small amount of marital property awarded to Wife; her

absence from the workforce for approximately 23 years; her lack of liquid assets or an income

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stream; and the indefiniteness of her plans for successfully re-entering the workforce. The evidence

shows that at the time of the divorce, Husband had gross income of $49,800 a year and stock in a

very substantial income-producing corporation, while Wife had no income and no job prospects.

Wife is clearly economically disadvantaged relative to Husband. After careful consideration of the

factors set forth in T.C.A. § 36-5-101(d)(1), we find that an award of four years of rehabilitative

alimony is the appropriate decree in this case. Based on the evidence before us, we find that

Husband has the ability to pay the alimony decreed in this opinion.

We further find that Wife is entitled to an award of attorney’s fees at trial and on this appeal.

An award of attorney’s fees is in the nature of alimony. Smith v. Smith, 912 S.W.2d 155, 161

(Tenn. Ct. App. 1995). Because we find that Wife has demonstrated the requisite need and that

Husband has the ability to pay, we also reverse the trial court on this issue.

VI. Child Support

Wife next argues on appeal that the trial court erred in setting Husband’s child support

obligation. Specifically, Wife argues that the trial court erred (1) in failing to find that Husband was

willfully unemployed or underemployed; (2) in failing to consider Rivermont’s retained earnings

in calculating Husband’s income; and (3) in failing to deviate upwardly from the Child Support

Guidelines because of Husband’s lack of parenting time with the child. We will consider each of

these arguments in turn.

A.

Wife first argues that Husband was willfully unemployed or underemployed. The evidence

reflects that in 1997, Husband was earning a annual salary of $49,800 as the general manager of the

golf course-country club operation. After the property was sold, Rivermont began distributing

income to Husband in an amount equal to his former salary. Thereafter, Husband obtained his

realtor’s license and became an agent with a realty company. He testified that he regularly reports

for work and that he has performed some work for the company. He testified, however, that he has

recently developed health problems. Husband was diagnosed with sleep apnea and had surgery to

treat this condition in 1998. He testified that he continues to suffer from sleep apnea and that he

hopes to work more when his health improves.

The trial court refused to find that Husband was willfully unemployed or underemployed.

Given his recent health problems, his efforts to start working in the real estate field, and the fact that

Husband is receiving the same amount from Rivermont as he did when he was employed at the club,

we cannot say that the evidence preponderates against the trial court’s finding on this issue. Wife’s

argument is found to be without merit.

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B.

Wife next argues that the trial court should have considered the earnings retained by

Rivermont in calculating Husband’s gross income. She argues that Husband’s obligation should be

based upon $76,587, Husband’s distributable share of the corporation’s earnings in 1998.2 The trial

court based the child support obligation on the payments that Husband actually received from the

corporation, which totaled $49,800.

This court has held that where a business is solely owned, the business’ accumulation of

retained earnings can be considered in determining an obligor’s income for the purpose of child

support. See Sandusky v. Sandusky, C/A No. 01A01-9808-CH-00416, 1999 WL 734531, at *4

(Tenn. Ct. App. M.S., filed September 22, 1999). That is because “[a] self-employment situation

where an obligor spouse or parent can control the salary he or she receives may raise issues requiring

the court to examine whether the potential exists for the obligor to manipulate his reported income

either by failing to aggressively solicit business or by inflating his expenses, thereby minimizing his

income.” Id. (internal quotation marks and citation omitted). However, Husband in the instant case

is not the sole shareholder of Rivermont. On the contrary, he is a minority shareholder, and the

distribution of the corporation’s income is within the control of the majority shareholder, his father.

Thus, Husband does not have the ability “to manipulate his reported income” as a sole shareholder

would. Wife has not cited any authority -- and we are not aware of any -- that would require a court

to consider a corporation’s retained earnings in calculating an obligor’s income where the obligor

is a minority shareholder and thus lacks control over the distribution of the corporation’s income.

We therefore find that the trial court properly based Husband’s minimum child support obligation

on the payments Husband actually received from the corporation.

Wife has filed a motion to consider post-judgment facts in this case, asking this Court to

consider Husband’s amended 1998 tax return, which reflects that Husband’s gross income is

$104,812. We note that the bulk of the changes that prompted the filing of the amended tax return

relate to Husband’s interest in Rivermont. Upon reviewing the amended return, we find that it does

not alter our finding that the trial court did not err in basing Husband’s child support obligation upon

the amount of income actually distributed to him rather than upon the higher gross amount of

Rivermont income upon which Husband was required to pay federal income taxes.

C.

Finally, Wife contends that the trial court should have deviated upwardly from the Child

Support Guidelines because Husband has not exercised standard visitation with the child. Husband

argues that Wife did not raise this issue at trial and therefore, so the argument goes, the issue should

not be considered by us on this appeal. We find that the issue of the amount of visitation exercised

by Husband was litigated at trial. Both Husband and Wife testified as to the amount of time

2

Because Rivermont is a Subchapter S corporation, H usband, as a 9.44% shareho lder, mu st pay taxe s on his

apportioned share of the corporation’s earnings, regardless of how much of his share is actually paid to him.

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Husband spent with the child, and both parties were questioned as to whether Husband exercised

overnight visitation. Child support was the only issue upon which this testimony was relevant. In

this connection, it should be noted that Husband did not seek to be the child’s primary residential

custodian. Upon reviewing the parties’ testimony, we find that the evidence preponderates that

Husband has not exercised any overnight visitation with the child. The trial court’s memorandum

opinion does not address this testimony. Thus, we find that it is appropriate to remand this case so

the trial court can consider this testimony and determine whether, and, if so, to what extent, an

increase in child support is appropriate in view of the fact that the minor child did not spend the

amount of visitation time contemplated by the Guidelines. See Tenn. Comp. R. & Regs., ch. 1240-

2-4-.04(1)(b).

VII. Conclusion

We modify the trial court’s rehabilitative alimony award and remand for the entry of an

appropriate order on this subject. We reverse the trial court’s decree regarding Wife’s request for

attorney’s fees at the trial court level. We remand this case for further proceedings on the issue of

child support and the appropriate amount to be awarded Wife as attorney’s fees, both for professional

services and expenses at the trial level and on appeal, all consistent with this opinion. Except as

reversed, modified, or otherwise changed or altered by this opinion, the judgment of the trial court

is affirmed. Exercising our discretion, we tax the costs on appeal half to each of the parties.

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CHARLES D. SUSANO, JR., JUDGE

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