Virginia Family Law Appeals

Gilliam v. McGrady: Debts in sole name presumed separate, unlike property

PROPERTY DIVISION – DEBT – MARITAL OR SEPARATE – VERY SERIOUS PAYROLL TAXES ARREARAGE.  The Supreme Court made it sound so incredibly simple, straightforward and obvious – self-evident, really. It makes perfect sense. Of course you can’t treat debt in equitable distribution just like it was property.  The wording of § 20-107.3 says a whole lot about exactly how a judge is authorized to divide marital property interests, with the Factors and all, and then when it speaks of debt it doesn’t say all that stuff, but says something very short and therefore, of course, different.  So thus by negative implication, the Supreme Court explained in Gilliam v. McGrady, ___ Va. App. ___, ___ S.E.2d ___, 24 VLW 1237 (4/15/10), debt can’t even be classified as marital or separate except by title, after which the spouse who doesn’t want all that debt but wants some of it shoved off to the other, and who has the burden of proof to do so, comes in and shows evidence for its allocation.  But oddly enough, the Court of Appeals and trial court hadn’t seen it that way but in a way equally simple but just the opposite. The Court of Appeals has long assumed, and said, that debt is just one more kind of property: negative property, and it can be apportioned just like everything else.  The Supreme Court rejects that out of hand, and in the course of doing so says some very interesting things.  Once again this is one of those cases where it is best to let the Court speak for itself, in the following selected quotations.

 

A panel of the Court of Appeals, in a unanimous published opinion, had held that: “While the statute only creates a presumption for ‘all property’ acquired during the marriage, we see no principled reason why the presumption should not apply to debt acquired during the marriage.  Property and debt are both components of an equitable distribution award.”

 

But on the contrary, the Supreme Court said,

 

There is a marked contrast between that treatment of assets and the legislative prescription, in the same statute, for the apportionment of debts in an equitable distribution proceeding.  Code § 20-107.3(C) provides in pertinent part: “The court shall also have the authority to apportion and order the payment of the debts of the parties, or either of them, that are incurred prior to the dissolution of the marriage, based upon the factors listed in subsection E.”

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Subsection (E) provides, in pertinent part: “[T]he apportionment of marital debts, and the method of payment shall be determined by the court after consideration of the following factors: … 7.  The debts and liabilities of each spouse, the basis for such debts and liabilities, and the property which may serve as security for such debts and liabilities; … 11.  Such other factors as the court deems necessary or appropriate to consider in order to arrive at a fair and equitable monetary award.”

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The equitable distribution statute contains no provisions creating a presumption of allocating a burden of proof with regard to the apportionment of debts between spouses. … In framing Code § 20-107.3, the General Assembly clearly knew how to create a presumption and allocate the burden of proof, having explicitly done just that with respect to assets, in enacting subsection (A)(2).  For policy reasons that can be well imagined, the General Assembly chose to omit parallel provisions with respect to debts, giving to the courts only the general guidance contained in subsection (E)(7) and (11), quoted above. … Instead, traditional rules concerning the allocation of the burden of proof apply.

 

Marvin v. Marvin: BANKRUPTCY – DISCHARGEABILITY OF FEE AWARD IN VISITATION-ORDER-VIOLATION CASE.

Everybody knows, or should know, that payments due to a mother “in the nature of child support” are not dischargeable in bankruptcy, and most divorce lawyers probably know that quite a number of courts have interpreted that to include fee awards obtained by support recipients in cases concerning child support.  But what about fees awarded against a husband who was found in contempt for being out of communication, and keeping the child beyond the pickup time and thus causing her to miss a day of school?  Is the Court of Appeals stretching a point to call this support-related?

Six bankruptcy/family law cases:

Six older case notes on how bankruptcy interacts with support, property division, agreement enforcement, and college tuition for children. Case notes on In Re Dill, Webb v. Craighead, Carter v. Carter, In Re Crosby, Lawson v. Lawson, and In Moseley v. Moseley follow:

Bankruptcy: Effect on Property Division: In Re Ferrebee.

(No. 90-22926-T, U.S.B.C. at Norfolk), 6 VLW 224. The United States Bankruptcy Court for the Eastern Division of Virginia held that the agreement between the debtor husband and his former wife in their separation agreement to hold one another harmless for the debts each had assumed is non-dischargeable in bankruptcy, because it is "in the nature of alimony."  The Court found it clear that the parties intended this mutual hold-harmless obligation to be non-dischargeable, and their agreement can be said to have characterized the obligation as one of maintenance.  Though these characterizations in agreements are not necessarily dispositive, this one certainly is.

PROPERTY DIVISION – ASSUMPTION OF DEBT – PREDICTED BANKRUPTCY DISCHARGE OF OBLIGATION ALREADY BARGAINED FOR IN E.D. SETTLEMENT – LIABILITY OF NON-BANKRUPT SPOUSE – ALIMONY AWARD AS REMEDY – SPECULATIVE.

After some Virginia appellate opinions approving  belated alimony as a remedy when the other spouse defaults on an obligation to cover a marital debt assumed in exchange for some quid pro quo in a separation agreement, most Virginia practitioners assumed they knew just what to do when a bankruptcy discharge of that same assumed obligation is then sought: go immediately into court to seek a belated spousal support award as a remedy.  But they would all be wrong, according to the recent opinion of the Court of Appeals in Rogers v. Rogers, 51 Va. App. 261, 656 S.E.2d 436, 22 VLW 1082 (2/12/08).  What’s wrong with it now?  If the husband (as it was in this case) has not yet actually received a discharge of the debt, then it would be speculative to assume he would get it – even though the debt specifically assumed by and assigned to him has still never been paid, bankruptcy has been filed for, and that debt specifically listed by the debtor. 

BANKRUPTCY -- Effect on Property Division.

   In Re Ferrebee (No. 90-22926-T, U.S.B.C. at Norfolk), 6 VLW 224, the United States Bankruptcy Court for the Eastern Division of Virginia held that the agreement between the debtor husband and his former wife in their separation agreement to hold one another harmless for the debts each had assumed is non-dischargeable in bankruptcy, because it is "in the nature of alimony."  The Court found it clear that the parties intended this mutual hold-harmless obligation to be non-dischargeable, and their agreement can be said to have characterized the obligation as one of maintenance.  Though these characterizations in agreements are not necessarily dispositive, this one certainly is.

DEBTS -- BANKRUPTCY.

The Virginia Court of Appeals in Douglas v. Douglas, ___ Va. App. ___, 437 S.E.2d 444, 8 VLW 673 (11/23/93), stopped a husband from using bankruptcy to escape the debt-apportionment obligations of a separation agreement.

TAX LIABILITY — JOINT PROPERTY — ENTIRETIES PROPERTY — TAX LIEN.

The U.S. Supreme Court recently held that a federal tax lien under 26 U.S.C. §6321 can be lodged against tenancy by the entireties property. Specifically, the Court held that "property or rights to property" under the statute, to which the federal tax lien may attach, includes rights which the husband has in property held in tenancy by the entirety, and it does not matter if the wife has done nothing to incur liability. U.S. v. Craft, No. 00-1831, ___ U.S. ___ (4/17/02).

CREDITORS' RIGHTS — JUDGMENTS — ENTIRETIES PROPERTY.

A creditor still can't reach tenants by the entirety real estate, even if it has a judgment against each of the spouses, the Virginia Supreme Court explained in Rogers v. Rogers, ___ Va. ___, ___ S.E.2d ___, 13 VLW 1160 (2/26/99). What the creditor has to have is a joint judgment against the husband and wife jointly as ten-ants by the entirety with right of survivor-ship if it is going to satisfy that judgment against that property which is titled that way. In this case, where the separate judgments were against husband and against wife, arising out of a joint fraudulent scheme, the creditor had argued that the Supreme Court should "expand" Price v. Hawkins, 247 Va. 32 (1994) to create a remedy and force a sale of the real estate, but the Supreme Court declined that invitation.