An important case in the increasingly complex history of source-of-funds tracing in Virginia is Moran v. Moran, ___ Va. App. ___, ___ S.E.2d ___, 13 VLW 1267, decided 3/30/99. The Court had the familiar situation of a house owned by one party (wife) before marriage, which became the marital home, and was improved by the parties' expenditures after marriage and had its mortgage paid down with marital money. The Court of Appeals continued to stick to its impossible standard for showing "addition to value" by the expenditure of money from one "estate" on the other's property, and once again, as in Martin v. Martin, 27 Va. App. 745, 753-58; 501 S.E.2d 450, 454-56 (1998) this was a case of marital poured into separate property.
(It matters not that the house appreciated from the original 1978 purchase price of $27,900 to $58,500 during a period when the parties spent $30,000 of marital funds to renovate it. Of course the husband didn't have an appraisal from every year (or day) of the marriage, and he has no way to prove to the satisfaction of the Virginia Court of Appeals the extent to which the marital money caused any precisely-identified part of the house's growth in dollar value. He would have to have shown how the specific renovations contributed to specific dollar increases in value, and of course he can't do that, so the marriage failed to satisfy its Code §20-107.3(A)(3)(a) burden of proof.) The mortgage payments were a different matter, however, as the Court of Appeals is willing to accept at least the principal-retirement part of those mortgage payments (i.e., about $6,000) as marital expenditures on separate, which should get a source-of-funds credit. It was not error for the trial court to classify the property as hybrid, which the Court of Appeals apparently will use as the term for anything that has become "part separate and part marital" (and not reserve for second-phase products of, or exchanges for, such partially-transmuted assets). Precisely what happened, in the Court's view, is that the reduction of mortgage-principal liability by about $6,000 paid with marital funds comingled marital funds with separate realty, and constituted a partial acquisition of the property with marital funds, thus causing the presumption of marital classification to apply, subject to tracing out the separate part. Husband's evidence on the mortgage paydown was sufficient. The husband also had a defined contribution pension plan before marriage, which was worth $198,000 at separation. The Court of Appeals held that the trial court erred by failing to determine the amount of the value of this appreciated asset which represented income earned on the husband's pre-marital investment. Husband brought in an expert who calculated that the $17,489 value in this plan that the husband had before marriage would have earned and increased to $135,900 during the 12 years of the marriage. That expert used the mathematical formula used in an Oklahoma case, and the Court of Appeals approves that as "credible evidence establishing the minimum income that his pre-marital contribution ... would have earned were it invested in the fund with the lowest rate of return." It was reversible error to fail to classify at least that much as husband's separate-property passive growth on the pre-marital investment. The husband had borrowed on the pension plan, and it was not error for the trial court to assign him that entire $32,000 debt.