Virginia Family Law Appeals

Marital accounts acceptable for alimony payment - Va.Ct.App.

PROPERTY DIVISION – SUPPORT OUT OF MARITAL ACCOUNTS – ALIMONY RESERVA­TION – TIMING OF REQUEST FOR – PENSIONS, ETC. – DIVISION FORMULA – BUSINESS VAL­UATION – GOOD WILL. The “problem” of an em­ployed spouse paying alimony and child support, ei­ther voluntary or court ordered, out of marital ac­counts (joint or otherwise), rather than his ongoing salary, and the idea that he is doing something wrong because he did not take it out of separate property belonging to himself, has a certain dramatic appeal, as it fits in well with the demonizing assumption that all separated husbands must be lying, cheating, stealing and hiding money. But it often raises ques­tions such as “What were they living on before?” when the non-employed spouse seeks an order that embargoes the employee spouse’s use of all funds but his salary, from which alimony and child support payments must come. This perennial question was before the Court of Appeals again in Wright v. Wright, 737 S.E.2d 519, 61 Va. App. 432 (2/19/13), wherein the Court ruled that a husband did not have to reimburse the marital estate for what both sides agreed were expenditures for proper purposes. These expenditures (of $1.4 million) were not waste. He will, after all, be having to pay $10,000 in monthly alimony for the next four years, which is what wife got rather than the $30,000 monthly she asked for. Denial of an alternate valuation date was well within the trial judge’s discretion. The Court of Appeals will not hold as a matter of law that this is an unfair dimi­nution of marital assets after separation. Wife got a reservation of alimony, which she asked for only at the end of the case, rather than in her ini­tial plead­ings. The Court says that the latter is not required. (Nice to have that one cleared up.) The trial judge did err in granting a reservation without saying how long. The judge of course will have to deal with the statu­tory rebuttable presumption that it should be half the length of the marriage under Code §20-107.1 (D). The judge also erred in granting the wife 25% of the value of a certain retirement fund, instead of a share of the marital portion thereof. The Court also af­firmed valuation of the husband’s partnership’s good will by an excess earnings method that was ap­proved in Howell v. Howell, 31 Va. App. 332, 523 S.E.2d 514 (2000), as it better isolates institutional good will from personal good will. 

PROPERTY DIVISION – MARITAL & SEPARATE – TRANSMUTATION – USE AS COLLATERAL FOR REPAID MARITAL LOAN - Va.Ct.App.

In case you wondered, as many of
us did for a while, whether the use of separate property as security
for a loan that was used for and repaid from marital funds will
necessarily transmute it, that question was before the Court of
Appeals in Layman v. Layman, 62 Va. App. 134, 742 S.E. 2d 890
(6/11/13), where inherited separate property was mortgaged for money
that was spent, for clearly marital purposes, and the loan is repaid
with marital property, but had already been fully paid off. Sure the
trial court erred in classifying this property as marital, the Court
of Appeals said. For those who need any more analysis, equity in the
inherited property had already been built up, and paying off the loan
did not increase its value. Increases in the value of all the parties’
combined real estate was conceded and the trial court said that
discharge of any debt secured thereon affects the results and the
increase in equity in the asset increases its value, citing Gilman v.
Gilman, 32 Va. App. 104, 119; 526 S.E. 2d 763, 770 (2000). The trial
court viewed this as co-mingling, so that all the real estate together
should be considered marital property. In short, the Court of Appeals
did not say and mean these things in Gilman, and it went extensively
into the facts of that case to show that its words had been
misunderstood. It said that “the trial court’s error is manifest,
because nowhere in Gilman did we discuss the effect of repaying the
balloon note on the classification of the… stock.” Inherent in the
bailment relationship is that the property is to be returned to the
bailor.

Family farm is marital property even under terms of family trust, & not gift - Stevens v. Stevens

PROPERTY DIVISION – SOURCE-OF-FUNDS – TRACING – GIFT – CONVEYANCE TO MARRIED COUPLE. The Court of Appeals recently went over again the law of tracing separate property interests, such as inheritance and gift, and of marital property in which it was all co-mingled. This was a case of a husband and wife buying his family’s farm from his mother. When the divorce litigation took place in Stevens v. Stevens, ___ Va. App. ___, ___ S.E.2d ___, 26 VLW 814 (12/13/11), the husband argued that even though he and his wife had taken title to the farm jointly, he still owned a one-quarter interest in it as his separate property because of a surviving trust obligation to divide it in the future among his parents’ four sons. What complicated things was that the farm when purchased by them was owned by a family trust. The terms of the trust governed, and required that the trustee be directed to sell by the mother, which he was. Its main provision was that the trustee had to hold all the real property for the lifetime of the parents or until they, or the survivor of them, should instruct the trustee to sell or otherwise distribute the assets. The sale took place when both parents directed the brother who served as trustee to convey to husband and wife, so it was presumably transmuted. And being no longer a trust asset, the farm was not subject to any term of the trust. Although there was a provision about distribution of the farm upon the death of the parents, that was irrelevant now because it had been properly conveyed to the now-divorcing husband and wife and further trust terms were irrelevant. The brothers had no more than a vested remainder in those trust assets, which would be no more than that until the death of the parents if they still held the farm at death, which they now will not. The farm after sale was the simple marital property of the husband and wife. The husband had an argument that one quarter of this conveyance was a gift to him because the price was $100,000, and husband and wife had given a purchase money note for only $75,000, so therefore that $25,000 forgiveness of their debt must have been a gift from his parents. At best, the Court of Appeals said these facts would “only suggest” a gift. Conveyance was still to husband and wife in joint title and husband had not proved inheritance or gift, and the marital property classification of the entire farm was upheld.

Donor intent makes stock "sale" to son really a gift, thus separate property

PROPERTY DIVISION – MARITAL OR SEPARATE – GIFT OR SALE? — NOMINAL SALES WITH TOKEN CONSIDERATION.  In an opinion concerning transfers of at least three kinds of stock from a family corporation to a husband, the Court of Appeals found gifts instead of sales, and reversed as plainly wrong the trial court’s classification of the stock as marital.  This was in Sfreddo v. Sfreddo, 59 Va. App. 471, 720 S.E.2d 145, 26 VLW 984 (1/24/12).  The stock of a family chemical business was owned by the husband, his brother and their mother. The circumstances created some confusion as to how much of a sale this was and how much it was actually a gift, but there seems to have been no question that the transfer was to the husband alone, and not to the couple. The corporate minutes labeled the transfer of “Triple S Co.” stock as a sale and there was token consideration reflected, and for that reason the trial court found it was not a gift, as husband had failed to prove corporate intent to make a gift.  It sounded that way because the corporation issued new stock to him and redeemed the mother’s shares. That showed an intent of husband’s mother to make a gift of Triple S stock to him, and the trial court found no evidence that there was not delivery and acceptance. The Court of Appeals observed that there had been no evidence after the transfer of commingling, transmutation, or joint titling of the stock to the couple. This was not good enough for the trial court, and it found no showing by the husband of corporate donative intent. The appellate court differed. Since the corporation is but a fictitious entity, the intent of the Board of Directors is necessarily the intent of the corporation, the Court of Appeals said. It found corporate intent to give the shares clearly present, and the trial court decision clearly wrong and unsupported by the evidence. The Court of Appeals chose to disregard the corporate-minutes labeling and the token consideration in view of other circumstances.  Using the corporate minutes the Court of Appeals found that the redemption of the mother’s stock was followed by the sale of 200 shares to the husband at a $1.00 a share, which was not at all fair market value. Not only that, but husband’s new shares would constitute half the company. When half the company was sold in 2003 it went for $1.5 million, and that supported a finding that the remaining 200 shares were worth $7,500 per share on the date of trial. Not only that, but all three directors testified that they considered the transfer a gift, and the trial court itself had specifically found that the mother’s intent as to the shares she conveyed was to make a gift, so intent was proved by clear and convincing evidence and the trial court was plainly wrong to find no gift. Nominal consideration makes no difference because the Court of Appeals, to find a valid sale, is looking for a “bargained-for” exchange. The Court recited a lot of corporate law principles, with ample citations, including the one that intent of the sole stockholder can evidence intent of the corporation. Though the husband also contended on appeal that the trial court erroneously valued his stock in “APS Investments,” which he owned with his brother, the Court of Appeals upheld the valuation because all APS owned was a single piece of property and one bank account, and considering the value of the stock, the trial court had been well within its discretion.

How one couple kept separate property separate - Pratt v. Pratt

PROPERTY DIVISION – MARITAL & SEPARATE – KEEPING SEPARATE SEPARATE. The sacred presumption of marital goes only so far, it seems, as we learn from an unpublished (for whatever that might be worth) opinion in Pratt v. Pratt, 26 VLW 935 (12/20/11), that yes, Virginia, there is such a thing as maintaining separateness of worldly possessions. So how’s this for keeping separate separate? A preacher who had kept the house when his first wife left him apparently got it in the divorce or settlement as all his own, and ten years later remarried. He took out a mortgage on the place two years before that, and after remarrying, refinanced three times, but staying the only debtor on the mortgage notes and keeping sole title, as he had since 1998. Second wife retired in 2001 and became a homemaker. Husband had a credit union account in his own name during most of the marriage, and he used that to make the mortgage payments. The wife put money in that account in 2006, but she removed it. That was after already removing $12,000 just before she left. The value of the house had been declining since 2009. Wife decorated and furnished the place, claimed she had written $10,000 in checks to the husband over the years for household related expenses, but the husband denied that she had contributed to the mortgage payments and said that all her renovation projects had never been completed. To complicate matters he got a $71,000 inheritance in 2005, but he deposited that to the credit union account in his own name. Husband showed that he used $16,000 from that to buy a car and jointly titled it, and acquired an investment fund worth about $10,000 titled in both names. And while the wife claimed that the car was predominantly driven by her and husband had to ask her permission to use it, husband testified he neither added money to nor removed it from the investment fund during this whole marriage. When he sued wife for divorce, the Fairfax Circuit Court gave wife 50% of the marital home, half the investment fund and ownership of the car. Court of Appeals used Duva v. Duva, 55 Va. App. 286, 685 S.E.2d 842 (2009), to show the trial court that it approached this in the wrong way, applying the wrong standard when it classified the house as all marital. The presumption is not that the husband’s pre-maritally owned house is marital, but that it is separate, and that presumption was not refuted here. And, citing Duva, the Court specifically rejected the argument that the property could not be separate since the husband did not get full legal title until after his second marriage. It has already been established in Virginia law, also, that showing only customary care by the non-owner spouse does not convert or transmute separate property. What is required is significant personal efforts by either spouse while married that result in a substantial appreciation of the separate property. Code §20-107.3(A)(1) and (A)(3)(a). Wife here showed only customary care, maintenance and upkeep and showed no significant value increase. The car should not have been classified marital, as it was re-traceable to the inherited money. Thus his joint titling of the car would not be regarded as a gift. The burden was on her and she “failed to prove by clear and convincing evidence, husband’s intent to give her the Toyota as a gift.” Mere joint titling does not create a presumption of gift, and there was no evidence shown here of donative intent, so classifying the car as marital was error. All the husband intended to give to the wife was the use of the car. Similarly, the investment fund was clearly re-traceable to the separate property inheritance, and registering it under joint names was rendered ineffectual for property classification purposes. It was husband’s uncontradicted testimony that he had established this fund before marriage.

Court: "Y'all" is plural in Virginian; gift to "y'all" is marital

When a wife’s father said that a $15,000 payment was for “y’all,” he made a joint gift to the couple, despite his later testimony that he intended only to help his daughter. Henrico Circuit Judge Daniel T. Balfour had to weigh a number of gifts in Polich v. Polich ...

Nature of gifts at issue in couple’s divorce 

By Paul Fletcher, Virginia Lawyers Weekly January 5, 2012

Stock options to be classified as marital, separate or mixed property just like pensions

PROPERTY DIVISION – SEPARATE AND MARITAL – STOCK OPTIONS AND AWARDS – VESTING DATE AS CONTROLLING. In a simple and straightforward opinion on the classification of stock options and stock awards conferred on the wife as CEO of a large corporation known as SAIC, the Supreme Court decided that the Court of Appeals erred in (apparently) using the vesting date of these options and awards as the sole determining factor in classifying them as separate property. On the contrary, the Supreme Court said in Schuman v. Schuman, ___ Va. ___, ___ S.E.2d ___, 26 VLW 670 (11/4/11), any stock option or stock award that an employee gets on a vesting date is, absolutely, awarded as payment for past work up to that date, and it just can’t be any other way. Q.E.D. Assuming that the Court of Appeals was saying that what you get by vesting on a date after separation is all yours and non-marital, and that the date is the only criterion the Court of Appeals used in classifying these assets, it simply was wrong. After all, the Supreme Court says, one need only look to the statute which added deferred compensation benefits to the equitable distribution legislation, §20-107.3(G)(1), because it made deferred compensation divisible “whether vested or non-vested.” The Court does say that the proper rule is found in a Court of Appeals opinion, Dietz v. Dietz, 17 Va. App. 203, 436 S.E.2d 463 (1993), holding, the Supreme Court tells us, that the legislative intent was for such assets to be treated uniformly, and that means in the same manner as is the marital share of pensions.

Campbell case: Wife shoots husband, gets his family business reclassified as marital

ALIMONY FACTORS – WIFE SHOOTING HUSBAND – EFFECT OF ADMISSION – APPEALS — “LAW OF THE CASE” – PROPERTY DIVISION – MARITAL AND SEPARATE – PRESERVING SEPARATE IDENTITY – PROPORTIONS AND PERCENTAGES – GIFTS.  Perhaps it is not difficult to see why the Court of Appeals had to write a 35-page (unpublished with dissent) opinion.  It is, though, difficult to sort out the tangled fact situation, and even harder to say anything useful or helpful – let alone clever – about this (we hope) oddball Albemarle case.  Be advised, though, that the Court of Appeals does, in this post-remand appeal in Campbell v. Campbell, 49 Va. App. 498, ___ S.E.2d ___ (2007), actually say that you can deny spousal support, and even divide property more favorably to a husband, for conduct contributing to the dissolution of the marriage.  You could say that wife here did that, since she admittedly shot the husband “multiple times,” so that he ended up in a coma, and needed 22 days in the hospital.  Of course she had her various accusations against him as well, and later tried to retract her admission and blame the shooting on her son, but that didn’t work.  The big fight was apparently about the property division, as husband had been in partnership with his brother in a sawmill business since 1957, married wife in 1973, and in 1977 opened another sawmill and finally incorporated in 1983.  The parties finally separated rather dramatically with the aforesaid shooting incident in 1996.  The thing has been going through the courts at least since early 2002.  Wife had argued that there was an agreement with her husband to give her his first sawmill if he didn’t drop the divorce litigation, but after years of hearing this, the trial court said that she had failed to prove an enforceable agreement there. The 2010 divorce decree (after remand) adjusted her share of property from 28% to 38% and increased the valuation of the first lumber business by almost $8,000 (but we are talking multi-millions here).  Husband kept on alleging that his stock in the two companies had to be separate.  Though husband appealed the inclusion of that stock in marital property as well as the trial court’s valuation, the Court of Appeals this time affirmed, and as to the wife’s attempt to relitigate who shot husband, “law of the case” precludes that.  (Why? Because she didn’t try to raise that particular question in her last appeal).  Yes there is a “material change of facts exception,” but it does not apply if we see a party creating conflicting testimony for strategic purposes.  The trial court had actually ruled that the shooting amounted to constructive desertion, and actually terminated pendente lite alimony on that ground, and the Court of Appeals does not disturb that, saying the Court properly applied §20-107.3(E) factors.  The Court this time upheld the marital classification of the stock in both companies, as well as its valuation, reasoning that the husband failed to prove that his pre-marital interest in the business or businesses had retained its separate identity, since he had acquired numerous assets in various ways.  It classified the $3.2 million appreciation during the marriage as marital, since his marital property and his personal efforts contributed.  Money for the second lumber company was supplied by a loan secured on marital property, and he did not prove that he repaid the loans out of separate property.  And in this $17 million-assets case, the Court of Appeals says that the $7,826 increase in valuation was “de minimis.”

Judge Powell dissents, pointing out several of what he considers errors in the majority analysis.  It was not right to focus on the date of incorporation when classifying the original stock as marital, since the business was started way before the marriage.  Nor do individual equipment assets of the business justify calling it all marital, since §20-107.3(A)(3)(d) gives a method for making these determinations, and that method requires wife to prove the increased value supposedly contributed by marital property and/or her personal efforts.  Campbell v. Campbell (unpublished), 26 VLW 306 (8/9/11).

 

"House love" creates a marital-property gift in complex Prizzia case

Yesterday we introduced the mammoth Prizzia case, which bootstrapped support jurisdiction out of custody jurisdiction in an attempt to do complete justice in a case where the wife was in Hungary and the husband was here in Virginia, and we looked at the holdings related to child custody and support. Today we look at its holdings on property-division jurisdiction and classification.

...

— WAIVER OF RIGHTS — PROPERTY JURISDICTION — WHAT ABOUT SUBJECT-MATTER JURISDICTION? But the Court wasn’t through with jurisdiction issues. It set forth a long and learned disquisition about all those esoteric abstract jurisdictional concepts that could make a plain old country lawyer’s head swim. The court said that the wife waived her claim that the trial court didn’t have subject matter jurisdiction to make a property division and distribution since she hadn’t raised that point in the trial court. The long discussion of how subject-matter jurisdiction is a peculiar creature that metamorphoses into “potential jurisdiction” and “active jurisdiction,” on some things, and propagates a host of other little jurisdictions, and then how that is why the old rule that lack of subject-matter jurisdiction can be raised at any time doesn’t actually mean that, because those sub-jurisdictions that flow from the big one aren’t that way at all, really, is something that the reader here will be spared, and is referred to the full text. But suffice it to say that the court ends up saying that well, those jurisdictional matters like the authority to distribute property, which are statutory prerequisites, can after all be waived by non-objection.


— PROPERTY DIVISION — THE “GIFT FOR LOVE” EXCEPTION TO THE SOURCE- OF-FUNDS STATUTE. Everybody who was involved in the drafting of Virginia’s source-of-funds-credit statute has properly had the uneasy feeling, as the case law develops, that the little “except it be a gift” fillip at the end might end up making the exception swallow the rule and kill off all the normal and classic cases of source-of-funds recognition when people have bought real estate with separate-property money for the down payment. And those with misgivings have probably often wondered how often the obsession with the gift exception ends up totally blotting out the statutory rule that gifts between spouses are still marital property, if courts are going to then start holding that because it is a gift it then becomes the separate property of the recipient spouse. (See Code §20-107.3A(ii)). Anyway, in this case the Court was convinced it had found a gift made for love. Everybody remembers Joe Thiesmann and the cross-examiner’s cunning questions that got him to admit that one reason he put his wife’s name on the title to the farm was that he loved her, but in this case the Court of Appeals extends that rule to love of a house. Yes, the Court of Appeals finds, as did the trial court, that when you add together all the indicators, they’ve got a genuine case of house love, and therefore of gift-giving, here. And when the Court of Appeals explains the sufficient evidence to wipe out Mr. Prizzia’s source-of-funds claim, we see that the whole thing was marital because (1 it was jointly titled, (2) they agreed together to pay off the mortgage, and they did that because “they loved the house,” and (3) they then allocated the way in which they spent their money to achieve the desired goal of paying off that mortgage. So now, if you have the normal sort of married couple’s case you should sit down and give some long and sober thought to whether there is any room for a source-of-funds rule left.

— PROPERTY CLASSIFICATION — HOUSE-LOVE  — FACT OR LAW?: And finally, just in case there was any doubt, the Court clears up one basic legal question in equitable distribution law: trial courts’ decisions classifying property as separate, marital or mixed are findings of fact. Therefore they can’t be reversed on appeal unless plainly wrong or unsupported by evidence.

— PROPERTY DIVISION AND CUSTODY (VISITATION) ENFORCEMENT: Now the wife, staying safely in Hungary all this time, and taking her appeal to the Virginia courts, did not afford the father in Virginia his court-ordered visitation with the kids. But when the trial court got punitive about this, and decided it would condition the wife’s receipt of her share of the marital property on visitation compliance, it exceeded its authority, the Court of Appeals says. That’s right, though trial courts have discretion to determine how divorcing parties’ respective shares of the marital property will be paid out, they can’t mix custody law and property division law like this. Divorce jurisdiction is purely statutory, and if the General Assembly had wanted judges to be able to enforce visitation that way, they would have said so.

 

Pascarella v. McCoy: Judge needn't classify & value everything when spouses agree on how to divide it

PROPERTY DIVISION — CLASSIFICATION, VALUATION AND DISTRIBUTION REQUIRE­MENTS — STIPULATIONS — AGREEMENTS.  An agreement at the beginning of an equitable distribution trial as to how a holding company would be valued and divided, and by whom, will be effective to control the proceedings, and a wife’s later argument, that the trial judge erred in letting the company be disposed of the way they agreed, got nowhere in the Court of Appeals.  The husband and wife had agreed that the LLC should be divided per its Operating Agreement, and that included letting a mutually-agreed-upon CPA not only value it but divide it by percentages of interest. Thus it hardly made sense to come back and argue that the judge ignored the requirements of §20-107.3 by not going through the identification-classification-valuation-distribution ritual. A more interesting point in this case is that the Court of Appeals also rejected the wife’s argument that 20-107.3A requires that the judge individually classify and hang an individual price tag on each item of property. The appellate court doesn’t interpret it that way. And it does not just say that it wasn’t required in this case because all the judge had to do was follow the stipulated proedure. It expressly says that “we find no such requirement in that Code section.” Pascarella v. McCoy, unpublished, 25 VLW 1102 (1/11/11).