The Interplay Between Bankruptcy and Divorce Law in Virginia

February 26, 2013

Did husband properly use marital funds held in accounts titled in his individual name to pay temporary spousal support to wife and legal expenses?

Filed under: — James H. Wilson, Jr. @ 11:03 am

Did husband properly use marital funds held in accounts titled in his individual name to pay temporary spousal support to wife and legal expenses?

Yes, in the case of Wright v. Wright, Case Nos: 0947-12-2 and 0958-12-2, (Feb. 19, 2013), where the Court of Appeals of Virginia ruled that husband properly expended marital funds in his own account to pay pendente lite spousal support and legal expenses he owed during the divorce case, instead of using his post-separation earnings from his law practice or other separate property.

In Wright, the husband and wife were married for 24 years before separating from the marital residence in the City of Richmond.  The wife filed a complaint for divorce and the husband filed an answer and cross-complaint.  The case was tried 2 years later and a final decree of divorce was issued in April 2012, from which both husband and wife appealed.  Before entry of the final decree of divorce, the trial court judge issued a letter opinion outlining his decision.  The wife filed a motion to reconsider this letter opinion, requesting an additional reservation of spousal support, which request was granted in in a second revised letter opinion and the final decree of divorce.

The attorney husband in the Wright case was a successful Virginia lawyer who worked in downtown Richmond for a large U.S. law firm, where he was an equity partner and a highly-compensated head of a practice group.  The valuable marital property in the divorce case included the marital share of the husband’s law practice and the husband’s three retirement plans with the law firm, including a supplemental retirement plan (SRP).  The wife’s expert valued the husband’s interest in the law practice at nearly 1.5 million dollars, while the husband’s expert valued it at just over half a million dollars.  While the husband argued that there was no marital property in the SRP as it had not vested and might not be approved, the trial judge awarded 25% of the value of the SRP, not just the marital share, when and if the account should become payable after vesting.

In addition, the husband had two separate accounts in his individual name, which he used to pay temporary spousal support to the wife and his legal expenses during the divorce case.  The wife moved the trial court to value the property at the date of separation, an alternate valuation date to the hearing date, as permitted by Virginia Code § 20-107.3 for good cause shown, in order to attain the ends of justice, by motion made no later than 21 days before the equitable distribution hearing.

Although the wife had an MBA from a prestigious national university, she did not work outside the home after the parties’ children were born, except to assist in entertaining husband’s business interests and to engage in volunteer work.  At trial, the husband’s vocational expert opined that the wife was capable of earning $85,000 a year as an established financial representative.  Although the wife asked the court for an award of spousal support in the amount of $30,000 a month for undefined duration, she was awarded $10,000 a month for four years as rehabilitative alimony – enough to allow her to update her skills for entry into the job market. The judge did award a reservation of spousal support to the wife, without expressly limiting the reservation to a particular term.  Under Virginia Code § 20-107.1(D), there is a rebuttable presumption that a reservation of spousal support period will continue for a period of time equal to half the length of the marriage to the date of separation.   Both parties appealed the trial court judge’s opinion.

In response to the husband’s argument that the trial court erred in reserving support to the wife only after she first requested it in her motion to reconsider, the Virginia Court of Appeals held that a request for spousal support also includes a request for a reservation of support, as decided in Vissicchio v. Vissicchio, 27 Va. App. 240, 498 S.E.2d 425 (1998).  The wife had requested support and the parties had stipulated there was no bar to her receiving spousal support.

The Court of Appeals, however, agreed with the husband’s argument that the trial court should have limited its reservation of support for a particular duration of time – 11 years – as requested by the wife.  The appellate court reversed this decision of the trial court and remanded the case for a correction of the judge’s decision.

In regard to the equitable distribution decision, the Court of Appeals deferred to the trial court’s finding that the SRP contained marital property, as not plainly wrong or without evidence to support it.  The appellate court noted that the language of Virginia Code §20-107.3(G)(1) is intended to treat uniformly all plans of compensation, whether vested or not, payable now or upon retirement, provided it was earned during the marriage.   The evidence at trial supported the finding that some portion of the SRP was earned during the marriage, as the wife supported the husband’s success at his law firm and he became an equity partner during the marriage and before the parties separated.   Nevertheless, the trial court erred in awarding wife 25% of the total SRP instead of a fixed percentage of the marital share of the SRP.  The court agreed with the trial judge that the “deferred distribution method approach”, as described in Torian v. Torian, 38 Va. 167, 562 S.E.2d 355 (2002), with an award of a percentage of the marital share of the pension, to be paid only as benefits are paid, would be an appropriate method for awarding the wife’s share.  The appellate court remanded this issue to the trial court with instructions to determine the marital share by using a fraction, the numerator of which would be the number of years the husband was a partner while the parties were married until they separated and the denominator of which would be the number of years the husband was a partner until his retirement and approval of the SRP by the executive committee at the firm, with the actual amount to wife not to exceed 50% of that amount.

The appellate court upheld the trial court’s valuation of the husband’s law practice based on the “bottoms up” method of determining the intrinsic value of a professional practice used by wife’s expert, which had been similarly approved in Howell v. Howell, 31 Va. App. 332, 523 S.E.2d 514 (2000), a prior case involving the same expert witness and an attorney in the same firm as husband’s.  The trial court’s findings were not plainly wrong or without evidence to support them in using this methodology.

The Virginia Court of Appeals disagreed with wife’s contention that a different valuation date should have been used for the marital funds in husband’s accounts in his own name.  In support of her motion for an alternate valuation date, the wife maintained that the husband should have used his post-separation earnings from his law practice or other separate funds.  The court noted that the trial court should use the most current and accurate valuation which avoids an inequitable result, citing Gaynor v. Hird, 11 Va. App. 588, 400 S.E.2d 788 (1991)Although dissipation of marital assets for separate purposes in contemplation of separation or divorce may be charged to that party, in this case the husband met his burden of proving the funds were properly spent.  A separated spouse may properly use marital funds for court-ordered spousal support, mortgage payments, household expenses, a child’s tuition expenses, and legal expenses for the divorce case.  In this case, the appellate court held the trial court judge was within his discretion in finding no good cause for an alternate valuation date and in finding that the payments were not waste as the husband was under no obligation to use his separate funds.

Finally, the appellate court upheld the trial court’s award of spousal support for a defined duration.  An award of spousal support is within the sound discretion of the trial court judge and will not be reversed unless plainly wrong or without evidence to support it. Calvert v. Calvert, 18 Va. App. 781, 447 S.E.2d 875 (1994) .  The award was supported by expert testimony and the reasonable inferences that could be drawn from such testimony.

You should consult with your Virginia attorney or Richmond divorce lawyer James H. Wilson, Jr., to discuss how certain post-separation payments might be treated in a Virginia divo

No Comments »

No comments yet.

RSS feed for comments on this post. TrackBack URL

Leave a comment

You must be logged in to post a comment.

Powered by WordPress