Does an increase in the value of a spouse’s separate property become marital property in equitable distribution in a Virginia divorce case?
It depends on whether the increase in value is considered a passive gain or the result of either spouses’s personal efforts during the marriage. In the unpublished opinion of Tucker v. Wilmoth-Tucker, Record No. 2008-09-2 (Va. App. 2010), the Virginia Court of Appeals held that the Circuit Court of Hanover County, Virginia, erred by classifying the increase in the husband’s shares of stock in the family business due to his personal efforts after the parties separated was marital property.
In Tucker, the husband and wife were married for 19 years before separating. During the marriage, the husband worked for his family’s business, and the wife stayed at home as a homemaker, although she occasionally assisted her husband with his work. The parties owned two homes, one in Mechanicsville, Virginia, and the other, a second home in Gloucester, Virginia. After separating, the husband occupied the Mechanicsville home and the wife occupied the Gloucester home. While the husband and wife were married, the husband’s parents gave him a significant amount of shares in the family business. At the equitable distribution hearing, the Court noted that the shares were the husband’s separate property, but it determined that the increase in value that occurred during the marriage was marital property. The husband appealed this decision to the Virginia Court of Appeals, arguing that the classification of the post-separation increase was contrary to the finding that the continued increase in value was due to his active effort. Among other things, the husband also appealed a portion decision of the Hanover County Circuit Court ordering him to pay a monthly amount to the wife in addition to ordered spousal support for the wife’s health insurance, this additional amount being designated by the divorce court judge as not being in the nature of spousal support for tax purposes.
The Court of Appeals first noted that equitable distribution is a process: first the judge classifies the property as marital, separate, or as hybrid – part separate and part marital; then the court must assign a value to the property based on the evidence presented; and finally, the court distributes the property, taking the factors of Virginia Code §20-107.3(E) into consideration http://leg1.state.va.us/000/cod/20-107.3.HTM. Alphin v. Alphin, 15 Va. App. 395, 424 S.E.2d 572 (1992). The Virginia Court of Appeals recognized that separate property is “that acquired ‘before the marriage,’ (2) ‘during the marriage by bequest, devise, descent, survivorship, or gift’ from someone other than the other spouse and (3) ‘during the marriage in exchange for or from the proceeds of sale of separate property’” Dietz v. Dietz, 17 Va. App. 203, 436 S.E.2d 463 (1993). Furthermore, according to Code §20-107.3(A)(3)(a), an increase in value of separate property occurring during the marriage “shall be marital property only to the extent that marital property or the personal efforts of either party have contributed to such increases.” Moreover, for the purpose of classifying property, the Court uses the date of the last separation not the date of the hearing. Dietz, 17 Va. App. At 209-10, 436 S.E.2d at 467. In this case it was undisputed that the shares were the husband’s separate property and the increases were due to his personal efforts; therefore, the Court held that any increase in the value of those shares that occurred due to the husband’s efforts is separate property and reversed the Circuit Court’s classification of those increases in equitable distribution.
With respect to the amount payable for wife’s health insurance, the Virginia Court of Appeals compared the case to the case of Stacy v. Stacy, 53 Va. App. 38, 669 S.E.2d 348 (2008), where the parties waived spousal support in the separation agreement, but husband agreed to pay a mortgage on wife’s house and the mortgage payment was designated as being in the nature of spousal support. The husband later sought to terminate his obligation to make the mortgage payments since wife was living with another man in a relationship analogous to marriage for more than a year, a ground for terminating spousal support in Virginia by virtue of Virginia Code Section 20-109(A). In Stacy, the Virginia Court of Appeals upheld the denial of husband’s request to terminate the mortgage payments on the grounds that the designation of the mortgage payments as being in the nature of spousal support was made to prevent the husband from discharging his obligation in bankruptcy (as a Domestic Support Obligation nondischargeable under 11 U.S.C. §523(a)(5) , in any type of bankruptcy). Similarly, in Tucker-Wilmouth, the Virginia Court of Appeals held that the judge’s description of the additional amounts payable for wife’s health insurance as not being in the nature of spousal support was merely for tax purposes, and did not mean that the Hanover County Circuit Court was without jurisdiction to order the payment as not being spousal support, child support, or a monetary judgment from equitable distribution.
You should consult with your Virginia lawyer or Richmond divorce lawyer Jim Wilson to discuss the proper classification of your property as separate, marital or hybrid in equitable distribution.