Kathy R. Gobble McElraft v. Don L. McElraft ( 1998 )

COURT OF APPEALS OF VIRGINIA
Present: Chief Judge Fitzpatrick, Judges Coleman and Elder
Argued at Salem, Virginia
KATHY R. GOBBLE McELRAFT
MEMORANDUM OPINION * BY
v. Record No. 0124-98-3 JUDGE LARRY G. ELDER
NOVEMBER 24, 1998
DON L. McELRAFT
FROM THE CIRCUIT COURT OF WASHINGTON COUNTY
Charles H. Smith, Jr., Judge
W. R. McCall for appellant.
E. Craig Kendrick (Morefield, Kendrick,
Hess & Largen, P.C., on brief), for appellee.
Kathy R. Gobble McElraft (wife) appeals from the trial
court's entry of an award of divorce to Don L. McElraft
(husband). On appeal, she contends the trial court erred in
ruling that the parties' real property and residence became
husband's separate property pursuant to a deed of gift and that
the parties' separation agreement was valid. For the reasons
that follow, we affirm the rulings of the trial court.
I.
FACTS
The parties married in 1974 and separated on June 29, 1995.
During the marriage, they acquired two tracts of land which they
operated as a cattle farm. Both parties also were employed off
the farm. On September 1, 1994, the parties executed a deed of
*
Pursuant to Code § 17-116.010 this opinion is not
designated for publication.
gift, as grantors, transferring the two parcels of land to
husband. These parcels were the major marital assets.
On June 29, 1995, the parties executed a separation
agreement and began living separate and apart. That agreement
provided for the mutual relinquishment of various property and
spousal support rights. It specifically mentioned the land
transferred to husband by deed of gift of September 1, 1994,
stating that "wife agrees to release and relinquish to husband
all right, title and interest she has in the real property . . .
described in [that deed]."
The agreement specifically recited that the parties "have
had the opportunity to obtain independent legal advice with
regard to this Agreement"; "have entered into this Agreement
freely and voluntarily, without undue influence or coercion, and
. . . have read and understand the terms hereof." The agreement
also provided that each party entered into the agreement "with
full knowledge . . . of the extent and probable value of all the
property in the estate" of the other. Finally, the agreement
acknowledged that husband was represented by an attorney, who had
drafted the separation agreement, and that wife was not
represented.
On May 26, 1996, wife filed a bill of complaint for divorce,
equitable distribution, and spousal support. Husband contended
that the separation agreement barred the court's consideration of
the equitable distribution and support issues. Wife sought
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recision of the deed of gift and separation agreement, alleging
the documents were unconscionable and had been procured through
"duress and fraud."
The court held a hearing on the issue on November 1, 1996.
Wife testified, presented the testimony of another witness, 1 and
introduced into evidence a chart showing her understanding of the
parties' property ownership, value and distribution as effected
by the separation agreement. She estimated the value of the real
and personal property received by husband at $267,000. She
estimated the value of property she received, less the debt she
assumed, at about $1,000 plus the value of being allowed to
remain in the marital home for eight months. Husband did not
testify and presented no evidence.
By letter opinion of February 24, 1997, the trial court held
that the deed of gift changed the character of the property from
marital to separate and that the deed and separation agreement
were valid. Wife filed a motion to reconsider, which was denied.
On June 12, 1997, the trial court entered an order embodying
both rulings.
On June 23, 1997, wife testified by deposition regarding the
execution of the deed of gift and separation agreement. Husband
objected to inclusion of the deposition in evidence on the ground
1
Wife contends on brief that "the trial court declined to
hear evidence as to the reasons why [wife] was afraid not to sign
the documents." However, the record does not contain a
transcript of this proceeding, and the statement of facts
provides no support for wife's assertion.
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that the trial court had already ruled on the validity and effect
of those documents. The trial court, in signing the parties'
written statement of facts for appeal, agreed. It ruled that
wife had had the opportunity to present relevant testimony at the
ore tenus hearing on November 1, 1996 and that her deposition,
taken after the court had already ruled on the validity of the
deed of gift and separation agreement, was not a part of the
record.
On December 19, 1997, the trial court entered the final
decree of divorce into which it incorporated the separation
agreement.
II.
ANALYSIS
Wife contends that her execution of the deed of gift on
September 1, 1994 was insufficient to convert the parties' real
property, including their residence, into husband's separate
property. She also contends that the separation agreement, in
which she again "agree[d] to release and relinquish to husband
all right, title and interest" in the real property and residence
is invalid because it was procured by duress and constructive
fraud and is unconscionable. Assuming without deciding that the
deed of gift was insufficient to convert the real property and
residence into husband's separate property under McDavid v.
McDavid, 19 Va. App. 406, 451 S.E.2d 713 (1994), we nevertheless
conclude that the trial court did not err in holding the
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separation agreement valid.
As wife concedes, she bore the burden of proving by clear
and convincing evidence that the separation agreement was
invalid. See, e.g., Derby v. Derby, 8 Va. App. 19, 26, 378
S.E.2d 74, 77 (1989). We review the evidence in the light most
favorable to husband as the prevailing party. See id. However,
because neither wife's deposition of June 23, 1997, nor a
transcript of the November 1, 1996 ore tenus hearing is part of
the record on appeal, we have little evidence to review beyond
the separation agreement itself.
Wife alleges first that the agreement was procured by duress
and constructive fraud. "Constructive fraud is a '[b]reach of
legal or equitable duty which, irrespective of moral guilt, is
declared by law to be fraudulent because of its tendency to
deceive others or to violate confidence.'" Id. at 26, 378 S.E.2d
at 78 (quoting Wells v. Weston, 229 Va. 72, 77, 326 S.E.2d 672,
675-76 (1985)). "[It] is generally determined by reviewing the
conduct of the parties in relation to their legal and equitable
duties to one another . . . ." Id. at 28, 378 S.E.2d at 78.
Here, as set out above, the record contains very little evidence
of the parties' conduct to review. It indicates only that the
parties executed the property settlement agreement at a time when
husband was represented by counsel and wife was not.
Wife contends that husband owed her a fiduciary duty by
virtue of their marital status until they separated and hired
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attorneys to negotiate a settlement of their property rights. We
disagree. As we noted in Derby, the triggering event is not the
bilateral hiring of attorneys; rather it is a change in the
nature of the relationship such that "the parties are dealing at
arm's length, whether or not they are represented by counsel."
Id. at 27, 378 S.E.2d at 78 (citing Barnes v. Barnes, 231 Va. 39,
43, 340 S.E.2d 803, 805 (1986)). In negotiating an agreement to
settle property rights in anticipation of separation or divorce,
the parties were dealing at arm's length regardless of whether
wife had hired an attorney. See Drewry v. Drewry, 8 Va. App.
460, 470, 383 S.E.2d 12, 16 (1989) (holding that wife's failure
to retain counsel to represent her in settlement negotiations and
signing did not invalidate separation agreement); see also Pillow
v. Pillow, 13 Va. App. 271, 275, 410 S.E.2d 407, 409 (1991).
That the parties may have lived together as husband and wife
until the day they signed the separation agreement also does not
negate a finding that they were dealing at arm's length in
signing the separation agreement. That document sets out in
plain terms that it is a "SEPARATION AGREEMENT" entered into due
to "irreconcilable difficulties" and that the parties have been
"living separate and apart" since the signing of the agreement
and "mutual[ly] desire . . . to adjust, terminate and settle all
[property] rights." In addition, the agreement states that the
parties "have entered into this Agreement freely and voluntarily,
without undue influence or coercion." Therefore, under the facts
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and circumstances set out in the record, viewed in the light most
favorable to husband, we cannot say that the trial court
erroneously rejected wife's contention that husband's actions in
allowing her to sign the separation agreement while unrepresented
amounted to constructive fraud or duress.
We also reject wife's contention that the separation
agreement was unconscionable because it contained no evidence of
disclosure of the marital assets and "it divests her of
practically all interests in the marital estate." Whereas fraud
relates to the parties' conduct,
unconscionability is more concerned with the
intrinsic fairness of the terms of the
agreement in relation to all attendant
circumstances, including the relationship and
duties between the parties. . . . If
inadequacy of price or inequality in value
are the only indicia of unconscionability,
the case must be extreme to justify equitable
relief.
Id. at 28, 378 S.E.2d at 78-79. Code § 20-151, which applies to
marital agreements executed pursuant to Code § 20-155, sets out
certain affirmative defenses to the enforceability of such
agreements. It provides that
A. [A marital] agreement is not
enforceable if the person against whom
enforcement is sought proves that
* * * * * * *
2. The agreement was unconscionable
when it was executed and, before execution of
the agreement, that person (i) was not
provided a fair and reasonable disclosure of
the property or financial obligations of the
other party; and (ii) did not voluntarily and
expressly waive, in writing, any right to
disclosure of the property or financial
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obligations of the other party beyond the
disclosure provided.
B. Any issue of unconscionability of a
premarital agreement shall be decided by the
court as a matter of law. Recitations in the
agreement shall create a prima facie
presumption that they are factually correct.
Code § 20-151 (emphasis added).
Here, the separation agreement itself recites that each
party entered into the agreement "with full knowledge . . . of
the extent and probable value of all the property in the estate"
of the other. Under Code § 20-151, this recitation constituted
prima facie evidence of such knowledge, and wife has presented no
evidence to rebut that presumption.
Therefore, the only evidence of unconscionability is the
inequality in value of the property received by the parties under
the agreement. On the record before us, we cannot conclude that
the inequality was extreme enough to compel the trial court to
provide equitable relief. A court "'cannot relieve one of the
consequences of a contract merely because it was unwise' [and]
'[it] is not at liberty to rewrite a contract simply because the
contract may appear to reach an unfair result.'" Rogers v.
Yourshaw, 18 Va. App. 816, 823, 448 S.E.2d 884, 888 (1994)
(citations omitted). Here, although husband received the bulk of
the marital estate, including the parties' real property and
residence, the record on appeal contains no evidence regarding
the source of the assets used to acquire and operate that
property and no evidence regarding the parties' nonmonetary
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contributions to the property's maintenance and operation. In
the absence of such evidence and in light of evidence that wife
worked outside the home during the marriage, we cannot conclude
that the trial court erred in rejecting wife's claim that the
separation agreement was unconscionable.
For the foregoing reasons, we affirm the trial court's
rulings.
Affirmed.
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