W. Pettus Gilman v. Judith Cochrane Gilman , 32 Va. App. 104 ( 2000 )

COURT OF APPEALS OF VIRGINIA
Present: Judge Bray, Senior Judges Cole and Overton
Argued at Richmond, Virginia
W. PETTUS GILMAN
v. Record No. 0733-99-2
JUDITH COCHRANE GILMAN
OPINION BY
and JUDGE MARVIN F. COLE
APRIL 4, 2000
JUDITH COCHRANE GILMAN
v. Record No. 0766-99-2
W. PETTUS GILMAN
FROM THE CIRCUIT COURT OF HANOVER COUNTY
Richard H. C. Taylor, Judge
L. B. Cann, III (Christopher L. Perkins;
George B. Little; LeClair Ryan, P.C.; Little,
Parsley & Cluverius, on briefs), for
W. Pettus Gilman.
Donald K. Butler (Ann Brakke Campfield;
Morano, Coleman & Butler, on briefs), for
Judith Cochrane Gilman.
W. Pettus Gilman (Pettus) and Judith Cochrane Gilman (Judy)
each appeal from the final equitable distribution decree entered
by the Hanover County Circuit Court (trial court). We have
consolidated these appeals for the purposes of this decision.
Pettus contends the trial court erred by 1) rejecting the 56%/44%
division of marital property recommended by the commissioner; 2)
classifying certain property as marital instead of as his separate
property; and 3) finding that his separate interest in Assets 4
and 5 was not traceable. Judy contends the trial court erred by
1) classifying 220 shares of Overnite Transportation stock that
Pettus purchased during the marriage as his separate property; 2)
classifying the Stone note as Pettus' separate property; 3)
failing to award her more than one-half of the marital estate; and
4) failing to award her attorney's fees and expert witness fees.
For the reasons that follow, we affirm the trial court in part and
reverse it in part.
Background
The parties married on July 25, 1959. Pettus brought into
the marriage 600 shares of Overnite Transportation stock that he
had purchased on the advice of Judy's father (the founder of
Overnite Transportation), and shares of Southern States
Cooperative, Inc., preferred stock. Pettus also had a savings
account, and he had substantial land holdings he inherited from
his father prior to the marriage. Pettus' total income for 1959
was $1,850.74. He earned approximately $4,800 in 1960.
On or about January 4, 1960, Pettus sold his Southern States
preferred stock for approximately $5,000. Between February 29 and
March 16, 1960, Pettus purchased 220 additional shares of Overnite
Transportation stock for $2,250. He testified that he purchased
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the additional shares using the proceeds from the sale of the
Southern States stock. 1
During the marriage, the parties maintained separate stock
ledgers on which they listed the stocks they owned individually
and jointly. Judy entered the 220 shares of Overnite
Transportation stock in Pettus' stock ledger. Judy's accounting
expert, William King Stephens, testified that he found no instance
where Pettus used his own money to purchase stock for Judy, and
Stephens found no "definitive proof" that Judy ever used her money
to buy stock for Pettus. Judy told Stephens that she "wasn't
sure" whether she used her own money to buy the 220 shares of
Overnite Transportation stock.
Sometime after March 16, 1960, Judy used her separate funds
to buy shares of stock in the Country Club of Virginia. She put
the stock shares in Pettus' name, but had Pettus give her a letter
indicating that her funds were used to purchase the stock. Judy
admitted she had no such documentation from Pettus regarding the
220 shares of Overnite Transportation stock.
In 1963, Pettus embarked on a career in the insurance
business. He started by working as an insurance agent with
Travelers Insurance. In 1968, he and Russell Childress formed the
Gilman & Childress insurance agency. Pettus testified that he
1
Due to stock splits, the number of Overnite Transportation
shares Pettus held eventually increased to 30,000, but he
purchased no additional shares after March 16, 1960.
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worked between forty and fifty hours per week at Gilman &
Childress. 2
Pettus invested in a series of real estate development
ventures during the course of the marriage. In 1971, Pettus and
Bob Downing purchased a 79.9 acre tract of land for $97,000, with
each man contributing $5,000 of a $10,000 downpayment. Pettus
borrowed his share of the downpayment from Hanover National Bank.
Because, at the time, the bank would not lend money secured by
undeveloped land, Pettus pledged shares of his Overnite
Transportation stock as collateral. Pettus and Downing financed
the balance of the purchase price with a five-year balloon note
in the amount of $87,000 issued by the sellers.
The 79.9 acre tract remained undeveloped for the next twelve
years. In 1983, Pettus and Downing formed Dow-Gil, LTD (Dow-Gil),
to develop the property. The men deeded the property to Dow-Gil
and subsequently obtained a $750,000 loan from Union Bank & Trust
(UB&T) to develop the land. Pettus testified that UB&T appraised
the value of the undeveloped property at $487,392. The $750,000
loan financed the construction of a road and a water and sewer
pumping station on the property. After these improvements were
completed, the bank appraised the property at $2,487,795.
_____________________
2
The commissioner classified the insurance agency as
marital property.
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Pettus submitted a personal financial statement during the
loan application process and pledged 3,500 shares of Overnite
Transportation stock and all his shares in Dow-Gil as security for
the UB&T loan. The balance of the loan was secured by the land.
Judy (and Downing's wife, Betty) co-signed a guaranty, but Judy
did not submit a financial statement as part of the loan
application process. The bank required the wives' signatures as
a matter of procedure because of its concern about dower rights
in the event either Pettus or Downing died. Pettus neither
included Judy's separate assets nor her share of the couple's
joint assets in the financial statement he submitted to obtain the
loan.
Pettus testified that the $750,000 loan was repaid from sales
proceeds as Dow-Gil began selling parcels of the original 79.9
acre tract. He further testified that in 1983, when Dow-Gil
started receiving funds from the loan and proceeds from the sale
of lots, money was distributed to the owners (Pettus and Downing),
who used it to pay off the $5,000 and $87,000 acquisition loans. 3
There was no evidence that marital property or Judy's separate
property was used to repay any of the purchase-price obligations.
3
Pettus testified that subsequent to 1971, he had borrowed
money from First Virginia Bank to pay the interest due on the
$5,000 downpayment loan. In a trial court pleading, Pettus
represented to the commissioner that the balloon note was paid
off in 1976, when Pettus refinanced his share of the obligation.
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Pettus presented evidence regarding several other pieces of
property that were acquired, in whole or in part, with Dow-Gil
distributions, including the Goodwill property (asset 16), 4
Roberts/Gardner (asset 17), Tuffy Muffler (asset 20), and the
Ashcake Village Shopping Center (Gilman Investments, asset 23). 5
Judy was not involved in the acquisition of any of these assets.
Pettus did not play an active role in the development or
management of Dow-Gil. After the Dow-Gil acreage was purchased in
1971, Pettus' involvement in developing the land was essentially
limited to providing the name for the main road paved on the
property: Dow-Gil Road. Downing was an engineer and surveyor,
and he used his talents and expertise to oversee the actual
development of the property. Downing also "kept the books, made
the requisitions and managed the money."
In 1972, Pettus, Downing, and attorney Judson Vaughan formed
Virginia Commonwealth Investors (VCI) for the purpose of
constructing an office building. To pay the $12,500 cost of the
4
Virginia Commonwealth Investors, of which Pettus was a
part-owner, actually purchased the Goodwill property from
Dow-Gil, but Pettus used a $25,000 distribution from Dow-Gil to
purchase his share of Goodwill.
5
Pettus testified that part of his contribution toward the
purchase price of Ashcake Village was a $36,000 disbursement
from Dow-Gil and $40,000 he withdrew from his Alex Brown
account. The Alex Brown account was classified by the
commissioner as marital property because Pettus deposited a
$200,000 Dow-Gil distribution into the account in early 1989.
The account also contained proceeds from the sale of Pettus'
Overnite stock.
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land upon which the office was to be constructed, plus other
associated costs, each participant contributed $5,000. Pettus
borrowed his contribution from Hanover National Bank and pledged
his Overnite Transportation stock as collateral for the loan. 6
Pettus, Downing and Vaughan subsequently borrowed $85,000 to
construct an office building on the property. This loan was
secured by a deed of trust on the property, was not guaranteed by
Judy, and was repaid with rents paid by the office building's
tenants. 7 Downing performed all the engineering and surveying
work and supervised the construction of the office building.
Downing was also responsible for collecting rents once the
building was completed.
In 1975, VCI obtained a $185,000 loan from United Virginia
Bank. The loan was secured by a deed of trust on the VCI
property. Judy's credit was not involved in securing this loan,
and she did not sign a guaranty. The loan proceeds were used to
refinance the original $85,000 construction loan and to expand the
existing office building. The remaining balance of $40,000 was
used to purchase property that was leased to Clayton Mobile Homes
(asset 18a). The $185,000 loan was repaid with tenant rents.
6
Pettus explained that he had a "blanket pledge" of
Overnite Transportation stock to cover his regular borrowing
from Hanover National Bank.
7
The tenants included Gilman & Childress, Downing's
engineering business, and Vaughan's law practice.
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In 1988, using financing arrangements essentially identical
to the two prior VCI loans, VCI purchased the Wilson-Finley
property. Vaughan located the property. Judy did not participate
in the financing of this acquisition.
Pettus indicated that he was essentially a silent partner in
VCI, uninvolved in the day-to-day operations of the business.
Downing handled VCI's bookkeeping until his death, at which time
his widow, Betty Downing, took over these responsibilities.
Vaughan performed any necessary legal work for the corporation.
The commissioner in chancery found that the 220 shares of
Overnite Transportation stock that Pettus purchased during the
marriage were Pettus' separate property. With regard to Dow-Gil
and VCI, the commissioner held that Pettus' use of stock pledges
to obtain downpayment loans did not constitute an "exchange" under
Code § 20-107.3. The commissioner concluded, therefore, that
Dow-Gil and VCI were marital property.
The commissioner further found that, regardless of the merits
of Pettus' argument regarding the stock pledges,
[Pettus] contributed substantial marital
effort, skill and expertise toward the
development of Dow-Gil and all other real
estate investments during the marriage to
Judy and the expenditure of that "personal
effort" would certainly transform the vast
bulk of the value of those assets to marital
property.
The commissioner concluded that the marital effort Pettus used
in these investments made it impossible to trace Pettus'
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separate contribution. Because the commissioner classified
Dow-Gil and VCI as marital property, other assets funded in-part
or completely with Dow-Gil or VCI funds were classified as
either hybrid or marital property. 8
The commissioner found the total value of the parties'
property to be $11,171,896. Of this amount, the commissioner
classified $6,003,094 as Judy's separate property, $1,944,797 as
Pettus' separate property, and $3,224,005 as marital property.
The commissioner found that Judy's adultery had been the
preponderant cause of the parties' divorce. Based on this and
the other statutory factors, the commissioner recommended that
56% of the marital estate be awarded to Pettus, and 44% to Judy.
The commissioner ruled that the parties would share equally
in the commissioner's expenses and the cost of transcripts, and
he declined to award Judy any costs or fees.
The trial court affirmed the commissioner's report, with
the exception of the division of the marital estate. The trial
8
The assets classified as marital or hybrid due to the
commissioner's finding that Dow-Gil and VCI were marital
properties included: Springmeadow (assets 4 and 5); the
Commonwealth Building (asset 15); Goodwill (asset 16);
Roberts/Gardner (asset 17); Wilson-Finley (asset 18); Clayton
Homes (asset 18a); Tuffy Muffler (asset 20); Gilman Investments
(asset 23); 4.35A Dow-Gil, the land remaining from the original
Dow-Gil purchase (asset 26); Alex Brown (asset 35); Crestar
Dow-Gil (asset 45); Gilman Investments CD (asset 46a); Savings
Account w/ Downing (asset 46c); Checking Account w/ Downing
(asset 46d); Dow-Gil Note (asset 68a); and Dow-Gil Distribution
(asset 68b).
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judge explained that he believed the commissioner had sufficient
"evidence on every call he made except the marital split, and I
agree with [counsel for Judy], it ought to be a 50/50 split and
not a 56/44 split."
Standard of Review
"In reviewing an equitable distribution award on appeal, we
have recognized that the trial court's job is a difficult one, and
we rely heavily on the discretion of the trial judge in weighing
the many considerations and circumstances that are presented in
each case." Klein v. Klein, 11 Va. App. 155, 161, 396 S.E.2d 866,
870 (1990). "A decision regarding equitable distribution . . .
will not be reversed unless it is plainly wrong or without
evidence to support it." Rahbaran v. Rahbaran, 26 Va. App. 195,
205, 494 S.E.2d 135, 139 (1997). See also Barker v. Barker, 27
Va. App. 519, 531, 500 S.E.2d 240, 245-46, (1998).
"We review the evidence in the light most favorable to . . .
the party prevailing below and grant all reasonable inferences
fairly deducible therefrom." Anderson v. Anderson, 29 Va. App.
673, 678, 514 S.E.2d 369, 372 (1999). Although the report of a
commissioner in chancery does not carry the weight of a jury's
verdict, see Code § 8.01-610, "'an appellate court must give due
regard to the commissioner's ability, not shared by the
chancellor, to see, hear, and evaluate the witnesses at first
hand.'" Jarvis v. Tonkin, 238 Va. 115, 121-22, 380 S.E.2d 900,
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904 (1989) (citation omitted). "A commissioner's findings of fact
which have been accepted by the trial court 'are presumed to be
correct when reviewed on appeal and are to be given "great weight"
by this Court. The findings will not be reversed on appeal unless
plainly wrong.'" Barker, 27 Va. App. at 531, 500 S.E.2d at 245-46
(citation omitted).
220 Shares of Overnite Transportation Stock
"[A]ll property acquired by either spouse during the marriage
and before the last separation of the parties is presumed to be
marital property . . . ." von Raab v. von Raab, 26 Va. App. 239,
248, 494 S.E.2d 156, 160 (1997). "The party claiming that
property should be classified as separate has the burden to
produce satisfactory evidence to rebut this presumption." Stroop
v. Stroop, 10 Va. App. 611, 615, 394 S.E.2d 861, 863 (1990).
Pettus testified that he purchased the 220 shares of Overnite
Transportation stock using the proceeds from the sale of his
Southern States preferred stock, which he sold for $5,000 shortly
before acquiring the additional Overnite Transportation shares.
The income tax records indicate that Pettus' income as of the
dates of purchase was insufficient to enable him to afford the
stock purchases. Moreover, the evidence proved the parties
maintained meticulous records to keep track of their separate
assets and that Judy had recorded these shares in Pettus' separate
stock ledger. Stephens, a certified public accountant employed by
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Judy to examine all of her financial records from the date of the
marriage, testified that he could not trace to Judy the source of
the funds used to purchase this stock.
Judy contends the commissioner impermissibly shifted to her
the burden of proving that the shares were marital property. We
disagree. In his report, the commissioner specifically noted that
Pettus had the burden of rebutting the statutory presumption that
the shares were marital property. While the commissioner
commented that Judy presented no evidence that the shares were
purchased with her separate property, a fact finder does not shift
the burden of proof merely by comparing the relative weight of
evidence presented by the parties. Accordingly, we conclude the
commissioner did not shift the burden of proof to Judy and that
Pettus presented sufficient evidence to prove that the 220 shares
of Overnite Transportation stock were his separate property.
Dow-Gil and VCI
Separate property is defined, in part, as "all property, real
and personal, acquired by either party before the marriage" and
"all property acquired during the marriage in exchange for or from
the proceeds of sale of separate property, provided that such
property acquired during the marriage is maintained as separate
property." Code § 20-107.3(A)(1) (emphasis added).
Pettus contends his pledge of his Overnite Transportation
stock as security for the Dow-Gil and VCI downpayment loans
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constituted an "exchange" under Code § 20-107.3(A)(1). Judy
responds that, because the bank never obtained title to the
shares, there was no exchange. Judy further contends that, with
regard to the Dow-Gil property, the evidence was insufficient to
prove Pettus borrowed the "seed" loans or pledged Overnite
Transportation shares as security for the loans.
As a preliminary matter, despite the fact that Judy prevailed
on this issue, we reject her argument regarding the sufficiency of
the evidence. Pettus testified that he borrowed the Dow-Gil and
VCI downpayments and pledged his stock as security for these
loans. This testimony was neither impeached nor rebutted and was
accepted by the commissioner and the trial court. Accordingly, we
must determine whether, based on Pettus' evidence, an "exchange"
occurred.
A pledge is a bailment of personal
property as security for a debt. It is the
lien created by the delivery of personal
property by the owner to another upon an
express or implied agreement that it shall
be retained as a security for an existing or
future debt. The essential elements of a
pledge are that possession of the pledged
property passes from the debtor to his
creditor, that legal title remains with the
debtor and that the creditor has a lien for
payment of the debt due him by the debtor
. . . .
68A Am. Jur. 2d Secured Transactions § 119 (2d ed. 1993).
Whether a stock pledge constitutes an "exchange" is an issue
of first impression in Virginia. We were confronted with a
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roughly analogous situation involving the mortgaging of real
property in Hurt v. Hurt, 16 Va. App. 792, 433 S.E.2d 493 (1993).
There, one of the issues was whether any marital assets had been
commingled with a bank account that the husband claimed as his
separate property. One of the sources of the husband's "income"
was loan proceeds the husband obtained by mortgaging his separate
real estate.
Husband's standard practice was to borrow up
to one hundred percent of any equity in the
properties he held. This provided him with
liquid assets without realizing "income" for
taxation purposes. Generally, borrowed
funds produced from this method of
"cashing-out" the equity of husband's
separate property is not considered "earned
income" for services rendered during the
marriage. As such, these funds are
classified as separate property unless
commingling has occurred.
Id. at 797 n.2, 433 S.E.2d at 496 n.2 (emphasis added).
The commissioner reasoned that Hurt was distinguishable
because in Hurt the husband lost equity in the property and the
lender obtained legal title to the mortgaged asset. Under the
circumstances, however, we see this as a distinction without a
difference.
Although Pettus retained legal title to the pledged shares,
he surrendered rights to the stock that full legal title
normally entails, namely, the unrestricted right to sell or
transfer the shares to a third party. Pettus surrendered
possession of the stock, and his right to unilaterally sell the
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stock, in exchange for the loan proceeds. As in Hurt, Pettus
used separate property to obtain loan proceeds without
permanently alienating the collateral. Although the
transactions are structured differently, they share the common
element of compromising the borrower's full ownership rights in
an asset in order to use that asset as security for a loan.
We are satisfied that treating a stock pledge as an
exchange is consistent with the legislative intent behind Code
§ 20-107.3(A)(1). Where no marital property, effort, or credit
is involved, a stock pledge is simply a method to use separate
property to acquire additional property. We see no equitable
rationale for classifying property acquired in this manner as
marital property. Accordingly, we hold that the Dow-Gil and VCI
stock pledge agreements constituted exchanges of separate
property under Code § 20-107.3(A)(1).
Judy nevertheless asserts that Dow-Gil should be considered
marital property because Pettus presented no evidence on how the
balloon note was repaid. She contends that, in the absence of
any evidence from Pettus, there is a presumption that marital
funds were used to pay that debt.
The discharge of a debt secured by an asset that results in
an increase in equity in the asset constitutes an "increase in
value." See Code § 20-107.3(A)(1); Moran v. Moran, 29 Va. App.
408, 413-14, 512 S.E.2d 834, 836 (1999); Peter N. Swisher et
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al., Virginia Family Law, app. to Chapter 11, p. 564 (2d ed.
1970). "The increase in value of separate property during the
marriage is separate property, unless marital property or the
personal efforts of either party have contributed to such
increases and then only to the extent of the increases in value
attributable to such contributions." Code § 20-107.3(A)(1).
The non-owning spouse has the burden of proving that the
increase in value was attributable to the contribution of
marital property. See Code § 20-107.3(A)(3)(a).
The repayment of the purchase-price loans increased the
"value" of the Dow-Gil land. Because Pettus purchased this
asset using loan proceeds that were his separate property, the
land was his separate property, and Judy had the burden of
proving that marital funds were used to discharge the loans.
See Moran, 29 Va. App. at 413-14, 512 S.E.2d at 836 (finding
that the parties acquired "value" in the house that wife
purchased prior to the marriage when marital funds were used to
pay down the mortgage on the house and that husband had proved
"that a portion of the equity in the . . . property could be
traced to marital funds").
Judy presented no evidence that marital funds were used to
pay any portion of the balloon note. Indeed, the evidence when
viewed as a whole established that Pettus was scrupulous in not
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using marital funds to satisfy any of the monetary obligations
incurred when purchasing his separate investment properties.
Judy finally contends, and the trial court and commissioner
so found, that Pettus contributed substantial personal effort
toward the development of Dow-Gil, VCI, and the other investment
properties.
Where a party alleges that the increase in value of an
asset is attributable to the personal efforts of one of the
parties, that personal effort "must be significant and result in
substantial appreciation of the separate property if any
increase in value attributable thereto is to be considered
marital property." Code § 20-107.3(A)(1).
[T]he nonowning spouse shall bear the burden
of proving that (i) contributions of marital
property or personal effort were made and
(ii) the separate property increased in
value. Once this burden of proof is met,
the owning spouse shall bear the burden of
proving that the increase in value or some
portion thereof was not caused by
contributions of marital property or
personal effort.
"Personal effort" of a party shall be deemed
to be labor, effort, inventiveness, physical
or intellectual skill, creativity, or
managerial, promotional or marketing
activity applied directly to the separate
property of either party.
Code § 20-107.3(A)(3)(a).
The increase in value of separate
property becomes marital if the expenditure
of marital funds or a married party's
personal efforts generated the increase in
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value. The significant factor, however, is
not the amount of effort or funds expended,
but rather the fact that value was generated
or added by the expenditure or significant
personal effort.
Moran, 29 Va. App. at 412, 512 S.E.2d at 836. The non-owning
spouse has the burden of proving that the contribution of
personal effort caused the increase in value. See Martin v.
Martin, 27 Va. App. 745, 751, 501 S.E.2d 450, 453 (1998) (en
banc). "To the extent the non-owning spouse claims that the
increase in value was attributable to personal efforts, the
non-owning spouse must prove that the personal efforts were
'significant' and resulted in 'substantial appreciation' of the
owning spouse's separate property interest." Id. (citation
omitted).
Judy presented no evidence regarding the scope of Pettus'
activities with regard to his separate investment properties.
Pettus, on the other hand, stressed that he focused his marital
efforts on the Gilman & Childress insurance agency. Pettus
repeatedly testified that his fellow shareholders handled the
day-to-day development and operation of the various investment
properties. While Pettus undoubtedly employed intellectual
skill in selecting properties to be purchased, the evidence was
insufficient to prove that Pettus contributed "significant"
personal effort that was the proximate cause of "substantial
appreciation" in the value of these assets.
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Accordingly, we hold that Pettus proved that Dow-Gil and
VCI were his separate property. Judy failed to prove that any
marital property was contributed to increasing the value of
these assets. She also presented insufficient evidence to prove
a substantial increase in value in Dow-Gil or VCI that could be
attributed to the significant personal efforts of either party.
Assets 4 & 5
On May 24, 1989, the parties purchased a 62.53 acre parcel
of land (Assets 4 and 5) that adjoined the parties' residence,
Springmeadow. Pettus paid for this property with a $78,275
check written from his First Virginia Bank (FVB) account. 9 The
evidence proved that Pettus deposited $25,000 from his Alex
Brown account into the FVB account on April 14, 1989, and
$20,000 from Alex Brown on May 22, 1989. He also deposited
$103,989.04 into FVB on April 24. Ninety percent of that
deposit was his separate money. Immediately prior to the
$20,000 May 22 deposit, the FVB account contained insufficient
money to purchase Assets 4 & 5.
Although recognizing that some separate funds had been
utilized to purchase this parcel, the commissioner ruled that
there was "no possible way for the Court to determine the
precise separate amount and as such, that separate amount
9
The commissioner's report reflects that the parties agreed
to the classification of this account as a marital asset.
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'transmutes by commingling' and the entire parcel becomes
marital."
"According to Code § 20-107.3(A)(3)(e), '[w]hen marital
property and separate property are commingled into newly
acquired property resulting in the loss of identity of the
contributing properties, the commingled property shall be deemed
transmuted to marital property,' unless the contributed property
is retraceable and not a gift." Barker, 27 Va. App. at 531, 500
S.E.2d at 246 (citation omitted).
In order to trace the separate portion of
hybrid property, a party must prove that the
claimed separate portion is identifiably
derived from a separate asset. This process
involves two steps: a party must (1)
establish the identity of a portion of
hybrid property and (2) directly trace that
portion to a separate asset.
Rahbaran, 26 Va. App. at 207, 494 S.E.2d at 141. "[T]he party
claiming a separate interest in transmuted property bears the
burden of proving retraceability." von Raab, 26 Va. App. at
248, 494 S.E.2d at 160.
In light of our holding that Dow-Gil is Pettus' separate
property, the proceeds of the Alex Brown account as of April and
May 1989 would have been Pettus' separate property. See Code
§ 20-107.3(A)(3)(a) (income produced by separate assets is
marital property only to the extent that it can be traced to
marital effort). Moreover, because the FVB account contained
insufficient funds to purchase Assets 4 & 5 prior to the May 22,
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1989 Alex Brown deposit, at the very least, part of the purchase
price can be traced to that deposit. Accordingly, on remand,
the trial court should, in the exercise of its sound discretion,
reassess Pettus' separate share of Assets 4 and 5 consistent
with this opinion and the rules of tracing.
The Stone Note
In 1987, Pettus purchased a mortgage note for $51,000.
Accountant Charles Walton traced $35,000 of the purchase price
to Pettus' separate property but could not ascertain the origin
of the remaining $16,000. At oral argument, Pettus conceded the
commissioner erred by classifying the entire note as Pettus'
separate property. Accordingly, in dividing the parties'
property on remand, the trial court should classify $16,000 (or
31.4%) of the Stone note as marital property.
Equitable Division of the Marital Property
Both parties contend the trial court erred in dividing the
parties' marital property. Because of our holding that a
substantial amount of Pettus' separate property was
mis-classified as marital property, the trial court will have to
reconsider the division of the parties' marital property on
remand. See Code § 20-107.3(E). The specific contentions of
the parties are, therefore, moot. On remand, however, in
considering the circumstances that contributed to the
dissolution of the marriage, see Code § 20-107.3(E)(5), the
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trial court should be cognizant of the Supreme Court's decision
in Hill v. Hill, 227 Va. 569, 318 S.E.2d 292 (1984):
While the report of a commissioner in
chancery does not carry the weight of a
jury's verdict, it should be sustained
unless the trial court concludes that the
commissioner's findings are not supported by
the evidence. This rule applies with
particular force to a commissioner's
findings of fact based upon evidence taken
in his presence . . . . [W]here the
chancellor has disapproved the
commissioner's findings, this Court must
review the evidence and ascertain whether,
under a correct application of the law, the
evidence supports the findings of the
commissioner or the conclusions of the trial
court. Even where the commissioner's
findings of fact have been disapproved, an
appellate court must give due regard to the
commissioner's ability, not shared by the
chancellor, to see, hear, and evaluate the
witnesses at first hand.
Id. at 576-77, 318 S.E.2d at 296-97. See Jones v. Jones, 26 Va.
App. 689, 694, 496 S.E.2d 150, 153 (1998).
Judy's Attorney and Expert Witness Fees
In the course of litigating this matter, Judy incurred
litigation expenses exceeding $290,000, including nearly
$170,000 in attorneys' fees and more than $65,000 in
accountants' fees. The commissioner valued Judy's separate
estate at over $6,000,000. 10 Pettus' separate property was
valued at just under $2,000,000. Noting that both sides had
10
Pettus does not challenge on appeal the classification of
those assets included in Judy's separate estate.
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incurred substantial litigation-related expenses and that an
award of legal fees was not necessary to enable Judy to carry on
this suit, the commissioner recommended that Judy's fee request
be denied. The trial court accepted this recommendation.
"An award of attorney's fees to a party in a divorce suit
is a matter for the exercise of the trial court's sound
discretion after consideration of the circumstances and equities
of the entire case." Davis v. Davis, 8 Va. App. 12, 17, 377
S.E.2d 640, 643 (1989). Factors to be considered include the
respective financial positions of the spouses and their degree
of fault in precipitating the end of the marriage. See
Theismann v. Theismann, 22 Va. App. 557, 574, 471 S.E.2d 809,
817 (holding that husband's "clearly superior financial
position" and the fact that his infidelity caused the break-up
of the marriage justified an award of attorney's fees to wife),
aff'd upon reh'g en banc, 23 Va. App. 697, 479 S.E.2d 534
(1996).
The record reflects that Judy's separate estate vastly
exceeds Pettus' separate estate, and she has adequate financial
resources to pay for her own litigation expenses. "The facts of
this case evince no unusual circumstances such as bad faith or
gross disparity of financial resources which would warrant
disturbance of the trial court's judgment." Brooks v. Brooks,
27 Va. App. 314, 319, 498 S.E.2d 461, 464 (1998). Accordingly,
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we affirm the trial court's decision to deny Judy's request for
her fees and costs.
Conclusion
For the foregoing reasons, we hold that the trial court did
not err when it found that the 220 shares of Overnite
Transportation stock Pettus purchased during the marriage were
his separate property. We hold, however, that the trial court
erred in finding that Dow-Gil and VCI were marital property.
Accordingly, we remand this matter to the trial court to
re-classify in a manner consistent with this opinion all assets
whose original classification turned, in whole or in part, on
the trial court's classification of Dow-Gil and VCI as marital
property. We likewise hold that the trial court erred in
classifying the Stone note. Upon re-classifying the parties'
assets, the trial court shall, upon complying with the statutory
mandate of Code § 20-107.3(E), divide the marital property in
the exercise of its sound discretion. Because the
re-classification of the parties' property will result in a
substantially lower amount of marital property, we need not
address the propriety of the trial court's initial proportional
division of the marital estate. Finally, we affirm the trial
court's denial of Judy's request for fees and costs.
Affirmed in part,
reversed in part,
and remanded.
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