Robert C. David v. Cheri Gina David

COURT OF APPEALS OF VIRGINIA
Present: Judges Petty, McCullough and Decker
PUBLISHED
Argued by teleconference
ROBERT C. DAVID
OPINION BY
v. Record No. 0653-12-2 JUDGE STEPHEN R. McCULLOUGH
JANUARY 20, 2015
CHERI GINA DAVID
UPON REMAND FROM THE SUPREME COURT OF VIRGINIA
FROM THE CIRCUIT COURT OF HANOVER COUNTY
J. Overton Harris, Judge
Lawrence D. Diehl for appellant.
John H. Kitzmann for appellee.
Two issues remain on remand from the Supreme Court. First, husband assigns error to
the trial court’s classification of a portion of a brokerage account as marital property. Husband
contends that wife showed neither substantial appreciation nor significant personal effort on his
part with regard to the account. Second, husband assigns error to the valuation date the trial
court used for the account. For the reasons noted below, we affirm in part, reverse in part, and
remand to the trial court for further proceedings consistent with this opinion.
BACKGROUND
Husband and wife were married for a little over eight years, counting from the date of
their marriage on November 16, 2002, to December 3, 2010, when husband filed for divorce.
When they married, husband owned a brokerage account with a value of $234,783.16. Wife
testified that during their marriage, husband devoted long hours to researching emerging
companies and trading stocks. Husband spent his career in the financial services industry. He
worked as a branch manager, manager, and financial advisor for Prudential Financial Securities.
For a time, he worked for a firm that specializes in helping financial advisors. Wife testified that
researching stocks “is what he was doing with his time.” Husband, however, testified that he
“seldom” made trades on the account and that he invested for the long term.
Relying on an account statement from December 2010, the trial court found that the
“value of the account increased significantly during the marriage, from approximately $234,783
to $551,521.” The trial court also found that the entire $316,521 increase in the value of the
account constituted marital property. The court awarded half of the increase in value, $158,260,
to wife.
Relying on this Court’s precedent, a panel of this Court held that wife failed to meet her
burden of proving that husband’s efforts caused the account to substantially appreciate. David v.
David, No. 0653-12-2, 2012 Va. App. LEXIS 368, at *6-8 (Va. Ct. App. Nov. 20, 2012). The
Supreme Court reversed, holding that Code § 20-107.3(A)(3)(a) requires the non-owning spouse
to prove that the separate property substantially appreciated during the marriage and that the
owning spouse expended significant personal effort with regard to the separate property during
the marriage. David v. David, 287 Va. 231, 241, 754 S.E.2d 285, 291 (2014). The burden then
shifts to the owning spouse to disprove causation, that is, to show that the increase is attributable
to a factor other than the owning spouse’s personal effort. Id.
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ANALYSIS
I. CLASSIFICATION OF THE BROKERAGE ACCOUNT
The first step in an equitable distribution consists in classifying property as marital,
separate, or part marital and part separate. Code § 20-107.3(A). There is no dispute here that
husband owned the brokerage account before the marriage. Code § 20-107.3(A)(1) (defining
separate property as property “acquired by either party before the marriage”). Therefore, it is
presumptively separate property. That, however, does not end the inquiry.
In some circumstances, when separate property has increased in value during the
marriage, all or part of the increase in value can be treated as marital. Code § 20-107.3(A)(3)(a)
provides as follows:
In the case of the increase in value of separate property during the
marriage, such increase in value shall be marital property only to
the extent that marital property or the personal efforts of either
party have contributed to such increases, provided that any such
personal efforts must be significant and result in substantial
appreciation of the separate property.
For purposes of this subdivision, the 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.
Applying the Supreme Court’s guidance in this case, wife had the burden of proving
(1) that the brokerage account substantially appreciated during the marriage, and (2) that husband
expended significant personal efforts in managing this account. The burden then shifted to
husband to prove that the increase in the value of the account was attributable to something other
than his own efforts, such as appreciation due to market forces.
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We are mindful on appeal that “the trial court’s classification of property is a finding of
fact, that classification will not be reversed on appeal unless it is plainly wrong or without
evidence to support it.” Ranney v. Ranney, 45 Va. App. 17, 31-32, 608 S.E.2d 485, 492 (2005).
A. Wife met her burden of proving a substantial increase in the value of the brokerage
account.
For a portion of the brokerage account to be classified as marital property, wife had to show
that the value of the stock account substantially appreciated during the marriage. Code
§ 20-107.3(A)(3)(a). The trial court found that the account’s value rose from $234,783, before the
parties were married, to $551,521, the value on the day husband and wife separated. By any
measure, an appreciation of this magnitude during an eight-year period is substantial.
Husband argues that wife presented no evidence beyond her introduction of financial
statements to prove that the appreciation was substantial. He points out that wife did neither testify
in this regard, nor did she offer any expert testimony. Substantial appreciation, however, is not a
term of art. The increase in the account from $234,783 to $551,521 speaks for itself. The trial court
could rely on the financial statements showing the significant growth in the account’s value to reach
a conclusion that the appreciation during the marriage was significant for purposes of Code
§ 20-107.3(A)(3)(a). The trial court’s determination regarding the substantial increase in value of
the account cannot be said to have been plainly wrong or without evidence to support it.
B. The evidence supports the trial court’s conclusion that husband expended
significant efforts in managing the account.
Wife also was required to establish that husband expended significant personal efforts
with regard to the brokerage account. Id. The Code defines personal efforts as “labor, effort,
inventiveness, physical or intellectual skill, creativity, or managerial, promotional or marketing
activity.” Id. The selection of stocks after careful research certainly qualifies as “labor, effort,
[and] intellectual skill” within the plain meaning of those terms.
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To qualify, however, the personal effort must be significant and it must substantially
affect the value of property. Id. “‘Significant’ is defined as ‘having or likely to have influence
or effect; deserving to be considered; important, weighty, notable.’” Martin v. Martin, 27
Va. App. 745, 755, 501 S.E.2d 450, 455 (1998) (en banc) (quoting Webster’s Third New
International Dictionary 2116 (1981)). “[C]ustomary care, maintenance, and upkeep” of separate
property does not qualify as significant personal efforts. Id. at 756, 501 S.E.2d at 455. In the
context of a stock account, routine adjustments to the portfolio – adding to stocks that are
performing well and culling underperforming stocks – does not constitute significant personal
effort.
The financial records show that during the eight years of marriage – a period of
ninety-six months – husband made a total of thirty-five trades. The number of trades is not
particularly high, and alone, is not dispositive. Husband could have placed a relatively small
number of buy and sell orders that reflected a great deal of time, effort, and skill researching
particular stocks. Wife testified that husband spent hours researching stocks and portrayed
husband as deeply absorbed with his stock account. The trial court accepted this version of
events, and we must view the evidence in the light most favorable to wife. Congdon v.
Congdon, 40 Va. App. 255, 258, 578 S.E.2d 833, 835 (2003). Applying this standard, we
conclude that the trial court could credit wife’s testimony about husband’s extensive research
activity and the documents showing the purchase and sale of stocks to conclude that husband had
expended significant personal effort in connection with the brokerage account. See Courembis
v. Courembis, 43 Va. App. 18, 33, 595 S.E.2d 505, 513 (2004). Because we cannot say that the
trial court’s decision was plainly wrong, we will not disturb it on appeal.1
1
At oral argument on remand, counsel for husband highlighted the fact that the definition
of “personal effort” in Code § 20-107.3 specifies that the personal effort must be “applied
directly” to the property at issue. According to husband, this phrase means that the spouse who
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C. Whether the increase in value is attributable to husband’s efforts or to some other
factors.
Once wife established that the brokerage account significantly increased in value and that
husband made significant personal efforts with regard to the account, it was incumbent on
husband to shoulder the burden of proving that the increase in value occurred for reasons other
than his personal efforts. David, 287 Va. at 241, 754 S.E.2d at 291. In this connection, we note
that at the oral argument following the remand from the Supreme Court, this Court inquired
whether either party desired to present additional evidence to the trial court. Both parties
declined that opportunity. Accordingly, we remand this case for the trial court to determine,
based on the existing record, whether the increase in value was caused by husband’s significant
efforts or whether that increase in value occurred for some other reason.
II. VALUATION DATE OF THE BROKERAGE ACCOUNT
Husband also assigns error to the trial court’s decision to employ the date of separation as
the date of valuation for the brokerage account. Under Code § 20-107.3(A),
The court shall determine the value of any such property as of the
date of the evidentiary hearing on the evaluation issue. . . . Upon
motion of either party made no less than 21 days before the
evidentiary hearing the court may, for good cause shown, in order
to attain the ends of justice, order that a different valuation date be
used.
We have observed that “the trial judge in evaluating marital property should select a valuation
‘that will provide the Court with the most current and accurate information available which
avoids inequitable results.’” Gaynor v. Hird, 11 Va. App. 588, 593, 400 S.E.2d 788, 790-91
owns the property must be personally involved in increasing the value of the property at issue,
for example, by managing a business or personally renovating a home. He notes that the stocks
here rose in value due to the efforts of the companies themselves rather than any effort by
husband. Whatever the merits of this specific argument might be, a point on which we express
no opinion, it was not advanced at trial or in the briefs before this Court. Accordingly, we do not
consider it. See Rule 5A:18.
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(1991) (quoting Mitchell v. Mitchell, 4 Va. App. 113, 118, 355 S.E.2d 18, 21 (1987)). The trial
court valued the brokerage account at the time the divorce complaint was served on the wife, in
December 2010. The court heard evidence on October 20 and November 3, 2011. By
September 2011, the statement closest to the evidentiary hearing, the account’s value had
decreased to roughly $392,094. The record suggests that this was due in significant part to the
fact that husband made withdrawals from the account to pay for his expenses.
The record does not disclose why the court employed a valuation date that was almost
one year old. Code § 20-107.3(A) allows a court to select an alternate valuation date “for good
cause shown.” Once a valuation date is selected, the trial court’s decision is reviewed for abuse of
discretion. Thomas v. Thomas, 40 Va. App. 639, 647, 580 S.E.2d 503, 506 (2003). The trial
court held that there was “no evidence that either party dissipated marital assets” and did “not
consider this factor further.” Therefore, this case does not present a situation where a trial court
selected an alternate valuation date as a result of dissipation of marital funds. See Smith v.
Smith, 18 Va. App. 427, 430, 444 S.E.2d 269, 272 (1994) (“One recognized justification for
altering the evaluation date is a showing of dissipation of marital assets.”). With no showing of
good cause for an alternate valuation date appearing in the record, we hold it was error on this
record to employ a valuation date from December 2010 for a hearing that occurred in October
and November 2011. Neither party requested an alternative valuation date within 21 days of the
evidentiary hearing. Accordingly, on remand, the court should value the account based on the
account statement that is closest to the date of the evidentiary hearing date of November 3, 2011,
the latter of the two dates on which the court accepted evidence.
CONCLUSION
We affirm the trial court’s classification of the increase in the value of the brokerage account
as marital property. On remand, the court, valuing the account as of the statement date that is
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closest to November 3, 2011, should assess whether, on the present record, the increase in the
account is attributable to husband’s personal efforts or whether it is due to unrelated factors.
Finally, we leave to the trial court’s discretion whether it should reconsider the equitable distribution
award in light of our decision.
Affirmed in part,
reversed in part,
and remanded.
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