Linda S. Frazer v. James Douglas Frazer

COURT OF APPEALS OF VIRGINIA
Present: Judges Benton, Coleman and Fitzpatrick
Argued at Richmond, Virginia
LINDA S. FRAZER
OPINION BY
v. Record Nos. 1699-95-2 and JUDGE JOHANNA L. FITZPATRICK
1975-95-2 OCTOBER 29, 1996
JAMES DOUGLAS FRAZER
FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY
William R. Shelton, Judge
Gail H. Miller; John Randolph Smith (Smith &
Miller, P.C., on briefs), for appellant.
Murray J. Janus (Deanna D. Cook; Bremner &
Janus, on brief), for appellee.
Linda S. Frazer (wife) appeals the trial court's decisions
on equitable distribution, spousal support, and child support.
She argues, inter alia, that the trial court erred in: (1)
valuing the business of James Douglas Frazer (husband); (2)
dividing the parties' Merrill Lynch accounts; (3) crediting
husband with his separate property; (4) dividing the parties'
Harmony Hills property; (5) ordering each party to pay fifty
percent of extraordinary medical expenses for their son; (6)
failing to award wife additional pendente lite spousal support
and awarding permanent spousal support beginning one month after
entry of the final decree; (7) determining husband's gross income
for spousal support purposes; (8) calculating spousal support;
(9) modifying the child support award after wife had appealed the
final decree to this Court; (10) including wife's spousal support
in her income for child support purposes; (11) the distribution
to husband of his First Penn life insurance policy valued at
$12,000; (12) the division of the cash value of a life insurance
policy owned by husband; and (13) the exclusion of the $870 life
insurance premium from the marital estate. For the following
reasons, we remand to the trial court for further proceedings in
accordance with this opinion.
BACKGROUND
The parties were married on December 16, 1978. After their
marriage, husband adopted wife's daughter from her first
marriage, and their son Ben was born on February 5, 1980. The
parties separated when husband left the marital residence on
October 7, 1992.
Husband filed a bill of complaint for divorce on December
31, 1992. A pendente lite hearing was held January 20, 1994, and
the trial court awarded wife custody of the parties' son, $1,704
per month in child support, and $1,000 in spousal support for
three months. Evidence on equitable distribution and support
issues was taken by deposition, and each party submitted exhibits
to the trial court.
The evidence established that, when the parties married in
1978, husband worked for Litton Industries. In 1984, husband
left Litton, and the parties started Frazer Sales & Associates,
Inc., with husband as the sole shareholder. Husband's monetary
contributions to the marriage were far greater than wife's. His
2
monthly salary was approximately $18,000. Husband's nonmonetary
contributions included coaching Ben's soccer team, cleaning the
house, and maintaining the yard. Wife's nonmonetary
contributions to the marriage included maintaining the home,
cooking, caring for the children, and doing the family's laundry
and shopping. She also was involved in community activities,
helped husband with his business, and entertained his clients.
The standard of living established during the marriage was high.
The parties lived in a large home and owned luxury vehicles, a
sport fishing boat, and a condominium in Hampton, Virginia.
The trial court issued its first letter opinion on October
6, 1994, and a subsequent letter opinion on October 28, 1994,
both resolving issues of equitable distribution and child
support. The court held a hearing on February 2, 1995 to
consider the parties' requests for division of the marital
assets. The final letter opinion dated March 3, 1995 resolved
the issues of equitable distribution, spousal support, and child
support. A final decree of divorce was entered July 7, 1995, and
incorporated the letter opinions of October 28, 1994 and March 3,
1995.
Wife appealed the final decree to this Court on August 1,
1995. On August 3, 1995, the trial court reduced husband's child
support obligation to comply with the new legislative guidelines
enacted July 1, 1995. On August 30, 1995, wife noted her appeal
of the August 3, 1995 order. By order of this Court dated
3
September 19, 1995, the two appeals were consolidated for
briefing and argument.
4
VALUATION OF HUSBAND'S BUSINESS
Husband is the sole stockholder of Frazer Sales &
Associates, Inc., a manufacturer's representative business.
Wife's expert, who was qualified in valuing similar businesses,
valued husband's business at $423,500 and prepared a detailed
written report. In evaluating the business, wife's expert relied
upon the business' tax returns and information obtained from wife
about the history of the business until she left the business in
1991. He also considered the customers and the general operation
of the business. Wife's expert had no contact with husband, his
employees, or customers in gathering information about the
business.
Husband's expert, the accountant for the business, reviewed
corporate books and records and had prepared the business' 1993
tax return. In determining the value of the business, he
examined its capital assets and current income and expenses.
Husband's expert valued the assets of the business at $75,000 and
opined that the business had "perhaps as much as $150,000.00 in
value." Husband's expert emphasized the personal nature of
husband's relationships with his clients and the importance of
husband's participation to the business' continued success.
Additionally, husband testified that he had worked twenty-six
years in developing his relationships with his two customers and
that the business would have no value if he was not part of the
company. The trial court accepted husband's evidence and valued
5
the business at $150,000.
Wife argues that the trial court erred in accepting
husband's expert's value of Frazer Sales and in rejecting wife's
expert's detailed analysis.
"Conflicting expert opinions constitute a question of fact
. . . ." McCaskey v. Patrick Henry Hosp., 225 Va. 413, 415, 304
S.E.2d 1, 5 (1983). The trial court's "province alone, as the
finder of fact, [is] to assess the credibility of the witnesses
and the probative value to be given their testimony." Richardson
v. Richardson, 242 Va. 242, 246, 409 S.E.2d 148, 151 (1991). In
determining the value of marital property, "'the finder of fact
is not required to accept as conclusive the opinion of [any]
expert.'" Stratton v. Stratton, 16 Va. App. 878, 883, 433 S.E.2d
920, 923 (1993) (quoting Lassen v. Lassen, 8 Va. App. 502, 507,
383 S.E.2d 471, 474 (1989)). Additionally, the trial court, as
fact finder, "'has a right to weigh the testimony of all the
witnesses, experts and otherwise.'" Bell Atlantic Network Servs.
v. Virginia Employment Comm'n, 16 Va. App. 741, 746, 433 S.E.2d
30, 33 (1993) (emphasis added) (quoting Pepsi-Cola Bottling Co.
v. McCullers, 189 Va. 89, 99, 52 S.E.2d 257, 261 (1949)).
In the instant case, the trial court accepted the valuation
of husband's expert after weighing the valuations presented by
both experts and the basis for each expert's opinion. Husband's
expert was clearly familiar with the daily workings of the
business and its records and assets, and based his opinion in
6
part on the importance of husband's personal contributions to the
success of the business. Although wife's expert had valued
similar businesses and prepared a detailed analysis of the
business' value, he relied primarily on outside information
obtained from wife. The trial court was not required to accept
his valuation and could "weigh the testimony of all the . . .
experts." Bell Atlantic, 16 Va. App. at 746, 433 S.E.2d at 33.
Under these circumstances, the trial court was not plainly wrong
in accepting the valuation of husband's expert rather than that
of wife's.
MERRILL LYNCH ACCOUNTS
In wife's Exhibit 1 submitted May 3, 1994, she listed three
Merrill Lynch accounts totaling $132,827 as marital assets: (1)
a $69,168 account in the name of husband's business; (2) a
$10,360 account in husband's name; and (3) a $53,299 account in
wife's name. Husband testified in his deposition on April 27,
1994 that he had two accounts with Merrill Lynch, one personal
and one corporate, and that the parties shared a joint bond
account. However, in husband's Exhibit 4 submitted May 24, 1994
and during his deposition taken that day, he indicated a single
Merrill Lynch account in wife's possession with a value of
$132,827. In the trial court's first letter opinion dated
October 6, 1994, the court classified all of the accounts as
marital property and valued them at $132,827.
On October 18, 1994, wife filed a motion to reconsider,
7
arguing that husband omitted certain investments from his
exhibit. She submitted an account statement that showed an
additional value in husband's personal Merrill Lynch account of
$33,180, dated November 27, 1992, two years before either husband
or wife submitted exhibits to the court. At the October 20, 1994
hearing, the trial court refused to hear additional evidence
regarding the accounts and ruled that "there must be a limit on
the time in which evidence can be submitted." In its final
letter opinion of March 3, 1995, the trial court assigned the
value of the accounts--$101,101 to wife and $31,726 to husband.
In the final decree entered July 7, 1995, the court ordered the
parties to "sign whatever papers are necessary to effectuate the
transfers of vehicles, partnerships and other property," and
ordered wife to pay husband a monetary award of $31,726.
Wife contends that the trial court erred in refusing to
allow her to present additional evidence of the value of the
Merrill Lynch accounts after the evidence was concluded because
husband misrepresented the value of his personal Merrill Lynch
account by omitting certain investments. A trial court "may not
refuse or fail to give parties a reasonable opportunity to
develop and present evidence of value." Mosley v. Mosley, 19 Va.
App. 192, 195, 450 S.E.2d 161, 163 (1994). Although the trial
court gave wife ample opportunity to present evidence of the
value of the Merrill Lynch accounts, the record fails to show
when the report dated November 27, 1992, became known to or was
8
available to the wife. The record shows that although husband
made no misrepresentations regarding the value of his personal
Merrill Lynch account, he did fail to disclose the existence or
value of a personal account of $33,180, dated November 27, 1992.
Because the classification and evaluation of the Merrill Lynch
accounts must be reviewed on remand, no rationale exists for
excluding the additional account from equitable distribution.
Wife also argues that the trial court erred in failing to
determine the actual ownership of each account. Code
§ 20-107.3(A) provides, in pertinent part, as follows:
Upon decreeing the dissolution of a
marriage, and also upon decreeing a divorce
from the bond of matrimony, or upon the
filing with the court as provided in
subsection J of a certified copy of a final
divorce decree obtained without the
Commonwealth, the court, upon request of
either party, shall determine the legal title
as between the parties, and the ownership and
value of all property, real or personal,
tangible or intangible, of the parties and
shall consider which of such property is
separate property, which is marital property,
and which is part separate and part marital
property in accordance with subdivision A 3.
(Emphasis added). "Code § 20-107.3 details the steps which a
trial court must follow in determining the equitable distribution
of property. The court must first determine the legal title as
between the parties and the ownership and value of all property.
The court must also determine whether the property is marital or
separate property." Robinette v. Robinette, 4 Va. App. 123, 128,
354 S.E.2d 808, 810 (1987) (emphasis added). In dividing the
9
property of divorcing parties, "the court shall have no authority
to order the division or transfer of separate or marital property
which is not jointly owned." Code § 20-107.3(C) (emphasis
added).
In the instant case, the record fails to show that the trial
court followed the steps required by Code § 20-107.3(A) in
dividing the Merrill Lynch accounts. Although the trial judge
properly classified the accounts as marital property and
determined the total amount in the accounts to be $132,827, the
court failed to make specific findings about how many accounts
existed, what each account was worth, and who owned which
accounts. Wife's exhibit indicated three separate accounts
totaling $132,827, one titled in her name, one in husband's name,
and one in the name of the business. Husband indicated that he
had two accounts with Merrill Lynch, one titled in his name and
one in the name of the business. However, husband also testified
that wife was in possession of one Merrill Lynch account with a
value of $132,827. Thus, because the evidence is in conflict
about who owned which accounts and the trial court failed to make
any specific findings regarding ownership of the accounts, on
remand, the trial court must reexamine these accounts, determine
the ownership of the accounts, and then divide the account assets
in accordance with Code § 20-107.3.
HUSBAND'S SEPARATE PROPERTY
Before the parties married in 1978, husband worked for
10
Litton Industries and had a retirement plan with that company.
After the parties married, husband continued working for Litton
for six years until 1984. When husband left Litton, he rolled
over his $40,000 Litton retirement plan, a portion of which had
accrued prior to the marriage, into his pension with Frazer
Sales. Husband testified that he had "no idea" what the value of
the Litton retirement plan was at the time of his marriage to
wife. Husband estimated the current value of the Litton
retirement plan to be $72,000. The trial court awarded the
$72,000 retirement plan to husband as his separate property.
Wife argues that the trial court erred in awarding the
entire Litton retirement plan to husband as his separate property
when undisputed evidence clearly established that a portion of
the plan was marital and a portion was separate.
Code § 20-107.3(A)(2) provides as follows:
All property including that portion of
pensions, profit-sharing or deferred
compensation or retirement plans of whatever
nature, acquired by either spouse during the
marriage, and before the last separation of
the parties, if at such time or thereafter at
least one of the parties intends that the
separation be permanent, is presumed to be
marital property in the absence of
satisfactory evidence that it is separate
property.
(Emphasis added). "Separate property" includes "all property,
real and personal, acquired by either party before the marriage."
Code § 20-107.3(A)(1)(i). Pursuant to Code § 20-107.3(A)(3), a
trial court must classify the parties' property as part marital
11
and part separate in certain circumstances. "In the case of any
pension, profit-sharing, or deferred compensation plan or
retirement benefit, the marital share as defined in subsection G
shall be marital property." Code § 20-107.3(A)(3)(b). 1
The evidence established that husband's employment with
Litton began before the marriage and that husband continued
working for Litton for six years after the parties married.
Under Code § 20-107.3(A)(1), the portion of the Litton retirement
plan attributable to husband's efforts before the parties married
is presumed to be his separate property. The portion of the
Litton retirement plan earned during the marriage is presumed
marital unless husband produces satisfactory evidence that it is
separate. Code § 20-107.3(A)(2), (G). Husband estimated that
the 1984 value of the Litton retirement plan was $40,000 and that
the current value of the plan is $72,000. However, husband
failed to show which portion was earned before the marriage
(separate) and which portion was earned during the marriage
(marital). Thus, the trial court erred in awarding husband the
entire $72,000 Litton retirement plan as his separate property.
On remand the trial court must: (1) determine the value of the
marital and separate shares of these retirement benefits; (2)
determine the rights and equities of the parties in the marital
1
Code § 20-107.3(G) defines "marital share" as "that portion of
the total interest, the right to which was earned during the
marriage and before the last separation of the parties, if at such
time or thereafter at least one of the parties intended that the
separation be permanent."
12
share; and (3) if an award is to be made, to award a percentage
of benefits which comports with the requirements of Code
§ 20-107.3 (G).
HARMONY HILLS PROPERTY
The parties owned a jointly-titled property in Harmony Hills
in Richmond, Virginia valued at $135,000. Neither party wanted
the property, and the court ordered the property sold and the
proceeds divided $109,500 (eighty-one percent) to wife and
$25,500 (nineteen percent) to husband. In the final decree, the
court ordered that any proceeds from the sale of the property
exceeding $135,000 be divided in the same percentage.
Wife argues that the trial court erred in dividing the
proceeds from the sale of the Harmony Hills property in a manner
inconsistent with the joint ownership of the parties, i.e.,
failing to divide the sale proceeds fifty-fifty. Although the
trial court awarded wife the greater portion of the sale
proceeds, she contends that this award will subject her to
greater capital gains tax liability than husband, and that the
court erred in failing to consider the tax consequences of its
unequal division of the sale proceeds.
Code § 20-107.3(C) provides as follows:
The court may, based upon the factors listed
in subsection E, divide or transfer or order
the division or transfer, or both, of jointly
owned marital property, or any part thereof.
As a means of dividing or transferring
the jointly owned marital property, the court
may transfer or order the transfer of real or
personal property or any interest therein to
13
one of the parties, permit either party to
purchase the interest of the other and direct
the allocation of the proceeds, provided the
party purchasing the interest of the other
agrees to assume any indebtedness secured by
the property, or order its sale by private
sale by the parties, through such agent as
the court shall direct, or by public sale as
the court shall direct without the necessity
for partition.
The trial court had authority to order the sale of the parties'
Harmony Hills property pursuant to Code § 20-107.3(C).
Additionally, because Code § 20-107.3(C) does not require that
the trial court equally divide the proceeds from the sale of
jointly owned property, the trial court did not err in dividing
the proceeds of the sale eighty-one percent to wife and nineteen
percent to husband.
In dividing jointly owned marital property, the trial court
must consider the specified factors in Code § 20-107.3(E),
including "[t]he tax consequences to each party." Code
§ 20-107.3(E)(9). Wife's argument that she will be subject to
greater tax liability because of the unequal division of the sale
proceeds is of no consequence. The wife received a substantially
greater portion of the sale proceeds than did the husband and the
court necessarily considered that each would bear his and her
proportionate share of capital gains taxes. Thus, the trial
court did not err in apportioning the sale proceeds eighty-one
percent to wife and nineteen percent to husband.
EXTRAORDINARY MEDICAL EXPENSES
At the hearing on February 2, 1995, wife asked the court to
14
order husband to pay his "share of the extraordinary health care
costs of our son, including those for orthodontic treatment and
prescriptions for ritilin (on[-]going expense)." In the final
opinion letter dated March 3, 1995, the trial court ordered
husband to maintain the orthodontic care of the parties' son and
the parties to "divide equally the extraordinary medical expenses
not covered by insurance." The record does not indicate the
amount of extraordinary medical expenses incurred by the parties'
son, specifically, the amount paid for his on-going ritilin
prescription.
Wife asserts that the trial court erred in ordering the
parties to divide equally the extraordinary medical expenses not
covered by insurance because these expenses should have been
divided according to the child support obligation of each party.
Code § 20-108.2(D) provides as follows:
Any extraordinary medical and dental
expenses for treatment of the child or
children shall be added to the basic child
support obligation. For purposes of this
section, extraordinary medical and dental
expenses are uninsured expenses in excess of
$100 for a single illness or condition and
shall include but not be limited to
eyeglasses, prescription medication,
prostheses, and mental health services
whether provided by a social worker,
psychologist, psychiatrist, or counselor.
(Emphasis added). "A primary rule of statutory construction is
that courts must look first to the language of the statute. If a
statute is clear and unambiguous, a court will give the statute
its plain meaning." Loudoun County Dep't of Social Servs. v.
15
Etzold, 245 Va. 80, 85, 425 S.E.2d 800, 802 (1993).
This Court has held that Code § 20-108.2(D) contemplates
"payment for past expenses as well as continuing expenses."
Carter v. Thornhill, 19 Va. App. 501, 507, 453 S.E.2d 295, 300
(1995). In Carter, the mother incurred substantial medical
expenses for the treatment of the parties' daughter, who was in a
serious car accident. The father filed a petition to modify
child support, and the mother responded that the guideline amount
was inadequate to cover the daughter's medical expenses. Id. at
503-04, 453 S.E.2d at 297-98. The trial court determined the
parties' child support obligations under the guidelines, deviated
from the guidelines because of the extraordinary medical
expenses, and ordered the father to pay his percentage of the
accrued medical expenses to the mother in a lump sum. Id. at
504-06, 453 S.E.2d at 298-99. This Court determined that "the
trial court's order was not a retroactive modification but a
prospective award." Id. at 505, 453 S.E.2d at 298.
Although not specifically on point, our decision in Carter
upheld the division of extraordinary medical expenses according
to "the percentages owed by each party toward [the] daughter's
support." Id. at 506, 453 S.E.2d at 299. The plain meaning of
Code § 20-108.2(D) contemplates a division of extraordinary
medical expenses as part of "the basic child support obligation."
While the record in this case established that the parties'
son suffered from a condition requiring an on-going prescription
16
for ritilin, no evidence indicated the exact nature of his
condition or whether the prescription expenses were over $100.
Thus, insufficient evidence supports the trial court's award of
extraordinary medical expenses. Additionally, considering the
plain meaning of Code § 20-108.2(D), we hold that the trial court
erred in dividing equally the extraordinary medical expenses not
covered by insurance rather than by a percentage equal to each
party's child support obligation. On remand, the trial court
should calculate each party's responsibility for any specific,
extraordinary medical expenses established by the evidence,
dividing these expenses in accordance with "the basic child
support obligation" of each party. 2
SPOUSAL SUPPORT
(1) Pendente Lite Spousal Support and
Timing of Permanent Spousal Support
After a hearing on January 20, 1994, the trial court awarded
2
Other states also provide for the inclusion of extraordinary
medical expenses in the basic child support obligation. See,
e.g., In re Marriage of Pollock, 881 P.2d 470, 472 (Colo. Ct. App.
1994) ("[E]xtraordinary medical expenses incurred on behalf of the
children are to be added to the basic child support obligation and
divided between the parents in proportion to their adjusted gross
incomes."); Lloyd v. Lloyd, 649 So. 2d 32, 36 (La. Ct. App. 1994)
("By agreement of the parties or by order of the court,
extraordinary expenses incurred on behalf of the child shall be
added to the basic child support obligation.") (quoting La. Rev.
Stat. § 9:315.5); Petrini v. Petrini, 648 A.2d 1016, 1019 n.8 (Md.
1994) (recognizing that extraordinary medical expenses may be
added to the basic child support obligation and holding that the
basic child support obligation is "divided proportionately between
the parents in relation to their 'adjusted actual incomes'"); In
re Marriage of Weed, 836 P.2d 591, 594 (Mont. 1992) (holding that
extraordinary medical expenses "should be prorated between the
parents and added to supplement the child support obligation").
17
wife pendente lite spousal support of $1,000 per month for three
months, commencing February 1, 1994. The trial court gave no
reason for limiting wife's pendente lite support to three months.
Husband continued to pay wife spousal support until October
1994. On February 2, 1995, wife requested an award of spousal
support retroactive to October 6, 1994. The trial court issued
its final letter opinion on March 3, 1995, awarding wife
permanent spousal support commencing one month from the date of
the final decree. The final decree was not entered until July 7,
1995. From October 1994 to August 1995, wife received no spousal
support.
Wife argues that the trial court erred in refusing to extend
her pendente lite spousal support beyond the original three-month
period and in ordering permanent spousal support to commence one
month after entry of the final decree.
We recognize that the decision "[w]hether to grant pendente
lite support lies within the sound discretion of the trial
judge." Weizenbaum v. Weizenbaum, 12 Va. App. 899, 905, 407
S.E.2d 37, 40 (1991). Although a trial court may in its
discretion limit the duration of a pendente lite support award to
the period of time reasonably necessary for the parties to
conclude their litigation, nevertheless, in this case, the trial
judge after finding a need for support gave no reason for
limiting wife's pendente lite support to three months. If
husband had stopped paying pendente lite spousal support after
18
the three-month period ended in April 1994, wife would have been
without any spousal support for over one year. Because wife
showed a need for spousal support, and the record reflects no
rationale for the time limitation imposed, we hold that the trial
court abused its discretion in limiting her pendente lite spousal
support to three months.
Additionally, "the trial court [has] discretion to enter the
award of spousal support effective any time after the date of the
commencement of the suit." Konefal v. Konefal, 18 Va. App. 612,
614, 446 S.E.2d 153, 154 (1994). Under the circumstances in this
case, the trial court abused its discretion in ordering permanent
spousal support to begin one month from entry of the final
decree. The trial court found that wife had established a need
for permanent spousal support at the March 1995 hearing.
However, its timing of the award of permanent spousal support
combined with the earlier discontinuance of pendente lite support
left her without any support for approximately ten months.
(2) Husband's Voluntary Contributions to a Retirement Account
and Amount of Permanent Spousal Support
Husband submitted evidence that showed his income to be
$18,167 per month. His evidence included a W-2 form, showing a
monthly salary of $17,895, and Exhibit 11, which indicated that
he drew $10,000 per month in salary and averaged $8,167 per month
in commissions. Wife's expert determined husband's average
monthly income to be $22,330 by using a six-year weighted
average, and his monthly income for 1993 to be $27,084.
19
Husband admitted that he voluntarily contributed $30,000
from his gross income to his retirement plan in 1993. Husband's
accountant confirmed that husband added $30,000 to his retirement
account in 1993 and that, if husband had not put the money into
his retirement plan, he could have taken "it as additional
compensation in the form of a bonus, or additional salary." The
trial court excluded the voluntary retirement contributions from
the calculation of husband's gross income and determined
husband's monthly income to be $18,167. Wife's monthly income
was established as $2,260. Wife's evidence indicated that her
monthly expenses were over $11,000, and included monitoring of
her ongoing health problems. Husband's evidence established that
his monthly expenses were $8,651, and included over $1,000 per
month to maintain his boat. In the March 3, 1995 letter opinion,
the court set permanent spousal support at $416 per month.
Wife argues that the trial court erred in failing to include
husband's voluntary contributions to his retirement plan in his
gross income for the purposes of determining spousal support.
Code § 20-107.1 provides that, in determining spousal
support, the trial court shall consider "[t]he earning capacity,
obligations, needs and financial resources of the parties,
including but not limited to income from all pension, profit
sharing or retirement plans, of whatever nature." Code
§ 20-107.1(1) (emphasis added). No Virginia case has addressed
the issue of whether voluntary contributions to a retirement plan
20
should be included in a spouse's income when determining spousal
support. However, other jurisdictions who have addressed this
issue include a spouse's voluntary contributions to a retirement
account, pension plan, or savings account in gross income in a
child support context. See, e.g., Nelson v. Nelson, 651 So. 2d
1252, 1253-54 (Fla. Dist. Ct. App. 1995) (no deduction from gross
income allowed for party's voluntary contributions to retirement
account); State ex rel. Nielsen v. Nielsen, 521 N.W.2d 735, 737
(Iowa 1994) ("Our guidelines specifically do not allow a
deduction for voluntary savings or payment of indebtedness.");
Lebrato v. Lebrato, 529 N.W.2d 90, 98-99 (Neb. Ct. App. 1995)
("The Guidelines do not allow a deduction for contributions to
voluntary retirement plans in arriving at net income . . . .");
Shaver v. Kopp, 545 N.W.2d 170, 175 (N.D. 1996) (gross income is
income from any source and includes an employee's voluntary
contributions to tax-deferred savings and his employer's matching
contributions); Heisey v. Heisey, 633 A.2d 211, 212 (Pa. Super.
Ct. 1993) (only non-voluntary retirement payments may be
subtracted from gross income).
We find no reason to calculate gross income for the
determination of spousal support in a manner different from the
calculation of gross income in the child support context when
addressing a voluntary contribution to a savings or deferred
compensation plan. For purposes of determining child support
Code § 20-108.2(C) defines gross income as follows:
For purposes of this section, "gross income"
21
shall mean all income from all sources, and
shall include, but not be limited to, income
from salaries, wages, commissions, royalties,
bonuses, dividends, severance pay, pensions,
interest, trust income, annuities, capital
gains, social security benefits except as
listed below, workers' compensation benefits,
unemployment insurance benefits, disability
insurance benefits, veterans' benefits,
spousal support, rental income, gifts, prizes
or awards. Gross income shall be subject to
deduction of reasonable business expenses for
persons with income from self-employment, a
partnership, or a closely held business.
"Gross income" shall not include benefits
from public assistance programs as defined in
§ 63.1-87, federal supplemental security
income benefits, or child support received.
(Emphasis added). Under Code § 20-108.2(C), gross income
includes "all income from all sources," and unless specifically
excluded, any income from any source is subject to inclusion.
Clearly, Code § 20-108.2(C) does not specifically exclude
voluntary contributions to retirement plans from the definition
of gross income in a child support calculation.
While the statutory language does not specify the same
scheme in a spousal support calculation, the same rationale is
applicable. Thus, we hold that a spouse's voluntary
contributions to a retirement account should be included in his
or her gross income for both spousal and child support purposes.
A spouse and/or parent should not be allowed to voluntarily
divert funds for retirement in order to exclude that income from
consideration in determining spousal or child support. Code
§ 20-107.1(1) requires the trial court in setting spousal support
to consider the "earning capacity" of the parties. Although
22
"earning capacity" necessarily includes actual earnings, it is a
broader concept that allows the trial court to consider more than
actual earnings. Nevertheless, a party's voluntary contributions
to a retirement account are actual earnings that are merely set
aside for the future, and such contributions or deferred income
must be considered in determining a spouse's income and ability
to pay spousal support.
The evidence established that husband voluntarily placed
$30,000 per year in his retirement account with Frazer Sales.
Husband unilaterally chose to contribute $30,000 of actual income
into a retirement scheme of his own choosing and for his sole
benefit. Wife's spousal support award was less than fifteen
percent of the husband's voluntary contribution to his
retirement. Although a support award is based upon a balancing
of the parties' incomes and earning capacities and their
respective needs, under these circumstances, the trial court
erred in failing to include husband's voluntary contributions to
his retirement account in his gross income for purposes of
determining spousal and child support.
Wife also contends that the trial court awarded an
inadequate amount of spousal support. Because we hold that the
trial court should have included husband's voluntary
contributions to his retirement plan in his income, on remand,
the trial court shall reconsider its award of spousal support to
wife in accordance with the factors of Code § 20-107.1.
23
CHILD SUPPORT
(1) Modification after Appeal to Court of Appeals
The final decree in this case was entered on July 7, 1995,
and wife filed her notice of appeal in this Court on August 1,
1995. The legislature enacted new statutory guidelines for child
support effective July 1, 1995. In an August 3, 1995 order, the
trial court found that the legislative change in the guidelines
was a material change in circumstances and reduced husband's
child support obligation.
Wife contends that the trial court erred in modifying the
child support award after the final decree had been appealed to
this Court.
"The orderly administration of justice demands that when an
appellate court acquires jurisdiction over the parties involved
in litigation and the subject matter of their controversy, the
jurisdiction of the trial court from which the appeal was taken
must cease." Decker v. Decker, 17 Va. App. 562, 564, 440 S.E.2d
411, 412 (1994) (quoting Greene v. Greene, 223 Va. 210, 212, 288
S.E.2d 447, 448 (1982)). This Court acquires jurisdiction over a
case when the appeal is filed and docketed in the clerk's office
of the Court. Id. "Thus, while the trial court may enforce a
support and custody order, it may not modify such order without
leave of court." Id.
In this case, wife filed her first notice of appeal in the
clerk's office of this Court on August 1, 1995, challenging the
24
trial court's final decree of July 7, 1995. At that point, this
Court acquired jurisdiction over the case. On August 3, 1995,
two days after this Court acquired jurisdiction over the case,
the trial court modified husband's child support obligation based
upon the legislature's changes in the child support guidelines.
Thus, the trial court had no jurisdiction to modify the child
support award without leave from this Court.
(2) Wife's Spousal Support as Income
Finally, wife asserts that the trial court erred in
including her spousal support in her income when it calculated
husband's child support obligation.
Code § 20-108.2(C) provides, in pertinent part, that
"spousal support included in gross income [for child support
purposes] shall be limited to spousal support paid pursuant to a
pre-existing order or written agreement and spousal support shall
be deducted from the gross income of the payor when paid pursuant
to a pre-existing order or written agreement between the parties
to the present proceeding." This Court has defined a
"pre-existing order" as "an order that has continuing effect and
that provides a spouse with an income source." Sargent v.
Sargent, 20 Va. App. 694, 706, 460 S.E.2d 596, 601 (1995).
However, a spousal support order must also "pre-exist" the child
support calculation. Additionally, although a spousal support
order must pre-exist the determination of child support, the
plain meaning of Code § 20-108.2(C) contemplates spousal support
25
"between the parties to the present proceeding."
In the instant case, the trial court did not err in
including wife's spousal support in her income for child support
purposes. The trial court should follow a three-step process in
resolving issues of equitable distribution, spousal support, and
child support. Because in determining child support under Code
§ 20-108.2(C), the trial court must include spousal support in
the gross income of the receiving spouse and must deduct the
amount of spousal support from the gross income of the paying
spouse, the court should first determine equitable distribution,
then spousal support, and finally child support. Although the
trial court properly included wife's spousal support in her
income and deducted spousal support from husband's income, the
court failed to include husband's voluntary contributions to his
retirement account in husband's gross income for purposes of
spousal or child support and must for both reasons recalculate
the amount of child support on remand.
INSURANCE POLICIES
We find no error in the trial court's equitable distribution
decision concerning the life insurance policies. The record
clearly supports the trial court's resolution of these issues.
In the absence of a showing of an abuse of discretion, we uphold
these decisions. Srinivasan v. Srinivasan, 10 Va. App. 728, 732,
396 S.E.2d 675, 678 (1990).
Accordingly, the trial court's rulings on the value of
26
husband's business, the division of the Harmony Hills property
and the insurance policies are affirmed. On remand, the trial
court must reconsider equitable distribution, spousal support,
and child support in accordance with this opinion.
Affirmed in part,
reversed in part,
and remanded.
27