James P. Hart, III v. Marie Holt Hart

COURT OF APPEALS OF VIRGINIA
Present: Judges Coleman, Elder and Senior Judge Cole
Argued at Salem, Virginia
JAMES P. HART, III
v. Record No. 0931-97-3
MARIE HOLT HART OPINION BY
JUDGE SAM W. COLEMAN III
MARIE HOLT HART MARCH 31, 1998
v. Record No. 0979-97-3
JAMES P. HART, III
FROM THE CIRCUIT COURT OF ROANOKE COUNTY
Roy B. Willett, Judge
Charles B. Phillips (Phillips & Swanson, on
briefs), for James P. Hart, III.
William H. Cleaveland (Leisa Kube Ciaffone;
Rider, Thomas, Cleaveland, Ferris & Eakin;
Gentry, Locke, Rakes & Moore, on briefs), for
Marie Holt Hart.
James P. Hart, III (husband) and Marie Holt Hart (wife)
separately appeal the trial court's divorce decree and equitable
distribution award. Husband contends the trial court erred when
it: (1) divided in kind real property titled jointly to both
parties; (2) designated a boundary line between two of the
parcels different from the boundary recommended by the
commissioner; (3) created joint easements of ingress and egress
on the partitioned parcels and ruled that each party would bear
the entire costs of maintaining the sections of such easements
located on their respective tracts regardless of the extent of
use by the other, their tenants, and licensees; and (4)
classified husband's Central Fidelity account as marital property
and distributed one-half of the account assets to wife. Wife
contends the trial court erred when it: (1) calculated the value
of husband's separate share of a certain mortgage note; (2)
failed to classify as wife's separate property certain money in a
USAA bond fund which she claims she traced to money she
inherited; and (3) estimated husband's contributions to the USAA
bond fund when it divided the fund upon consideration of the
factors under Code § 20-107.3(E). For the reasons that follow,
we affirm in part, reverse in part and remand to the trial court
for further proceedings in accordance with this opinion.
I. BACKGROUND
The parties were married in New York in 1968 and lived in a
home that husband had purchased before the marriage. In 1986,
they sold the New York home, receiving $40,000 part payment and a
$219,000 twenty-year promissory mortgage note. They relocated to
Virginia, where they purchased a forty-two acre parcel of land
adjacent to Smith Mountain Lake (Plantation Point) which they
jointly titled. At Plantation Point, they built a marital home
and eight rental units. Due to the parties' concerns over the
health of wife's parents (the Holts), they also constructed a
separate residence for the Holts on the Plantation Point property
(Hillsdale). Mrs. Holt contributed approximately $48,000 to
purchase the building materials for Hillsdale. The parties and
the Holts established neither a repayment nor lease agreement nor
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did they execute a deed that conveyed any estate or interest in
the property to the Holts. The parties merely acknowledged that
Hillsdale was built as a residence for the Holts to live in "as
long as they were able."
After selling the New York home in 1986, the parties opened
a USAA Virginia Bond Fund account using the $40,000 down payment
from the New York home as the initial deposit. Over the years,
money from various sources was deposited into the fund, including
amounts contributed by Mrs. Holt, the New York mortgage note
payments, rental receipts from the lessees of the Plantation
Point rental units, husband's IBM pension payments, and $20,500
that wife inherited from her great aunt.
The parties separated on February 4, 1994. They executed a
separation agreement in which they agreed to temporarily "split
their net income" pending a judicial determination and award of
equitable distribution. Husband deposited his share of the
income into a Central Fidelity bank account that he opened after
the parties separated.
In October 1994, husband filed for divorce on the ground of
adultery. The trial court appointed a commissioner in chancery
to hear evidence, report factual findings, and make
recommendations regarding, among other matters, how to equitably
distribute the parties' marital property. After receiving the
commissioner's report, the trial court specifically found that
the wife had committed adultery but granted husband a divorce on
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the ground of having lived separate and apart and approved the
commissioner's equitable distribution recommendations with some
modifications.
II. GENERAL PRINCIPLES
Code § 20-107.3 governs how property shall be equitably
distributed when a marriage is dissolved. The statute provides
that the court shall determine legal title as between the
parties, shall classify the parties' property as separate or
marital property, shall evaluate the marital and separate
property, and shall determine the rights and interests of the
parties in the marital property. The court must then equitably
divide the marital property in the manner authorized by the
statute, taking into consideration the factors enumerated in
subsection (E). See generally Code § 20-107.3.
On appeal, the trial court's award of equitable distribution
will not be reversed "unless it appears from the record that the
chancellor has abused his discretion, that he has not considered
or misapplied one of the statutory mandates, or that the evidence
fails to support the findings of fact underlying his resolution
of the conflict of the equities." Robinette v. Robinette, 10 Va.
App. 480, 486, 393 S.E.2d 629, 633 (1990) (citations omitted). A
decree confirming a commissioner's report is presumed correct and
will not be disturbed unless plainly wrong or without evidence to
support it. Pelfrey v. Pelfrey, 25 Va. App. 239, 244, 487 S.E.2d
281, 283 (1997); Gamer v. Gamer, 16 Va. App. 335, 339, 429 S.E.2d
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618, 622 (1993).
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III. DIVISION OF PLANTATION POINT PROPERTY
Upon consideration of the factors enumerated in Code
§ 20-107.3(E), the commissioner recommended that the Plantation
Point property be divided into three parcels: one parcel to
husband, which included the marital home and four rental units; a
second parcel of equal value to wife, which included the
Hillsdale home and four rental units, and a third parcel which is
to remain titled to both parties as tenants in common. The
commissioner recommended that the parties be given the option of
purchasing the undivided interest of the other in the third tract
and if they failed to agree upon such a sale, the third tract
would be sold. The commissioner further recommended that
easements for ingress and egress be established on the
partitioned properties, which would be a joint easement along a
driveway that runs through both tracts of land. The commissioner
recommended that wife should be solely responsible for the cost
of maintaining the portion of the easement that is solely located
on and serves only her property and that both parties should be
equally responsible for the cost of maintaining the easement that
is located on husband's property and serves both tracts.
The trial court approved the commissioner's recommendations
with two exceptions relevant to this appeal. First, the trial
court referenced the lake's 800-foot contour line in designating
the boundary line between the two parcels; the commissioner had
generally referenced that line as the lake's "water line."
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Second, the trial court ruled that the cost of maintaining the
joint easement "shall be the sole responsibility of the
respective owners" of the tracts across which the easements run.
A. Division In Kind
We hold that the trial court did not err by dividing the
Plantation Point property into separate parcels rather than
allotting the whole property to James P. Hart in exchange for his
agreement to purchase wife's interest at fair market value. Code
§ 20-107.3(C) authorizes the trial court to "order the division
or transfer, or both, of jointly owned marital property . . .
based upon the factors listed in subsection E." Under this
provision, the trial court may, in its discretion, order a
division in kind of the property, permit either party to purchase
the interest of the other and direct the allocation of the
proceeds, or order a public or private sale of the property. See
id.; Gaynor v. Hird, 11 Va. App. 588, 592, 400 S.E.2d 788, 790
(1991).
Code § 20-107.3(C), when enacted in 1982, did not authorize
a trial court to divide or transfer title to property except that
"in the final decree of divorce the court may partition marital
property which is titled in the names of both parties." The
initial equitable distribution statute permitted trial courts in
their final divorce decrees to partition jointly titled property
in order to effectuate a property division according to the
parties' legal title rather than be required to file a separate
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suit for partition. Morris v. Morris, 3 Va. App. 303, 309-10,
349 S.E.2d 661, 665 (1986). Partition as authorized in the
divorce case was, however, no different from partition prior to
equitable distribution and was required to conform with Code
§ 8.01-81 et seq. Clayberg v. Clayberg, 4 Va. App. 218, 221, 355
S.E.2d 902, 904 (1987). Code § 8.01-83 required trial courts,
when partitioning realty, to partition the property in kind,
except when "partition cannot conveniently be made, [in which
case] the entire subject may be allotted to any one or more of
the parties who will accept, and pay therefor to the other
parties such sums of money as their interest therein may entitle
them to," or, alternatively, to sell the property and divide the
proceeds. See Sensabaugh v. Sensabaugh, 232 Va. 250, 256, 349
S.E.2d 141, 144-45 (1986); Nickels v. Nickels, 197 Va. 498,
501-02, 90 S.E.2d 116, 118 (1955) (applying Code §§ 8-690 and
8-692). In a partition proceeding, the court was not authorized
to order a sale or an allotment of the property to one of the
owners in exchange for its value if the property could have been
divided in kind. Leake v. Casati, 234 Va. 646, 649, 363 S.E.2d
924, 926 (1988). Property rights were considered "[s]o sacred
. . . that to take it from one man and give it to another for
private use [was] beyond the power of the state itself, even upon
payment of full compensation." Id. (citation omitted).
Furthermore, the fact that property may be less valuable when
divided in kind is "insufficient to deprive a co-owner of his
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'sacred right' to property." Sensabaugh, 232 Va. at 258, 349
S.E.2d at 146.
In 1988, the General Assembly amended Code § 20-107.3(C) to
delete the provision authorizing partition and substituted in its
stead the authority, "based upon the factors listed in subsection
E, [to] divide or transfer or order the division or transfer, or
both, of jointly owned marital property, or any part thereof."
The statute expressly authorized the court either to divide the
property, permit one party to purchase it with the court
allocating the proceeds, or direct that it be sold, in whole or
in part, by public or private sale "without the necessity of
partition." Id. The amendment has the effect of permitting the
court to divide jointly owned realty as a marital asset subject
to equitable distribution according to the rights and equities of
the parties and subsection (E) factors rather than partition the
property according to legal title and adjust the equities by a
monetary award. See Frazer v. Frazer, 23 Va. App. 358, 371-72,
477 S.E.2d 290, 296-97 (1996).
We hold that the trial court did not err in accepting the
commissioner's factual findings and conclusions of law to support
the in-kind division of the property.
The commissioner found that "the lifetime goals of both
parties for retirement was the occupancy of this unique parcel of
land." The commissioner visually inspected the property and
heard testimony from an expert witness describing how the
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property could be partitioned. Based on these facts, the
commissioner concluded that Plantation Point should be
partitioned so that both husband and wife could occupy the land.
The evidence supports the commissioner's finding that Mrs.
Hart's mother, Mrs. Holt, contributed substantial funds to buy
materials for the construction of the Hillsdale home on the
property and that the parties contemplated that Mrs. Holt would
live in the Hillsdale home for her lifetime. Although a third
party cannot be granted a monetary award or a trust in marital
property, Wooley v. Wooley, 3 Va. App. 337, 349 S.E.2d 422
(1986), on these facts the commissioner did not err in awarding
Mrs. Hart an equal in-kind share of the Plantation Point property
in view of her monetary and non-monetary contributions to the
acquisition, improvement, maintenance and construction on the
property, including the monetary contributions from Mrs. Hart's
mother, Mrs. Holt. Both the commissioner and the trial judge
considered the factors under Code § 20-107.3(E) in arriving at
the in-kind division. See Frazer, 23 Va. App. at 372, 477 S.E.2d
at 296. "Fashioning an equitable distribution award lies within
the sound discretion of the trial judge and that award will not
be set aside unless it is plainly wrong or without evidence to
support it." Srinivasan v. Srinivasan, 10 Va. App. 728, 732, 396
S.E.2d 675, 678 (1990). Accordingly, we cannot say the trial
court's decision to divide in kind Plantation Point was plainly
wrong or without evidence to support it, or that it was an abuse
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of
discretion. 1
B. Boundary Lines
Husband contends the trial court abused its discretion when
it referenced the lake's 800-foot contour line as one boundary
between the parties' properties. He claims the commissioner, in
recommending a division of the property, intended that the
boundary be referenced to the 795-foot contour line of the lake.
The trial court's adjustment of the boundary line will have the
effect of reducing the size of husband's tract and increasing the
size of wife's tract by a small strip of property. Thus, he
argues, the trial judge abused his discretion when he "overruled
the Commissioner and set the line to the 800-foot contour line"
without specifying his reasons for doing so.
Husband's contention lacks merit. In recommending an
in-kind division, the commissioner referenced the boundary line
in dispute to the "water line." The commissioner's report does
not indicate whether the "water line" refers to the 795-foot
contour line, as husband presumes, or the 800-foot contour line.
It appears from the record that the commissioner alluded to the
"water line" because no plat or geological survey had been made
1
On brief, husband contested the trial court's assignment of
sixty percent of the Hillsdale property to wife in partitioning
the property. At oral argument, husband conceded that the trial
court did not abuse its discretion in dividing the partitioned
property, and, therefore, we shall not consider that argument in
this appeal.
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of the property at the time of the commissioner's report. We do
not believe the trial court "overruled" the commissioner's
recommendation. Moreover, the 800-foot contour line was used by
the surveyor in determining the acreage of the respective
parcels. It was from these measurements that the trial court
determined the property value of each parcel in fashioning the
equitable distribution award. Accordingly, we cannot say the
trial court abused its discretion by designating the boundary
line of the respective properties in reference to the 800-foot
contour line.
C. Maintenance of Joint Easement
Husband next argues the trial court erred when it ruled that
the costs of maintaining the driveway as a joint easement shall
be the sole responsibility of the party who owns the parcel over
which the easement runs. We agree.
Under the common law, the power to grant easements in a suit
for partition is necessarily implied in the court's power to make
the partition. See Martin v. Martin, 95 Va. 26, 29-30, 27 S.E.
810, 811-12 (1897) (upholding creation of easement to allow
access to water source located on servient estate after
partition); see also 59A Am.Jur.2d Partition § 299 at 172-73
("Since the beneficial and convenient partition of real estate
will often require that a right of way . . . or easement, be
given to one share in the parts assigned to other shares, the
power to create such rights and privileges is held to be
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necessarily implied in the grant of jurisdiction to make
partition."). Partition, as it was authorized under Code
§ 20-107.3, is no different from partition at common law and as
codified in Code § 8.01-81 et seq., except that it could be done
in the divorce proceeding rather than a separate suit. Clayberg,
4 Va. App. at 221, 355 S.E.2d at 904. Thus, although the power
of the divorce court to divide jointly owned property has been
expanded beyond the power to partition property according to
legal title, it follows that a trial court has the same power to
establish easements for ingress and egress when dividing real
estate in a divorce case as it would have had in a partition
suit.
However, the trial court abused its discretion by ruling
that the cost of maintaining the joint easement "shall be the
sole responsibility of the owners" across whose property the
easement runs. The effect of this ruling is to place the sole
responsibility of maintaining and repairing a jointly used
roadway upon the owner and successors in title of the servient
tract, with no responsibility of the owner or lessee of the
dominant tract who may use and benefit from the easement equally.
Generally, under the common law, the owner of an easement has a
duty to maintain the easement and must bear the entire cost of
its maintenance and upkeep. See Anderson v. Lake Arrowhead Civic
Assoc., 253 Va. 264, 273, 483 S.E.2d 209, 214 (1997); Oney v.
West Buena Vista Land Co., 104 Va. 580, 585, 52 S.E. 343, 344
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(1905). This general rule only applies where the dominant estate
owner is the sole user of the easement. See 1 Friedman,
Contracts and Conveyances of Real Property § 4.9(m) (5th ed.
1991). "[W]here the easement owner is not the sole user of a
private right-of-way, but uses it in common with the servient
[estate], then the costs of repair and maintenance should be
[proportionately] distributed among all users" between both the
dominant and servient estates. Lindhourst v. Wright, 616 P.2d
450, 454-55 (Okla. App. 1980) (quoted in Marvin E. Nieberg Real
Estate Co. v. Taylor-Morley-Simon, 867 S.W.2d 618, 623 (Mo. App.
1993)); see Bowen v. Buck and Fur Hunting Club, 550 N.W.2d 850,
851 (Mich. App. 1996); Janes v. Politis, 361 N.Y.S.2d 613, 615-16
(Sup. Ct. 1974); McManus v. Sequoyah Land Assoc., 20 A.L.R. 3d
1015, 1023 (Cal. App. 1st Div. 1966); see also 25 Am.Jur.2d
Easements and Licenses § 85 at 492 (1966) ("[W]here a private
road is used in common by the owner of land across which such
road runs and by a person who has an easement of way over it, the
burden of reasonable repairs must be distributed between them in
proportion as nearly as possible to their relative use of the
road."). Thus, we hold "that the duty of repair [for a jointly
owned easement for ingress and egress] should fall where reason,
convenience and equity require" and should be apportioned among
all those who own and have the right to use the easement.
Lindhourst, 616 P.2d at 455 (citation omitted).
Because both parties and their tenants will use the joint
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driveway easements to access the public road and the waterfront,
the costs of maintaining and repairing the easements should be
apportioned between the parties. Accordingly, we reverse the
trial court's ruling concerning the maintenance costs of the
easements and remand the case for the trial court to enter a
decree and take such further action in conformity with this
holding that shall be necessary to define the parties' property
rights and responsibilities upon the appropriate real estate
records.
IV. CENTRAL FIDELITY ACCOUNT
The parties' separation agreement provided that they would
"split" their net income earned from the time of separation until
the court's equitable distribution decree. Husband was to
"arrange the split by sending a check on the first of each month
to the wife in the amount of $3,630.22," which represented
one-half of the income derived from the couple's rental receipts,
mortgage note payments, and IBM pension payments. The agreement
further provided that "[a]fter 45 days, [one-half] of the cost of
Husband's efforts to manage, maintain, but not to improve, the
rental properties shall be credited in the final division of
assets." (Emphasis added). Contrary to the terms of the
agreement, husband contemporaneously deducted the expenses
associated with the rental units from the couple's share of gross
total income each month. He paid wife one-half of the net income
and placed his net share into the Central Fidelity account, which
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he opened after separation.
The commissioner recommended that under the terms of the
agreement husband was required to pay wife one-half of the
couple's post-separation income each month and subsequently
receive "credit" for the rental expenses when the court made its
equitable distribution award. In determining the amount of
rental expense to credit husband, the commissioner calculated the
amount of the expenses that had been deducted from wife's monthly
payments and subtracted that amount from one-half of husband's
total rental expenses incurred after separation. The
commissioner determined from his calculation that husband was
entitled to an additional credit for expenses that he had paid in
the amount of $2,199.39, which amount was to be offset against
the wife's total equitable distribution award. Additionally,
the commissioner recommended classifying the account as
marital property and dividing the account assets as part of the
court's monetary award. The trial court approved the
commissioner's recommendations. Husband contends the
post-separation income was not marital property subject to
equitable distribution under Code § 20-107.3(A)(2) and,
therefore, the trial court erred in classifying it as marital and
including it in the equitable distribution award.
The trial court did not err when it classified the account
as marital property. Under Code § 20-107.3, all property
acquired during the marriage and before the last separation of
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the parties is presumed to be marital property in the absence of
satisfactory evidence that it is separate property. See
Stainback v. Stainback, 11 Va. App. 13, 17, 396 S.E.2d 686, 689
(1990); see also Stratton v. Stratton, 16 Va. App. 878, 881, 433
S.E.2d 920, 922 (1993) ("[T]he character of property at the date
of acquisition governs its classification pursuant to Code
§ 20-107.3."). The fact that a portion of the parties' income in
the fund was received after the separation does not control the
classification of income from jointly titled property whether
received before or after the separation. The evidence
established that the account accumulated payments from assets
that were acquired during the marriage. Moreover, under Code
§ 20-107.3(A)(2)(i), "all property titled in the names of both
parties, whether as joint tenants, tenants by the entirety, or
otherwise" is marital property. The rental properties were
titled in the names of both parties, and, thus, any income from
such jointly owned properties was also jointly owned and was
properly classified as marital property. See Dietz v. Dietz, 17
Va. App. 203, 211, 436 S.E.2d 463, 468 (1993). "[M]arital
property, in the absence of a valid, express agreement by the
parties, cannot become the separate property of one of the
parties." Wagner v. Wagner, 4 Va. App. 397, 404, 358 S.E.2d 407,
410 (1987). Here, rather than stipulate that the post-separation
income is separate property, the separation agreement states that
the parties shall divide "their" net income.
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Although the commissioner correctly found that the account
assets were marital property and recommended that the monetary
award be properly adjusted by crediting husband for rental
expenses that had not been previously deducted from the wife's
share of the income, he improperly included the husband's
post-separation income as marital property in calculating the
monetary award. Code § 20-109 provides that divorcing parties
may agree to the "terms of a monetary condition or
consideration." Here, the separation agreement stipulated how
the parties would split their post-separation income. Husband
paid wife her share of the income in accordance with the
agreement. The trial court may not enter a decree that is
inconsistent with a valid agreement between the parties. See
Westbrook v. Westbrook, 5 Va. App. 446, 452, 364 S.E.2d 523, 527
(1988) (reversing court's classification of real estate as
separate where parties executed postnuptial agreement stating
that property was marital property). Because the parties'
post-separation income had already been distributed according to
the terms of the separation agreement, the trial court erred in
accepting the commissioner's recommendation to include husband's
share of the income in its equitable distribution award.
According to the agreement, the trial court's only task was to
calculate husband's "credit" for rental expenses not already
deducted. The Central Fidelity account assets should have been
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left alone. 2 Accordingly, we affirm the trial court's ruling
crediting husband against the monetary award with having paid
wife's one-half of the rental expenses. However, we reverse the
trial court's inclusion and division of the Central Fidelity
account assets in the monetary award. On remand, the trial court
shall deduct from the marital estate one-half of the total
Central Fidelity account assets.
V. MORTGAGE NOTE
Husband purchased the New York home prior to the marriage
for $27,000 financed by a mortgage on the property. Husband
testified that he improved the property before the marriage by
installing a pool and adding carpet to the home "at a cost of
$10,000." At the time of marriage, the balance on the mortgage
was $20,835. Eighteen years later, the parties sold the home for
$259,000, receiving a $40,000 cash down payment and a $219,000
mortgage note payable over twenty years.
Citing Code § 20-107.3(A)(3)(d-e), the commissioner
classified the mortgage note as hybrid property and determined
the respective marital and separate property portions of the note
using "the methodology of hybrid tracing." The commissioner
2
The trial court found that an additional $10,000 repaid by
husband's sons in satisfaction of a previous loan was marital
property and should also be distributed in the decree. The loan
was made with funds that had already been distributed pursuant to
the separation agreement and should not have been redistributed
in the equitable distribution award. Because husband used funds
from the Central Fidelity account in order to make this loan, the
trial court also erred in including this amount in the monetary
award.
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found that husband separately contributed $16,265 to the purchase
and improvement of the home, which included $2,700 from husband's
down payment on the house, pre-marital mortgage payments in the
amount of $3,565, and "the pool construction and carpet costs [in
the amount of] $10,000." (Emphasis added). He further found
that the parties contributed $17,335 of marital property to the
post-marital mortgage payments. Based on these figures, the
commissioner found that 48.4% of the New York property was
husband's separate property and that 51.6% was marital property.
Thus, the balance of the mortgage note was 48.4% the husband's
separate property and 51.6% was marital property.
Pursuant to the 1990 amendments, the General Assembly
adopted the concept of hybrid property and established principles
to govern its classification and distribution. 3 See Code
3
Code § 20-107.3(A) provides, in pertinent part:
(3) The court shall classify property as
part marital property and part separate
property as follows:
* * * * * * *
d. When marital property and separate
property are commingled by contributing one
category of property to another, resulting in
the loss of identity of the contributed
property, the classification of the
contributed property shall be transmuted to
the category of property receiving the
contribution. However, to the extent the
contributed property is retraceable by a
preponderance of the evidence and was not a
gift, such contributed property shall retain
its original classification.
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§ 20-107.3(A)(3). Wife does not challenge the commissioner's
classification of the promissory note as hybrid property under
Code § 20-107.3(A)(3). Rather, she contends the commissioner
erred when he calculated the value of husband's separate property
in the home and promissory note by including the amount husband
paid for the improvements rather than the value which the
improvements added to the property. The issue has not been
previously decided in Virginia.
The hybrid tracing methodology employed by the commissioner
(..continued)
e. When 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 into
marital property. However, to the extent the
contributed property is retraceable by a
preponderance of the evidence and was not a
gift, the contributed property shall retain
its classification.
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was adopted in the case of Brandenburg v. Brandenburg, 617 S.W.2d
871 (Ky. Ct. App. 1981). In Brandenburg, the Kentucky Court of
Appeals approved a formula that apportioned the marital and
non-marital components of hybrid property in "the same
percentages as their respective contributions to the total equity
in the property." 617 S.W.2d at 872. It stated:
[T]here is to be established a relationship
between the nonmarital contribution and the
total contribution, and between the marital
contribution and the total contribution.
These relationships, reduced to percentages,
shall be multiplied by the equity in the
property at the time of distribution to
establish the value of the nonmarital and
marital properties.
With this principle established, we
provide the following definitions:
Nonmarital contribution (nmc) is defined
as the equity in the property at the time of
marriage, plus any amount expended after
marriage by either spouse from traceable
nonmarital funds in the reduction of mortgage
principal, and/or the value of improvements
made to the property from such nonmarital
funds.
Marital contribution (mc) is defined as
the amount expended after marriage from other
than nonmarital funds in the reduction of
mortgage principal, plus the value of
improvements made to the property after the
marriage from other than nonmarital funds.
Total contribution (tc) is defined as
the sum of nonmarital and marital
contributions.
Equity (e) is defined as the equity in
the property at the time of distribution.
This may be either at the date of the decree
of dissolution, or, if the property has been
sold prior thereto and the proceeds may be
traced, then the date of the sale shall be
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the time at which the equity is computed.
The formula to be utilized is:
nmc x e = nonmarital property
tc
mc x e = marital property
tc
Id. (emphasis added).
We hold that the Brandenburg formula is an acceptable method
of tracing and determining the value of the marital and separate
property components of hybrid property under Code
4
§ 20-107.3(A)(3). However, the commissioner misapplied the
Brandenburg formula to the facts of this case. Brandenburg
specifically provides that a party's non-marital contributions to
hybrid property may include "the value of improvements" to the
property. 617 S.W.2d at 872 (emphasis added). It is the value
that improvements add to the property, not their cost, that is
the proper consideration because the court is apportioning the
equity in the hybrid property when it traces the sources of
contributions to that property. Here, the commissioner made no
finding as to the value added to the equity in the New York home
by the addition of the pool and carpeting. Rather, the
commissioner accepted the total cost of the improvements as
though they increased the value of the property to that degree
when he calculated husband's separate property portion of the
4
By approving this formula, we do not intend to imply that
this is the only acceptable method of tracing and determining the
marital and separate property interests of hybrid property.
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promissory note. Accordingly, the trial court erred in accepting
the commissioner's finding concerning the values of the separate
and marital shares of the mortgage note. On remand, the
chancellor shall determine the husband's separate interest based
on the value added by the improvements rather than their cost.
VI. USAA BOND FUND
As previously noted, the USAA bond fund consisted of monies
the parties accumulated from different sources, including rental
receipts, the husband's IBM pension fund, contributions from Mrs.
Holt, and $20,500 that wife inherited as her separate property.
The commissioner classified the bond fund as marital property.
He found that the parties had extensively commingled separate and
marital property in the fund and that neither party had traced
his or her separate contributions as a discrete identifiable item
in the account, including wife's deposit of $20,500 from her
inheritance. The commissioner concluded that because the
parties' respective contributions to the fund could only be
approximated, the entire fund was marital property that would be
subject to equitable distribution based upon consideration of the
source of contributions as provided in Code § 20-107.3(E)(2).
In order to approximate husband's contributions to the bond
fund, the commissioner performed a series of calculations.
First, he calculated the deposits of IBM pension payments and
the contributions from Mrs. Holt. Then, he determined the gross
rental receipts and deducted from that figure the rental expenses
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as shown on husband's tax forms, from which he was able to
determine the amount of the deposits that were net marital rental
income. Then, he subtracted the total of these amounts from the
total deposits to the fund to determine the portion of deposits
attributable to the mortgage note payments. Finally, the
commissioner determined the value of the marital and separate
property shares of the mortgage payments by multiplying the
balance in the fund by the separate and marital property
percentages calculated in the hybrid trace of the mortgage note.
After consideration of the subsection (E) factors, the
commissioner recommended dividing the fund's assets in the amount
of fifty-seven percent (57%) to husband and forty-three percent
(43%) to wife. The trial court approved the commissioner's
recommendations and divided the fund accordingly.
Wife argues the trial court erred when it failed to credit
her $20,500 deposit of inheritance proceeds as separate property.
We agree. We recently held that:
[i]n 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 first (1)
establish the identity of a portion of hybrid
property and (2) directly trace that portion
to a separate asset.
Rahaban v. Rahaban, 26 Va. App. 195, 208, 494 S.E.2d 135, 141
(1997). When a party satisfies this test, and by a preponderance
of the evidence traces his or her separate contributions to
commingled property, the Code states that the contributed
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separate property "shall retain its original classification."
Code § 20-107.3(A)(3)(d-e) (emphasis added).
Here, the commissioner found that wife deposited $20,500
from an inheritance into the account on March 25, 1991. Under
Code § 20-107.3(A)(1)(ii), wife's inheritance was separate
property which she commingled with marital property in the USAA
bond fund. The evidence established that no withdrawals were
made from the account after wife deposited the inheritance money.
See Brown v. Brown, 324 S.E.2d 287, 289 (N.C. App. 1985)
(separate property deposited into marital bank account was
retraceable where no withdrawals were made after deposit and
balance never fell below amount of deposit); cf. Pollock v.
Pollock, 499 P.2d 431, 437 (Wash. App. 1972) (separate property
deposited into marital bank account was community property where
party failed to establish character of funds withdrawn
thereafter). Wife identified the $20,500 portion of the USAA
bond account and directly traced that portion to her deposit of
separate property in the form of inheritance proceeds. Under
these circumstances, the Code mandates that wife's deposit be
classified as separate property. See Peter N. Swisher et al.,
Virginia Family Law § 11-6 at 408-09 (2d ed. 1997). Accordingly,
the commissioner erred in finding that wife failed to trace the
$20,500 inheritance deposit, and the trial court's approval of
this finding and classification of the bond fund as marital
property was plainly wrong.
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We also hold that the trial court erred in accepting the
commissioner's division of the bond fund. As noted in Part V,
the commissioner erred in tracing husband's separate property in
the mortgage note based on the costs of improvements rather than
value added. Because the commissioner also based his calculation
on the erroneous separate property percentage of the note in
approximating husband's separate contributions to the bond fund,
the commissioner's calculations to divide the fund on this basis
were also erroneous. Accordingly, we hold that the trial court's
division of the bond fund was erroneous. On remand, the
chancellor shall allow Mrs. Hart $20,500 from the fund as her
separate property and shall redetermine how the balance shall be
distributed in accordance with the subsection (E) factors. To
the extent the mortgage note payments are to be reclassified as
marital and separate, the chancellor shall apply the correct
formula according to our holding in Part V.
Finally, we disagree with wife's contention that the
commissioner erred when he approximated the source of
contributions to the bond fund by attempting to calculate the net
amount of marital rental income deposited to the fund rather than
the gross rental receipts received. She claims that because of
the extensive commingling of funds in the account, the
commissioner could not accurately determine whether marital or
separate funds were used to pay for the rental expenses and that
his determination of net rental income was speculative. In this
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respect, she argues, the commissioner underestimated the amount
of funds attributable to marital rental income and thereby
overestimated the amount of funds that had been deposited from
the mortgage note payments, a substantial part of which the
husband was awarded as his separate property. Thus, she
contends, the trial court's approval of the commissioner's
application of the statutory factors was erroneous.
In reviewing an equitable distribution award on appeal, "we
rely heavily on the discretion of the trial judge in weighing the
many considerations and circumstances presented in each case."
Artis v. Artis, 4 Va. App. 132, 137, 354 S.E.2d 812, 815 (1987)
(citations omitted). "The court need not quantify or elaborate
exactly what weight was given to each of the factors." Taylor v.
Taylor, 5 Va. App. 436, 444, 364 S.E.2d 244, 249 (1988). "The
judgment of the trial court is presumed to be correct and the
party who asserts the contrary is required to overcome the
presumption by record proof." Broom v. Broom, 15 Va. App. 497,
504, 425 S.E.2d 90, 94 (1992) (citation omitted).
Here, the wife's primary concern that she was not awarded
from this fund her separate property which she inherited has been
addressed and should eliminate much of her concern that the
husband will receive an undue proportion of the fund as his
separate share of the mortgage note payments. Furthermore, the
proportion of the fund attributable to separate and marital
property from the mortgage payments must also be adjusted on
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remand. On this record, we cannot say the commissioner erred in
making his calculation by approximating the amount of net rental
income deposited into the bond fund by extrapolating data from
the couple's tax forms or by estimating the balance attributable
to the mortgage payments. The process of determining the
contributions of each party to the acquisition, care and
maintenance of marital property necessarily entails approximation
and estimation by the chancellor or commissioner. We cannot say
the commissioner erred when he approximated the rental income by
considering the rental expenses claimed on husband's tax forms.
VII. CONCLUSION
In summary, we affirm the trial court's partition of the
Plantation Point property and designation of the boundary lines.
We reverse the trial court's rulings: (1) concerning the
maintenance costs of the joint easements; (2) distributing the
Central Fidelity account as part of the monetary award; (3)
determining husband's separate property part of the mortgage
note; and (4) classifying and dividing the USAA bond fund. On
remand, the trial court must: (1) redetermine the parties'
responsibilities for the maintenance costs of the joint easements
in accordance with our holding in Part III; (2) deduct from the
marital estate one-half of the Central Fidelity account assets in
accordance with our holding in Part IV; (3) redetermine husband's
separate property portion of the mortgage note in accord with our
holding in Part V; and (4) reclassify the USAA bond fund taking
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into account wife's separate property contribution of her
inheritance proceeds as well as the correct separate property
percentage of the mortgage note.
Affirmed in part,
reversed in part,
and remanded.
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