Is husband entitled to claim a share in the former marital residence in Virginia after his interest in the property was sold to the wife by the husband’s chapter 7 bankruptcy trustee?
Yes, in the Virginia Circuit Court case of Peck v. Brenner, Civil Docket No.: CL08-4637, husband and wife owned the marital residence together for twenty-four years at the time of their separation, and for almost twenty-five years at the time husband filed his chapter 7 bankruptcy case. During their lengthy marriage, both husband and wife had contributed equally to the well being of their family and to the care and maintenance of the marital home.
In Peck, husband alone filed a voluntary Chapter 7 petition in bankruptcy in the United States Bankruptcy Court for the Eastern District of Virginia. Husband listed all of his personal and marital debts, as required by law, and listed all his assets, including the parties’ marital home. Instead of holding title to the property as tenants by the entirety with the common-law right of survivorship, the parties held title as tenants in common. In administering husband’s assets under Section 363 of the Bankruptcy Code, the chapter 7 trustee sold the husband’s interest in the former marital residence to the wife for $29,250, which wife paid to the trustee from her separate assets. This allowed the wife and children to continue to reside in the former marital residence. The wife continued to make the mortgage payments due on the property following the sale.
In spite of the trustee’s administration of husband’s interest in the property, the husband subsequently claimed in the equitable distribution portion of the parties’ Virginia divorce, that he was entitled to half of the net equity of the parties’ former marital residence, at such time as it is sold, as a result of the parties’ twenty-four year marriage.
The wife’s argument that the husband no longer had any interest in the former marital residence was based on the case of Colucci v. Colucci, 596 A.2d 1099 (N.J. Superior Court 1991), where the New Jersey Superior Court held that former husband could not compel a sale of the former marital residence and share in the proceeds of sale, where the husband’s chapter 7 trustee had sold the husband’s interest in the marital residence to the wife. In Colucci, however, the former husband had also subsequently executed a separate deed to former wife conveying all of his remaining “right, title and interest” in the marital residence to wife. In Peck, there was no such similar separate deed conveying husband’s property interest to wife.
The Virginia divorce judge in Peck held that the husband was estopped from claiming any interest in that portion of the former marital residence that was acquired by wife from the Trustee. Hence, husband was not entitled to 50% of all of the equity in the former marital residence. However, the divorce court judge further ruled that the other 50% of the marital residence derived from wife’s original tenancy in common interest, was marital property subject to equitable distribution upon divorce. Since there was no separate deed from husband conveying to wife his remaining right, title and interest in the property as in the Colucci case, the Virginia Circuit Court judge held that husband did have an interest in wife’s original one half tenancy in common interest in the property, which was not a part of husband’s bankruptcy estate. Thus, the marital residence had become hybrid property under Virginia Code Section 20-107.3, part wife’s separate property – husband’s tenants in common share purchased by wife from the chapter 7 bankruptcy trustee with wife’s separate funds, and part marital property – the wife’s tenants in common share. The divorce court judge awarded to the husband the sum of forty-two thousand seven hundred twenty-five dollars ($42,725), representing twenty-five percent of the net equity, or one-half of wife’s tenants in common interest, upon the sale of the property.
You should consult with your Virginia bankruptcy and divorce lawyer to discuss how you and your spouse’s bankruptcy transactions might have affected your property interests upon divorce.