Can wife claim a homestead exemption in bankruptcy in property titled solely in husband’s name because it might be considered marital property under Virginia’s equitable distribution statute?
Not in the case of In re Wilkinson, 100 B.R. 315 (Bankr.W.D.Va. 1989), where the United States Bankruptcy Court for the Western District of Virginia held that the wife could not exempt an interest in assets titled in husband’s name because the property might be considered marital property subject to equitable distribution under Virginia Code §20.107.3.
In Wilkinson, the trustee filed an objection to the debtors’ claimed exemptions, arguing that wife had no exemptable interest in the property. Under Virginia’s Homestead Exemption, Va.Code. Ann. §34-4, both parties must have an interest in the property in order for each to claim an exempt interest. (See Boswell v. Lipscomb, 177 Va. 309, 314, 14 S.E.2d 305, 307 (1941). The bankruptcy court judge in Wilkinson examined whether the parties considered the property in which wife claimed an interest as joint or separate. Husband testified although he owned the assets prior to the marriage, he and Wife both treated it as joint “money in the bank,” selling the property when appropriate to obtain cash for their marital needs.
The debtors argued Va. Code §20.107.3 applies in this context, and they claim by filing the homestead deed, they made a statement that they considered the property as marital property. Moreover, the husband and wife contended the principles of equitable distribution in a divorce proceeding would establish the property as joint marital assets because if Wife could obtain an award of equitable distribution under §20.107.3, then they should be allowed to claim the exemption under §34-4.
While the court recognized joint property requires an express agreement to transmute it into separate property, it held the same principle did not apply to the reverse: separate property can be transmuted into joint assets without express assent. (See Wagner v. Wagner, 4 Va.App. 397, 404, 358 S.E.2d 407, 410 (1987). Therefore, as established by the Supreme Court of Virginia in Smoot v. Smoot, 233 Va. 435, 442, 357 S.E.2d 728, 731 (1987), parties can transform property into marital property by agreement or through affirmative acts. (See also Westbrook v. Westbrook, 5 Va.App. 446, 453, 364 S.E.2d 523, 528 (1988).
In determining whether the exemption applied, however, the bankruptcy court judge recognized the language of the code section required examining the legal title, granting rights and interests only after establishing the proper titleholder. (See Brinkley v. Brinkley, 5 Va.App. 132, 136, 361 S.E.2d 139, 140 (1987). Although the Wilkinsons alleged the code would permit Wife to obtain property interests if they divorced, the court rejected that argument, holding that the code section established the court’s power only to divide or transfer jointly titled property. The court noted that Virginia Code Section 20-107.3(B) did not alter legal title to property subject to equitable distribution:
“For the purposes of this section only, both parties shall be deemed to have rights and interests in the marital property. However, such interests and rights shall not attach to the legal title of such property and are only to be used as a consideration in determining a monetary award, if any, as provided in this section.”
The bankruptcy judge noted that Virgina Code Section 20-107.3 (C) similarly did not empower the divorce court judge to alter the legal title to property, but instead make a monetary award:
“…the court shall have no authority to order the division or transfer of separate property or marital property which is not jointly owned. 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 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.”
Because wife did not share title and have joint interest in the property with husband, the wife could not claim the property as exempt under §34-4. Therefore, the court sustained the trustee’s objection and held the property could be subject to creditors’ interests.
You should consult with your Virginia bankruptcy lawyer concerning your rightful exemptions in bankruptcy.