Does an increase in the value of a spouse’s separate property become marital property in equitable distribution in a Virginia divorce case?

Does an increase in the value of a spouse’s separate property become marital property in equitable distribution in a Virginia divorce case?

It depends on whether the increase in value is considered a passive gain or the result of either spouses’s personal efforts during the marriage. In the unpublished opinion of  Tucker v. Wilmoth-Tucker, Record No. 2008-09-2 (Va. App. 2010), the Virginia Court of Appeals held that the Circuit Court of Hanover County, Virginia, erred by classifying the increase in the husband’s shares of stock in the family business due to his personal efforts after the parties separated was marital property.

In Tucker, the husband and wife were married for 19 years before separating. During the marriage, the husband worked for his family’s business, and the wife stayed at home as a homemaker, although she occasionally assisted her husband with his work. The parties owned two homes, one in Mechanicsville, Virginia, and the other, a second home in Gloucester, Virginia.   After separating, the husband occupied the Mechanicsville home and the wife occupied the Gloucester home.  While the husband and wife were married, the husband’s parents gave him a significant amount of shares in the family business.  At the equitable distribution hearing, the Court noted that the shares were the husband’s separate property, but it determined that the increase in value that occurred during the marriage was marital property. The husband appealed this decision to the Virginia Court of Appeals, arguing that the classification of the post-separation increase was contrary to the finding that the continued increase in value was due to his active effort.  Among other things, the husband also appealed a portion decision of the Hanover County Circuit Court ordering him to pay a monthly amount to the wife in addition to ordered spousal support for the wife’s health insurance, this additional amount being designated by the divorce court judge as not being in the nature of spousal support for tax purposes.

The Court of Appeals first noted that equitable distribution is a process: first the judge classifies the property as marital, separate, or as hybrid – part separate and part marital; then the court must assign a value to the property based on the evidence presented; and finally, the court distributes the property, taking the factors of Virginia Code §20-107.3(E) into consideration http://leg1.state.va.us/000/cod/20-107.3.HTM. Alphin v. Alphin, 15 Va. App. 395, 424 S.E.2d 572 (1992).  The Virginia Court of Appeals recognized that separate property is “that acquired ‘before the marriage,’ (2) ‘during the marriage by bequest, devise, descent, survivorship, or gift’ from someone other than the other spouse and (3) ‘during the marriage in exchange for or from the proceeds of sale of separate property’” Dietz v. Dietz, 17 Va. App. 203, 436 S.E.2d 463 (1993). Furthermore, according to Code §20-107.3(A)(3)(a), an increase in value of separate property occurring during the marriage “shall be marital property only to the extent that marital property or the personal efforts of either party have contributed to such increases.” Moreover, for the purpose of classifying property, the Court uses the date of the last separation not the date of the hearing. Dietz, 17 Va. App. At 209-10, 436 S.E.2d at 467. In this case it was undisputed that the shares were the husband’s separate property and the increases were due to his personal efforts; therefore, the Court held that any increase in the value of those shares that occurred due to the husband’s efforts is separate property and reversed the Circuit Court’s classification of those increases in equitable distribution.

With respect to the amount payable for wife’s health insurance, the Virginia Court of Appeals compared the case to the case of Stacy v. Stacy, 53 Va. App. 38, 669 S.E.2d 348 (2008), where the parties waived spousal support in the separation agreement, but husband agreed to pay a mortgage on wife’s house and the mortgage payment was designated as being in the nature of spousal support.  The husband later sought to terminate his obligation to make the mortgage payments since wife was living with another man in a relationship analogous to marriage for more than a year, a ground for terminating spousal support in Virginia by virtue of Virginia Code Section 20-109(A).  In Stacy, the Virginia Court of Appeals upheld the denial of husband’s request to terminate the mortgage payments on the grounds that the designation of the mortgage payments as being in the nature of spousal support was made to prevent the husband from discharging his obligation in bankruptcy (as a Domestic Support Obligation nondischargeable under 11 U.S.C. §523(a)(5) , in any type of bankruptcy).  Similarly, in Tucker-Wilmouth, the Virginia Court of Appeals held that the judge’s description of the additional amounts payable for wife’s health insurance as not being in the nature of spousal support was merely for tax purposes, and did not mean that the Hanover County Circuit Court was without jurisdiction to order the payment as not being spousal support, child support, or a monetary judgment from equitable distribution.

You should consult with your Virginia lawyer or Richmond divorce lawyer Jim Wilson to discuss the proper classification of your property as separate, marital or hybrid in equitable distribution.

Will the ex-husband’s chapter 13 plan paying less than a quarter of a lump sum equitable distribution award to ex-wife from a divorce case pass the good faith test for confirmation in Virginia?

Will the ex-husband’s chapter 13 plan paying less than a quarter of a lump sum equitable distribution award to ex-wife from a divorce case pass the good faith test for confirmation in Virginia?

Not in the case of In re: Edward Trae Green III, Case Number 09-17646-SSM, from the U.S. Bankruptcy Court for the Eastern District of Virginia, illustrates.  While it is possible to discharge a divorce-related debt, other than a Domestic Support Obligation as defined in 11 U.S.C. 101(14A), in chapter 13 under 11 U.S.C. § 1328, still the chapter 13 case must be filed in good faith and the chapter 13 plan must be proposed in good faith in order for the plan to be confirmed.

In the In re: Edward Green case, the Debtor and his wife had a contested divorce case in Virginia, with the divorce court judge dividing the marital property in equitable distribution, in accordance with Virginia Code Section 20-107.3, 60% to the Debtor husband and 40% to the Debtor’s wife.  The primary marital asset was the marital residence, which the Virginia Circuit Court judge found to have a value of $370,000 at the time of the equitable distribution hearing in the divorce case.  After subtracting a first deed of trust in the amount of $178,851 and a $75,041, the marital residence had equity of approximately $116, 108.  Husband was awarded the marital residence and had to pay wife a lump sum equitable distribution award of more than $45,737 within a year.  The husband did not pay the lump sum equitable distribution award and the wife filed a show cause summons to have the husband held in contempt of court by the Virginia divorce court judge.  The husband filed chapter 13 bankruptcy three days before the show cause hearing in the Virginia Circuit Court.

At the time of the chapter 13 bankruptcy, the Debtor claimed the fair market value of the marital residence had decreased to $335,000, the balance on the first mortgage had decreased to $170,000, and the balance on the home equity line of credit had increased to $139,000, such that after subtracting the costs of sale, there was no net equity which could not be protected under the Debtor’s Virginia Homestead Exemption.  The Debtor filed a chapter 13 plan which proposed only a 21% payout to unsecured creditors, including the wife’s equitable distribution lump sum award.  Interestingly, the Debtor’s ex-wife did not claim that the equitable distribution award created a secured debt against the home.  Instead, the ex-wife filed an objection to confirmation of the chapter 13 plan on the grounds of lack of good faith in the filing of the case and the proposing of the plan.

The U.S. Bankruptcy Court judge for the Eastern District Court of Virginia agreed with the ex-wife and denied confirmation of the plan.  The court noted that good faith was determined by a number of factors under the 4th Circuit Court case of Deans v. O’Donnell.  In this particular case, the bankruptcy court judge recognized that the Debtor was attempting to discharge a debt that would not be dischargeable in a chapter 7 case, the lump sum equitable distribution award that would be nondischargeable under 11 U.S.C. 523(a)(15) in a chapter 7 case.  While that was not dispositive, it was a factor that could be considered.  What was most troubling in the good faith analysis, was the Debtor’s unexplained increase in the balance of the home equity line of credit, in an amount sufficient to pay off the ex-wife’s lump sum equitable distribution award in full.  Consequently, the judge denied confirmation.

A different outcome might have been obtained had the Debtor been able to explain satisfactorily why the balance on the home equity line of credit increased from approximately $75,000 at the time of the equitable distribution hearing to $139,000 at the time of the filing of the chapter 13 case.  In addition, had the wife claimed her equitable distribution award was a judgment lien against the former marital residence supported by some equity such that it could not be stripped down, then the Debtor would have had to pay the secured debt in full.

You should discuss with your Virginia bankruptcy and divorce lawyer or Richmond bankruptcy and divorce lawyer James H. Wilson, Jr., whether a particular divorce related debt may be discharged in bankruptcy.

Does a wife’s ability to withdraw from an IRA account constitute a material change warranting a reduction in spousal support?

Does a wife’s ability to withdraw from an IRA account constitute a material change warranting a reduction in spousal support?

Yes, according to Wright v. Wright, CL09-4587-01, from the Circuit Court of the City of Richmond, Virginia, the ability to withdraw qualifies as a material change that was unforeseeable at the time of the final order of divorce and justified a reduction in the husband’s spousal support payments.

The Circuit Court of Richmond City, Virginia, granted the parties’ final order of divorce and determined spousal support in 1992.  Eighteen years later, the husband made a motion to modify spousal support. In his motion, the husband argued the wife no longer needed spousal support and that his income had been substantially reduced.  The divorce judge had awarded to the wife in equitable distribution substantial investments and the former marital residence. Since the time of the award, the husband alleged the wife had increased her investments and available income. Moreover, he argued the wife now qualified for Social Security and could withdraw from her IRA account, and her assets would continue to grow as she became Medicaid-eligible.

In response to the husband’s motion, the wife alleged that the investment scheme was foreseeable at the time of the final decree and, thus, should not constitute a material change in circumstances.  In addition, she alleged any reduction in the husband’s earnings should be noted as the result of his voluntary actions, and he still had the ability and assets to pay support.

Legally, the Court may increase, decrease, or terminate an amount or duration of spousal support upon motion by either party. Va. Code. Ann. §20-109(A).   In order to modify support, the party seeking the change must prove 1) a material change in circumstances occurred, and 2) that the material change justifies modification of the award. Barrs. v. Barrs, 45 Va. App. 500, 612 S.E.2d 227 (2005).  This material change must have happened following the most recent judicial review and “must bear upon the financial needs of the dependent spouse or the ability of the supporting spouse to pay.” Street v. Street, 24 Va. App. 2, 480 S.E.2d 112 (1997). If the party seeking the change presents a prima facie case (evidence sufficient to prove the case), the opposing party must either present counter evidence or leave the question for the court’s discretion.

In Wright, the Circuit Court examined the factors established in Va. Code §20-107.1(E) as the basis of its determination. The Court held that the wife’s investment increases after the equitable distribution award were foreseeable and did not constitute a material change. However, the Court held that the wife’s ability to withdraw from her IRA account was unforeseeable at the time of the final divorce; therefore, it should be considered a material change. Because the wife voluntarily created the account and could now withdraw from it, the Court determined that the money could be treated as imputed income. Moreno v. Moreno, 24 Va. App. 190, 480 S.E.2d 792 (1997).  The Circuit Court of the City of Richmond Virginia noted that the court in the Rogers case held that the wife could withdraw half the amount in the IRA and be taxed at the rate applicable to a 30% tax bracket.  In Wright, the Circuit Court granted the husband’s motion to amend support payments as he had established a material change in circumstances and that the change justified a change in support.   The court scheduled the case for another hearing on the appropriate amount of the modification of support.

You should consult with your divorce lawyer in Richmond, Virginia, or Richmond Divorce Lawyer James H. Wilson, Jr., concerning how your retirement, or the retirement of your former spouse, might affect a spousal support obligation.

Can an equitable distribution award be based on an older spouse’s future needs without erroneously becoming an award of support?

Can an equitable distribution award be based on an older spouse’s future needs without erroneously becoming an award of support?

In White v. White, Record No. 1345-09-4 (Va. App. 2010), the Virginia Court of Appeals held that future needs could properly be considered as it relates to age and mental and physical condition in determining equitable distribution, consistent with the court’s prior narrow holding in Reid v. Reid, 7 Va. App. 553, 375 S.E.2d 533 (Va. App. 1989), that earning capacity could not  be considered in equitable distribution under the catch-all, “necessary or appropriate… to arrive at a fair and equitable monetary award” factor of Virginia Code §20-107.3(E)(11).

In White, the husband and wife were married for 21 years before separating. The husband filed for divorce in the Circuit Court, neither party sought support, but both parties requested equitable distribution. The husband argued that his age and medical condition should be considered in the award under Virginia Code §20-107.3(E), because he was getting older and suffered from a serious degenerative disease. The trial court held although age and physical and mental condition was not a predominant factor, it should be considered. Thus, the trial court valued the parties’ assets and awarded 55% to the husband and 45% to the wife, and the wife subsequently appealed.

In her appeal, the wife argued that the trial court misunderstood the differences between an equitable distribution award and spousal support by weighing the husband’s future needs in the award calculation.  The wife alleged that the Court of Appeal’s holding in Reid precluded the trial court from considering any future needs under any circumstances in making an award. In Reid, the trial court awarded an enhanced distribution award based on the payor spouse’s future income and the payee spouse’s need for future housing, and the Court of Appeals reversed, holding, “It is axiomatic that whatever the future may hold for either of the parties has no bearing on the issue of the appropriate division of what has been accumulated by their contributions during the marriage.”  Reid v. Reid, 7 Va. App. At 565, 373 S.E.2d at 540 (Va. App. 1989).

The Court of Appeals in White distinguished its holding from Reid, stating that Reid did not preclude an enhanced award under Virginia Code §20-107.3(E). The Court of Appeals said Reid only addressed future needs in the context of the catch-all factor of the equitable distribution statute. Since this case involved consideration of future needs under the mandatory factor of age and physical and mental condition, the trial court did not err by considering the husband’s needs. The Court affirmed that since age does not affect the parties’ contributions to the marriage, it is a valid indicator of financial need, because as parties get older, they have more medical expenses and less income to pay for their needs. Thus, the Court of Appeals affirmed that the trial court’s award of a greater percentage of the parties’ assets to the husband based on his future needs as they related to his age and health.

You should consult with your Virginia divorce attorney concerning the application of the equitable distribution factors to your situation.

Will a divorce court judge give a wife the first right to purchase the former marital residence in equitable distribution in Virginia?

Will a divorce court judge give a wife the first right to purchase the former marital residence in equitable distribution in Virginia?

Yes, in the case of Trujillo v. Trujillo, CL07-525, the Circuit Court of Salem City allowed the wife the first right of purchase of the former marital residence in equitable distribution because it had been her childhood home that the couple purchased from her mother.

The husband and wife were married for nearly ten years before separating.  They had one minor child at the time of the divorce, whose custody and visitation had previously been decided.  At the time of the separation, the husband obtained an ex parte injunction removing the wife from the marital residence due to her drug addiction, abuse, and death threats to her husband.  The husband had been awarded primary physical custody of their son with reasonable supervised visitation rights to the mother.  At trial, the divorce court judge noted wife’s extraordinary recovery from her addiction, allowed her unsupervised visitation, and transferred further proceedings to the Juvenile and Domestic Relations District Court.

At issue in equitable distribution were two houses owned by the parties, the former marital residence which was the wife’s childhood home and a rental property next door titled in husband’s name alone with a mortgage loan in both husband and wife’s names. The wife claimed a separate interest in the marital home, alleged that she had bought the house from her mother six years prior to her marriage for $45,000.00, along with extra money “under the table”.   Moreover, wife testified that she had paid $22,910.58 on the purchase money debt before she and the husband refinanced it in 2002, at which time the mother deeded it to the parties as tenants by the entireties.

The wife’s testimony was contradicted by her mother, who testified that the wife had not bought the house, but had entered into a rent-to-own contract.  The mother denied that she had received any “under-the-table payments.” Under the contract between the mother and the wife, the deed would have been delivered upon final payment of the note.  Instead, the husband and wife chose to purchase the home from the mother before the rent-to-own contract matured.  The judge held that purchase converted all of the wife’s former payments into rent under the terms of the former contract, with no bearing on equitable distribution.  Later, the couple refinanced the original purchase money mortgage for home improvements and the construction of a garage.  The parties also borrowed money on the husband’s credit card to finish the garage, resulting in a judgment against the husband which the court found to be marital debt.

The second property, the rental home, was purchased during the marriage but it was titled in the husband’s name alone. The court found that the husband purchased the home, which the parties later refinanced for $65,000.00. The couple had rented the home for $670.00 per month, while the monthly note payment totaled $557.00 per month, leaving them a net profit of $113.00 per month before repairs and maintenance.  The husband had kept all the rental payments after the parties separated.

To determine equitable distribution, the Court weighed the testimony of the parties, their experts, and the witnesses. Applying Virginia Code §20-107.3, the court noted that since equitable distribution can only be made on jointly held property, the rental property home did not fall under the terms of Virginia Code §20-107.3(c). Therefore, the Court held that the husband should retain ownership of that property. Upon presentation of the evidence on the marital residence, the City of Salem Circuit Court concluded that the wife made a deliberate choice not to complete the rent-to-own contract, which, according to the terms of the contract, converted all of her former payments into rental payments. Since the parties bought the property jointly, the debt was marital debt.  The Court also noted that the $11,215.36 borrowed on the husband’s credit cards, since it was used for marital purposes, was to become a lien on the husband’s one-half undivided interest upon entry of the divorce decree.

The Court held that the value of the residence should be based on the husband’s appraised values, because that appraisal considered the interior as well as the exterior of the home. Therefore, the court found that the value of the marital residence was $80,300.00. Both parties wanted to purchase the home.  The divorce court judge gave the wife the first right of purchase because it was her childhood home, she tried to purchase it, and the parties bought it from her mother.  The wife was given the first right to purchase provided she refinanced the loans on the property and removed husband’s liabilities on the property within 90 days.  If the wife failed to purchase the property within 90 days, then husband would have the same right to purchase under the same terms. If neither party purchased the home, then the house would be sold, and the proceeds would be split equally between the parties, with the debts to be paid and divided upon the sale.

You should consult with your Virginia divorce lawyer concerning your prospects for retaining the former marital residence in equitable distribution.

Will a Virginia divorce court impute a minimum wage income to a stay-at-home mother living beyond her means on credit?

Will a Virginia divorce court impute a minimum wage income to a stay-at-home mother living beyond her means on credit?

Yes, according to Huston v. Huston, Record No. 2808-09-4 (Va. App. 2010), an unpublished Virginia Court of Appeals case affirming the ruling of the Virginia Circuit Court judge who held that such an imputation of income could fairly be made to the mother due to her ability to bring in a full-time income.

In this case, the mother appealed from a final divorce decree in which the trial court granted the father legal and physical custody of one of the parties’ sons.  In her appeal, the mother argued that the trial court erred in three ways: (1) by denying her an impartial de novo standard of review on appeal; (2) conducting an in camera interview with the parties’ minor child without the presence of a court reporter; and (3) by imputing income despite the fact she was a stay-at-home mother for 26 years. Upon reviewing the record, the Virginia Court of Appeals held that the trial court did not err in its decisions and affirmed its ruling on these issues.

The parties married on January 25, 1982, separated on September 1, 2007, and later divorced in December of 2009. During the period of their marriage, the parties had eight children, three of whom were minors at the time of separation.  In July of 2007, Jacob, one of the parties’ adult sons, filed for custody and visitation of L, one of the minor children. The mother filed for custody, visitation, and support of the other two minor children, J. and T.. The Virginia Juvenile and Domestic Relations District Court (JDR Court) issued an order that granted the father legal and physical custody of J. and legal and physical custody of T. to the mother. After establishing a visitation schedule for both the mother and father, the Court dismissed Jacob’s petitions with prejudice.

After the Juvenile and Domestic Relations District Court’s ruling, the mother filed a divorce complaint and made a motion for pendente lite relief (an agreement or court order made while a matter, such as the parties’ divorce in this case, is pending).  Upon agreement by both parties, the Court consolidated both the divorce action and the mother’s appeal of the Juvenile and Domestic Relations District Court’s ruling. Following a two-day pendente lite hearing, the trial court issued a memorandum and a letter opinion that it incorporated into the final order. In the final order, the trial court adopted all of the orders entered by the Juvenile and Domestic Relations District Court and noted that the only remaining issue between the parties’ involved the minor child J’s custody. Because the parties agreed that T. would remain with the mother and L. would remain with the father, the trial court stated that Jacob (the adult son) was no longer a party to the proceedings. During the final hearing on the issue, the Virginia Circuit Court heard the evidence of the parties and J’s in camera testimony, the trial court granted custody of L. and J. to father and custody of T. to mother.

The father argued the mother’s appeal should fail because the court did not have jurisdiction when the mother failed to notify Jacob of the appeal. However, as the court noted, this argument did not succeed because the trial court had issued a final order stating that Jacob would not longer be party to the proceedings, and neither party appealed that order dismissing Jacob’s appeal.  Upon dismissal, Jacob was no longer a party and the mother was not required to notify him of her appeal to the Virginia Court of Appeals.

In the second issue, the mother argued that the trial court improperly denied her an impartial de novo standard of review. The father asserted that the mother did not preserve the issue for appeal by objecting contemporaneously. As the Court noted, it cannot consider a claim of trial court error as a grounds for reversal “where no timely objection was made, except to attain the ends of justice.” Marshall v. Commonwealth, 26 Va.App. 627, 496 S.E.2d 120 (1998).  The Virginia Court of Appeals noted that the mother’s appeal on this issue could not succeed, because the trial court reviewed the JDR court’s opinion, and the trial court stated that it reached its own conclusions. Because the trial court made its own consideration, held a two-day pendente lite hearing, and the mother was allowed to put on her evidence, the mother had not been denied an impartial de novo standard of review, despite the divorce court judge’s recitation of the holding and reasoning from the Juvenile and Domestic Relations District Court judge.

The key issue in this case, however, involved the mother’s argument that the trial court erred in imputing income to her.  Income can be imputed to a party under Virginia Code Section 20-108.1(B)(3), to deviate from the presumptively correct amount of child support calculated according to the guidelines.  In Huston, the trial court imputed income at a rate of $7.25 per hour (minimum wage) for forty hours per work, for a total of $1250 per month.  The Warren County Circuit Court noted the standard for imputation of income in its decision.

In setting or modifying spousal or child support, a court may impute income to a party voluntarily unemployed or underemployed. See Calvert v. Calvert, 18 Va. App. 781, 447 S.E.2d 875 (1994).  Whether a person is voluntarily unemployed or underemployed is a factual determination. In evaluating a request to impute income, the trial court must ‘consider the [parties’] earning capacity, financial resources, education and training, ability to secure such education and training, and other factors relevant to the equities of the parents and the children.” Niemiec v. Commonwealth, 27 Va. App. 446, 499 S.E.2d 576 (1998).

In considering the issue, the Court established that the mother had been a stay-at-home mother throughout the marriage, during which time she homeschooled all of their eight children. Moreover, the Court found that this decision was mutual, based on the number of children the parties had. As the children grew up and the parties separated, however, the mother stubbornly insisted on staying at home, relying on credit to pay bills and make ends meet. The Circuit Court judge stated, “Reality must set in. She must become gainfully employed and contribute to her own support.” The wife put on evidence that she had served as a child care provider briefly in 2007, a position in which she earned $8.50 per hour. In addition, she testified that she was in the process of becoming a certified reading specialist for dyslexic children. Initially, she anticipated an income of $20 per hour, and after receiving certification, she estimated $40 per hour for her services. In the meantime, she had been earning approximately $300 per month for various small jobs.   The Virginia Court of Appeals noted that the record indicated that the mother had a high school education, was in the process of obtaining certification, only home-schooling one child, and had the ability to earn money. Therefore, the appellate court held that the trial court did not err by imputing income to the mother.

You should consult with your Virginia family law lawyer concerning the possibility of imputing income to a parent in your child support matter.

 

Is it a violation of the automatic stay in a second bankruptcy to file a motion to show cause and to set a hearing date in a divorce case, when the contempt hearing itself follows the dismissal of the bankruptcy case?

Is it a violation of the automatic stay in a second bankruptcy to file a motion to show cause and to set a hearing date in a divorce case, when the contempt hearing itself follows the dismissal of the bankruptcy case?

Not according to Drakeford v. Drakeford, Record No. 1919-06-4 (Va. Ct. App. 2007), an unpublished Virginia Court of Appeals case, where the court upheld the trial court’s finding of contempt for failing to pay a monetary award after the dismissal of  husband’s second bankruptcy case.

When a debtor files a second bankruptcy case within a year of a prior pending bankruptcy case, then the automatic stay expires thirty days after the filing, unless the debtor makes a motion at a hearing within thirty days to extend the automatic stay by showing good faith, as provided under 11 U.S.C. §362(c)(3).  In the Drakeford case, the husband’s first chapter 13 case, filed to avoid a rule to show cause, was dismissed for failure to comply with the relevant bankruptcy rules.  Although the bankruptcy case had been pending at the time of the first show cause hearing, the divorce court judge nevertheless held the husband in contempt of court for failing to pay the first installment of a monetary award and had him jailed until he produced a certified check for the first installment in the amount of $25,000.  The husband did not appeal the first finding of contempt.

Shortly before the second monetary installment became due, the husband filed a second bankruptcy case, but failed to extend the automatic stay, as described above.  As a result, the automatic stay expired thirty days after the filing.  While the automatic stay was still in effect, the wife had filed a second motion to show cause against the husband and the Virginia Circuit Court judge set a hearing date on her motion.   At the hearing, the husband argued that the automatic stay in effect on the date the motion to show cause was filed prevented the court from enforcing the monetary award. The trial court found the husband in contempt and again incarcerated him until he paid the second monetary installment to the wife.

The Court of Appeals upheld the decision of the trial court, noting that the trial court did not take any action against the husband that would affect his property or his bankruptcy estate during the thirty day period that the automatic stay was in effect.  By so holding, the Court of Appeals focused on the actual hearing date, when the stay was no longer in effect, rather than the process filed against the husband while the stay was in effect.

In Drakeford, the husband could have avoided the second contempt holding in the Virginia Circuit Court had he filed for an extension of the automatic stay in bankruptcy court and for a show cause against wife for proceeding against him in the divorce case.

You should consult with your Virginia bankruptcy or divorce lawyer concerning the applicability of the automatic stay in bankruptcy to your state court divorce proceedings.

Can a husband trade a house in return for wife’s promise not to seek child support in Virginia?

Can a husband trade a house in return for wife’s promise not to seek child support in Virginia?

No.   In Azhandeh v. Azhandeh, Record No. 1064-10-4 (Va. Ct. App. 2010), the Court of Appeals of Virginia determined that the husband’s appeal was without merit, because the parties’ previous settlement agreement (and corresponding limitations on child support) was null and void..  While the case does not directly concern bankruptcy law in Virginia, the issue has bearing on what financial obligations of the party can be bargained away, and what cannot.  In bankruptcy, domestic support obligations have a special status which renders them nondischargeable priority claims under 11 U.S.C. 507 and 11 U.S.C. 523, the determination and enforcement of which are not stayed by the automatic stay under 11 U.S.C. 362.

In Azandeh, the parties had been married for seven years prior to separation.  The husband and wife recited an oral agreement in open court which, under Virginia Code Section 20-155 , is enforceable when recorded and transcribed by a court reporter (in effect creating a written agreement).  Under the terms of the parties’ recited and transcribed agreement, the mother would have sole legal and physical custody of the child and the father would have visitation rights.  The husband agreed to give up his share of marital property to wife in exchange for her promise not to seek child support from him for a period of ten years.   Counsel advised the court that the parties had been counseled about the enforceability of such an agreement to waive child support.

Shortly after entry of the final divorce decree, the mother filed a motion for child support in violation of the agreement. The father objected, arguing that the mother violated the mutual agreement.  After hearing the arguments of both parties, the Virginia Circuit Court judge entered an order stating that the agreement “relative to child support is null and void because it is violative of clearly established law” and ordered the father to pay monthly child support according to the statutory guidelines.

In his appeal to the Virginia Court of Appeals, the father asserted the trial judge’s decision regarding the provision in the agreement being null and void was incorrect.  In response, the mother argued that the Virginia Supreme Court’s decision in Kelley v. Kelley, 248 Va. 95, 449 S.E.2d 55 (1994), applied..  In Kelley, the husband and wife established that the husband would transfer all of the equity in the marital home to the wife in exchange for the husband’s not being responsible for child support, and should a court order child support, the wife would provide reimbursement. The Supreme Court of Virginia held that the agreement was null and void because it violated clearly established law, and it stated, “parents cannot contract away their children’s rights to support nor can a court be precluded by agreement from exercising its power to decree child support.”

Here, although the father argued the facts differed from Kelley because he was only eliminating his child support obligation for a fixed period of 10 years rather than eliminating it completely, the Court of Appeals disagreed and affirmed the divorce court judge’s decision that the parties’ agreement violated the law, specifically Virginia Code §20-109.1, by not allowing the court to exercise its power to determine child support..  Moreover, the Virginia Court of Appeals pointed out that the father had mistakenly combined notions of equitable distribution and child support by arguing that he should be relieved from his obligation because the wife had received all of the equity in the martial residence.  In fact, child support was a right of the child, not a right of the mother that she could bargain away.  The Court recognized that child support is separate from equitable distribution.  The mother did not receive a “huge windfall” of property because the Circuit Court ordered child support; rather, the child obtained her right to receive the support that was legally owed to her. Thus, the Court of Appeals held that the Virginia trial court judge’s determination that the parties’ agreement was null and void was correct and affirmed the husband’s monthly child support payments.

While not discussed in the court’s opinion, an interesting question remains about whether a party to a well-drafted written separation agreement might be entitled to damages from the breaching party for not honoring the agreement.

You should consult with your Virginia divorce lawyer or Richmond divorce lawyer James H. Wilson, Jr., to discuss how to best structure your separation agreement or property settlement agreement.

Will a wife’s use of her pension fund after she moves out from the marital residence then returns to live in a separate bedroom constitute marital waste?

Will a wife’s use of her pension fund after she moves out from the marital residence then returns to live in a separate bedroom constitute marital waste?

Yes. In Wynn v. Wynn, Record No. 2400-09-1 (Va. Ct. App. 2010), another case illustrating the marital troubles caused by financial difficulties, the Virginia Court of Appeals affirmed the Virginia Circuit Court’s findings that the wife had committed marital waste and held that the divorce judge’s rulings on the husband’s pension funds, business, and spousal support questions were correct.

On appeal, the wife alleged five counts in which the trial court erred: 1) by determining that she committed marital waste by spending her pension, 2) by not valuing the husband’s business in the equitable distribution, 3) by awarding the husband a portion of his incurred attorney’s fees, 4) by awarding her only 35% of the husband’s pension fund, and 5) by not appropriately considering the statutory factors before denying spousal support.

The parties married on March 1, 1985. Two years later, as the result of the wife’s mishandling of their finances, the parties stopped having joint financial accounts. By 1994, the parties stopped wearing their wedding rings. Although they separated and occasionally cohabitated during the next few years, the husband testified that as of November 2000, they had no intention of living together or resuming the marital relationship. The wife, however, alleged that the final date of separation was in November 2006. At the trial court hearings, the Court found that the wife cashed in her $32,000 pension during this time, and while the wife claimed that she used the funds for living expenses, the evidence established that in fact the husband primarily covered her expenses. In addition, the Court held that the husband’s business only made a profit during 2008 and even though the wife had contributed somewhat during earlier years, her efforts were too remote to include her in the profit sharing. Because the evidence was too insubstantial on the issue, the Court chose not to include the business in calculations for equitable distribution. Instead, the Court awarded the wife 35% of her husband’s pension funds. The Court, however, denied her claim for spousal support based on the evidence of the wife’s Bachelor’s degree and real estate license, claiming that she had the capacity to earn as much as her husband.

In reviewing the issue of marital waste, the Circuit Court noted the definition of waste: “Waste occurs ‘where one spouse uses marital property for his own benefit and for a purpose unrelated to the marriage at a time when the marriage is undergoing an irreconcilable breakdown.’” Smith v. Smith, 18 Va. App. 427, 444 S.E.2d 269 (1994). 02.  Moreover, the Court established that according to Clements v. Clements, 10 Va. App. 580, 397 S.E.2d 257 (1990), the party charged with dissipation bears the burden of showing that the funds were used for a proper purpose. The wife contends that her use of the funds did not constitute waste because of the date of separation. Under her theory, the date of separation did not occur until 2006; therefore, the marriage could not have been “undergoing an irreconcilable breakdown” when she cashed in her pension. The trial court, however, believed the husband’s testimony that the separation occurred in November 2000, when the wife moved out. Even though she moved back in 2003, it was a temporary situation that the husband allowed because the wife had been living in her car.  The parties lived in separate bedrooms in the marital residence and wife paid rent to the husband.  Moreover, since the wife failed to produce any evidence that she used the funds for a proper purpose, the Court held that the trial court correctly awarded a credit of $15,000 of the wife’s pension to the husband.

On the issue of the valuation of the husband’s business, the Court of Appeals affirmed the divorce court judge’s holding. The wife argued that the court failed to consider the assets of the business as statutorily required for valuation of all marital property. Specially, she alleged that the business was valued at $24,328.75, of which she should have received a percentage. According to Virginia Code §20-107.3, a trial court must value the parties’ separate and marital property before making a monetary award. As the Court noted, however, “Virginia’s trial courts may, without doing violence to the statute make a monetary award without giving consideration to the classification or valuation of every item of property, where the parties have been given a reasonable opportunity to provide the necessary evidence to prove classification or valuation but through their lack of diligence have failed to do so.” Bowers v. Bowers, 4 Va. App. 610, 359 S.E.2d 546 (1987).  In this situation, the trial court determined that due to the sparse evidence on the issue and the fact that the business only started to make a profit after the parties separated, it was acceptable to not consider the business in making the calculation of the monetary award, and the Court of Appeals agreed.

Although the wife also argued that the trial court erred by only awarding her only 35% of the husband’s pension, the Circuit Court denied her appeal, citing Ranney v. Ranney, 45 Va. App. 17, 608 S.E.2d 485 (2005), which held that the Court should not reverse the trial court’s ruling unless it is clear that the lower court abused its discretion. See also Bosserman v. Bosserman, 9 Va. App. 1, 384 S.E.2d 104 (1989).  As Matthews v. Matthews, 26 Va. App. 638, 496 S.E.2d 615 (2006) established, Virginia law does not create the presumption of equal distribution for equitable distribution.. Thus, because the trial court considered the statutory factors in Virginia Code §20-107.3, the trial court’s decision was correct.

The Virginia Court of Appeals ruled that the Virginia Circuit Court judge’s decision to award attorney fees to the husband was not an abuse of the trial court’s discretion because the wife had re-opened the case and proceeded pro se, resulting in additional expenses to the husband.  Finally, the Court would not consider wife’s claim that the trial court failed to consider the statutory factors in denying her spousal support, as she had failed to properly preserve the issue for appeal by specifying her objection.

You should consult with your Virginia divorce lawyer concerning marital waste and equitable distribution in Virginia.

Can a Virginia divorce judge allocate the entirety of a bankruptcy debt to the husband in equitable distribution when the parties’ separation agreement does not mention the chapter 13 bankruptcy proceeding, but provides that each party would be responsible for debts incurred by the parties prior to their separation?

Can a Virginia divorce judge allocate the entirety of a bankruptcy debt to the husband in equitable distribution when the parties’ separation agreement does not mention the chapter 13 bankruptcy proceeding, but provides that each party would be responsible for debts incurred by the parties prior to their separation?

No, according to the unpublished opinion of Strickland v. Strickland, record No. 0314-07-2 (Va. Ct. App. 2007), where the Virginia Court of Appeals reversed the Chesterfield County Circuit Court judge’s ruling found that the chapter 13 bankruptcy debt was solely husband’s responsibility.

The parties married on May 12, 1990, and in 1996, they had a child.  Throughout the time of the marriage both parties worked, but the husband brought in a more substantial income. In 2002, the parties filed a joint petition for a Chapter 13 bankruptcy. Under the plan, the parties’ joint federal taxes, utilities bills, home mortgage, credit cards and other debts were consolidated, and the schedule set the repayment amount at $500 per month (taken directly from the husband’s paycheck) until the $25,000 had been repaid. The husband had continued to make payments toward the debt.

On November 11, 2003, the husband, anticipating separation with the wife, committed in writing that he would put their home in the wife’s name, pay $1,000 per month for the wife and daughter, remove the wife’s name from the car loan, give his wife full custody of their daughter, and “pay all bankruptcy.”  A month later, the parties separated, and they entered in an “agreement and stipulation in accordance with section 20-109 and 20-109.1 of the Code of Virginia” (the Agreement), which the wife’s attorney had prepared.  The terms of the Agreement included provisions for child and spousal support at $500 per month for each. Furthermore, the parties agreed they would be “fully and individually responsible for…any debts incurred by the parties prior to their separation,” but it also provided that the husband would assume sole possession of their jointly owned 2002 Kia Sportage and assume its lien while the wife would be removed from both the title and the lien. The Agreement, however, remained silent on the issue of the parties’ joint bankruptcy debt.

From December 2003 through October 2004, the husband paid the wife $1,000 per month for support. After that time, however, the husband notified the wife that he would decrease his monthly payments, withholding an amount that would offset her portion of the bankruptcy debt retroactive to December 2003. In 2004, however, the husband’s Kia was repossessed for failure to repay the loan, and subsequently, the bankruptcy plan was modified to include the $5,972.38 debt from the Kia.

The wife filed a complaint seeking a divorce in July of 2006, and in her complaint, she asked the trial court to affirm, ratify, and incorporate the Agreement into the divorce decree. In addition, she filed a motion to establish child and spousal support arrearage, based on her claim that the husband had improperly reduced his payments of $1,000 per month since October 2004. In response, the husband filed a cross-complaint, arguing that the wife had violated the Agreement because she had failed to pay her portion of their joint bankruptcy debt, and he asked the court to not approve the Agreement with respect to spousal support, or in the alternative, to credit him the wife’s portion of the bankruptcy debt. The trial court granted the parties’ divorce in November 2006 and ordered that the Agreement be ratified and incorporated but not merged into the final decree; however, the Court made no reference to the bankruptcy debt, leaving the discharge entirely to the husband.  In January 2007, the Circuit Court had a hearing to address issues of the support payments since October 2004, whether the bankruptcy debt was marital, and if it were, then what offset the husband would be permitted. At the hearing, the Chesterfield County Circuit Court judge found that the bankruptcy debt was the husband’s “sole debt,” that he was not permitted an offset against his support obligations, and that the support order was retroactive to the date of the Agreement.

On appeal, the husband alleged that although the $5,972.38 from the Kia was properly allocated as separate debt, the rest of the debt was joint marital debt. Moreover, since the Agreement had provided that the each of the parties would be responsible for “debts incurred by the parties prior to their separation,” the trial court erroneously attributed all the bankruptcy debt to him.  In determining the issue, the Court of Appeals examined Virginia Code §20-109.1, which provides that the parties may affirm, ratify, and incorporate a valid agreement into the final divorce decree. In addition, the appeals court noted that once incorporated, an agreement becomes “a term of the decree … enforceable in the same manner as any provision of such decree.” Campbell v. Campbell, 32 Va. App. 351, 528 S.E.2d 145 (2000).  The husband alleged that the evidence did not support the trial court’s determination of the bankruptcy debt as his sole responsibility. See Stumbo v. Stumbo, 20 Va. App. 685, 460 S.E.2d 591 (1995) (holding that the allocation of debt as either marital or separate must have a proper foundation). Here, the Virginia Court of Appeals ruled that the agreement established that the parties would be liable for the debts incurred prior to the separation, there was no ambiguity in the language of the Agreement, the bankruptcy debt was marital debt and had been incurred prior to separation, and the Chesterfield County Circuit Court had erroneously allocated the bankruptcy debt entirely to the husband. Therefore, the Court of Appeals reversed the arrearage determination of the trial court and remanded the matter to the Circuit Court of Chesterfield County for final resolution.

You should consult with your Virginia divorce lawyer concerning the treatment of your bankruptcy debt in equitable distribution.