David v. David ( 2014 )

PRESENT: Kinser, C.J., Lemons, Goodwyn, Millette, Mims, and
Powell, JJ.
CHERI GINA DAVID
OPINION BY
v. Record No. 122145 JUSTICE S. BERNARD GOODWYN
February 27, 2014
ROBERT C. DAVID
FROM THE COURT OF APPEALS OF VIRGINIA
In this appeal, we consider whether a non-owning spouse,
who seeks to establish that an appreciation in value of separate
property during marriage is marital property, has the burden of
proving that significant personal effort during marriage or
marital property proximately caused such appreciation.
Procedural Background
On December 3, 2010, Robert C. David (Husband) filed a
complaint in the Circuit Court of Hanover County seeking a
divorce from Cheri Gina David (Wife). Among other things, he
requested that the court equitably distribute his and Wife’s
property pursuant to Code § 20-107.3. The court granted
Husband’s request for a divorce and equitably distributed
Husband’s and Wife’s property and debt.
Husband appealed the circuit court’s equitable distribution
award to the Court of Appeals because it classified the increase
in value of Husband’s “Investment/Brokerage Account” (the
account) as marital property, although Husband owned the account
before the marriage and both parties agreed that the account was
separate property.
In an unpublished opinion, David v. David, Record No. 0653-
12-2 (Nov. 20, 2012), the Court of Appeals reversed the circuit
court. The Court of Appeals ruled that Wife, the non-owning
spouse, had failed to carry her burden of proving that the
substantial appreciation in the value of the account,
approximately $316,000, was proximately caused by Husband’s
significant personal efforts during the marriage, and was
therefore marital property. Wife appeals.
Facts
Husband and Wife were married on November 16, 2002.
Husband owned the account when he married Wife, and at that
time, it was worth $234,783.16. Husband and Wife separated in
November 2010. At that time, the account was worth $551,521.42.
During the marriage, Husband worked at Prudential
Securities as a branch manager, then as a financial advisor and
manager before transferring to the development group. He left
Prudential Securities to work for the Horse’s Mouth, “a company
that specializes [in] helping financial advisors.” There, he
created a program, wrote articles and conducted seminars over
the Internet to help financial advisors. After two years at
the Horse’s Mouth, Husband started his own business and wrote a
2
book. For a period of time in 2009 and 2010, Husband was
unemployed.
Wife entered into evidence tax information (1099s or tax
forms) for the account from every year of the marriage except
2010. These tax forms detailed Husband’s stock trading in the
account from 2002 until 2009. The 1099s indicated that Husband
bought or sold stocks in 2003, 2006, 2007, 2008 and 2009 and
sold an Exchange Traded Fund (ETF) in 2009. 1
Wife’s deposition was entered into evidence, in which Wife
testified that during the marriage “[Husband] spent many hours
researching emerging companies” for investment purposes. Wife
admitted to not knowing the exact number of hours spent on
these activities. She also testified that he had twenty to
twenty-five years’ experience “as an investment broker” and was
licensed to trade securities until 2010. According to Wife,
Husband had represented to her during their marriage that he
was “really good at the merging market.”
On the other hand, Husband testified that he “[does] very
little trading” because he is a “long-term investor.” Husband
admitted that for a “brief period of time” he had used the
account to “hedg[e] against a market crash.” He also testified
1
In 2004 and 2005, although Husband did not buy or sell
stock, the 1099s indicate that dividends were reinvested. It is
not clear from the record whether these dividends were
automatically reinvested or whether Husband directed the
reinvestments.
3
to selling his ETF in 2009 and reinvesting the money. When
repeatedly asked whether he was skilled at stock trading,
Husband responded “[n]o,” pointed out his tax losses and said,
“Knowing what you’re doing[] doesn’t prohibit you from
purchasing stock [that ultimately underperforms].”
The circuit court found that Husband had acquired the
account before marriage but that the increase in value during
the marriage was marital property because the Husband’s personal
efforts during the marriage caused the increase in value. The
circuit court awarded Wife half of the amount of appreciation.
In the Court of Appeals, Husband claimed that the circuit
court “misapplied the burdens of proof” and that the evidence
did not support the circuit court’s findings. Specifically,
Husband argued that there was insufficient evidence to support
the circuit court’s findings 1) that he made significant
personal efforts, 2) that the value of the account
substantially increased and 3) that his personal efforts
proximately caused the increase.
The Court of Appeals held that “the trial court erred in
finding that the entire appreciation of husband’s separate
property was due to his personal efforts.” David, slip op.
at 1. Without addressing Husband’s argument that the evidence
did not support a finding of substantial appreciation or
significant personal effort, the court stated, “Assuming without
4
deciding that husband’s research and trading activity constitute
[‘personal effort’]” for purposes of Code § 20-107.3(A)(3)(a),
Wife failed to satisfy her burden of proof concerning the extent
to which the increase in value was due to Husband’s personal
efforts. Id., slip op. at 4-5. The Court of Appeals reversed
the circuit court and remanded the case for reclassification of
the account consistent with its opinion. Id., slip op. at 6.
Wife’s sole assignment of error states:
The Court of Appeals erred in finding that
Virginia Code § 20-107.3, as amended, requires a non-
owning spouse to prove that the personal efforts of a
spouse during marriage are the proximate cause of
substantial appreciation in the value of an owning
spouse's separate assets in order to establish the
increase in value as marital property.
Analysis
Wife argues that the Court of Appeals misinterpreted Code §
20-107.3(A) in holding that Wife had to prove “[H]usband’s
personal efforts were the proximate cause of the entire increase
in the value of the [account].” She maintains that the Court of
Appeals’ holding is contrary to the plain language of Code §§
20-107.3(A)(3)(a)(i) and (ii), which only requires the non-
owning spouse to prove that personal efforts were made and that
the separate property increased in value, after which the burden
shifts to the owning spouse to disprove causation.
5
To support her interpretation of Code § 20-107.3(A)(3)(a),
Wife cites to legislative history 2 indicating the purpose of a
1991 amendment, which added a burden of proof provision to that
subsection. That purpose was to create a presumption of
causation upon an initial showing by the non-owning spouse of
personal efforts and increase in value and to place the burden
of rebutting this presumption on the owning spouse. See 1991
Acts ch. 698. 3 Wife maintains that the Court of Appeals’
interpretation of the statute defeats the purpose of the 1991
amendment.
Husband responds to Wife’s arguments by insisting that this
Court should uphold the Court of Appeals’ longstanding
interpretation of Code § 20-107.3(A). Husband argues that,
pursuant to Court of Appeals precedent, Wife had to prove three
elements before the burden of proof shifted to Husband: “(1)
significant personal efforts were contributed to the property,
(2) a substantial appreciation in the value of the property and
2
Family Law Section of the Virginia State Bar, Report to
the Governor and General Assembly: Equitable Distribution of
Property in Divorce Proceedings, House Doc. No. 19 (1991),
available at
http://leg2.state.va.us/dls/h&sdocs.nsf/By+Year/HD191991/$file/H
D19_1991.pdf (last visited February 24, 2014). The report was
produced and presented to the Governor and the General Assembly
in response to a request made in House Joint Resolution No. 57
(1990).
3
Two other Acts of Assembly also amended Code § 20-107.3 in
1991. See 1991 Acts chs. 632, 640. However, neither affected
subsection (A)(3)(a).
6
(3) a causal connection between the personal efforts and the
appreciation (i.e., personal efforts were the ‘proximate cause’
of the appreciation).” Husband claims that the legislative
history cited by Wife does not demonstrate an intent for the
1991 amendment of the statute to change the effect of causation
language in other parts of the statute.
Questions regarding the evidentiary presumptions and
burdens of proof created by Code § 20-107.3 are pure questions
of law concerning statutory interpretation, which this Court
reviews de novo. See Gilliam v. McGrady, 279 Va. 703, 708, 691
S.E.2d 797, 799 (2010). As we have stated in the past, the
Court’s main concern in statutory interpretation is to give
effect to the legislature’s intent as evidenced by the plain
meaning of statutory language, “unless a literal interpretation
would result in manifest absurdity.” Hollingsworth v. Norfolk
S. Ry. Co., 279 Va. 360, 366, 689 S.E.2d 651, 654 (2010).
Furthermore, the Court has recognized that its duty consists of
“constru[ing] the law as it is written.” Hampton Roads
Sanitation Dist. Comm’n v. City of Chesapeake, 218 Va. 696, 702,
240 S.E.2d 819, 823 (1978).
The purpose of Code § 20-107.3 is to provide for the
equitable distribution upon divorce of the parties’ property
based upon each party’s contributions to the marriage. Pursuant
to the statute, a court must classify the parties’ assets as
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“marital,” “separate” or “part separate and part marital.” Code
§ 20-107.3(A). A court equitably classifies property based upon
statutory guidelines, not according to which party holds legal
title. Robinson v. Robinson, 46 Va. App. 652, 661, 621 S.E.2d
147, 152 (2005).
Spouses have a right upon divorce to an equitable share of
marital property, and Code § 20-107.3 creates a rebuttable
presumption that “[p]roperty acquired by either spouse during
marriage is marital property.” Gilliam, 279 Va. at 708, 691
S.E.2d at 799. On the other hand, when property was acquired
before marriage, the statute creates a rebuttable presumption
that it is separate property. Code § 20-107.3(A)(1). We have
not directly addressed the proper allocation of the burden of
proof in determining whether income received from separate
property or the increase in value of separate property during
the marriage is marital property for purposes of equitable
distribution. Cf. Gilliam, 279 Va. at 706, 691 S.E.2d at 798
(resolving a question about the burden of proof for the
distribution of debt pursuant to Code § 20-107.3).
Code § 20-107.3(A)(1) states:
Separate property is (i) all property, real and
personal, acquired by either party before the
marriage; (ii) all property acquired during the
marriage by bequest, devise, descent, survivorship or
gift from a source other than the other party; (iii)
all property acquired during the marriage in exchange
for or from the proceeds of sale of separate property,
8
provided that such property acquired during the
marriage is maintained as separate property; and (iv)
that part of any property classified as separate
pursuant to subdivision A 3. Income received from
separate property during the marriage is separate
property if not attributable to the personal effort of
either party. The increase in value of separate
property during the marriage is separate property,
unless marital property or the personal efforts of
either party have contributed to such increases and
then only to the extent of the increases in value
attributable to such contributions. The personal
efforts of either party must be significant and result
in substantial appreciation of the separate property
if any increase in value attributable thereto is to be
considered marital property.
Code § 20-107.3(A)(3)(a) specifically addresses how a court
is to classify the appreciation in value of separate property
during the marriage, providing in relevant part that:
In the case of the increase in value of separate
property during the marriage, such increase in value
shall be marital property only to the extent that
marital property or the personal efforts of either
party have contributed to such increases, provided
that any such personal efforts must be significant
and result in substantial appreciation of the
separate property.
For purposes of this subdivision, the nonowning
spouse shall bear the burden of proving that (i)
contributions of marital property or personal effort
were made and (ii) the separate property increased in
value. Once this burden of proof is met, the owning
spouse shall bear the burden of proving that the
increase in value or some portion thereof was not
caused by contributions of marital property or
personal effort.
The second paragraph of Code § 20-107.3(A)(3)(a) quoted above,
which allocates the burdens of proof, was added to the statute
in 1991. 1991 Acts ch. 698.
9
The Court of Appeals has interpreted Code §§ 20-107.3(A)(1)
and (3) together to “[establish] a three-tiered burden of
proof.” Cirrito v. Cirrito, 44 Va. App. 287, 296, 605 S.E.2d
268, 272 (2004). In the first tier, the owning spouse must
prove that the property is separate pursuant to subsection
(A)(1). Id. This creates a presumption that the increase in
value is also separate property. See Martin v. Martin, 27 Va.
App. 745, 751, 501 S.E.2d 450, 453 (1998). Here, the parties do
not dispute that the account itself is Husband’s separate
property.
In the second tier, the Court of Appeals has interpreted
Code §§ 20-107.3(A)(1) and (3) as placing a burden on the non-
owning spouse to prove not only that “(i) contributions of
marital property or personal efforts were made and (ii) the
separate property increased in value,” but also to prove that
the personal efforts caused the increase in value. See Cirrito,
44 Va. App. at 296-97, 605 S.E.2d at 272-73; Gilman v. Gilman,
32 Va. App. 104, 120-21, 526 S.E.2d 763, 771 (2000). The Court
of Appeals held in this case that Wife failed to meet this
burden.
The third tier consists of a burden shift back to the
owning spouse to rebut with proof “that the increase in value or
some portion thereof was not caused by contributions of marital
property or significant personal effort.” Martin, 27 Va. App.
10
at 751, 501 S.E.2d at 453; see also Cirrito, 44 Va. App. at 296-
97, 605 S.E.2d at 272.
Upon review of the plain language of Code § 20-
107.3(A)(3)(a), we conclude that it does not require the non-
owning spouse to prove causation. See Code §§ 20-
107.3(A)(3)(a)(i) and (ii). Code § 20-107.3(A)(3)(a) does not
include causation as an issue upon which the non-owning spouse
has a burden of proof, and it explicitly places the burden of
disproving causation on the owning spouse. See Code §§ 20-
107.3(A)(3)(a) (“[T]he owning spouse shall bear the burden of
proving that the increase in value or some portion thereof was
not caused by contributions of marital property or personal
effort.”).
The Court of Appeals’ interpretation of Code § 20-107.3(A)
adds a requirement to the non-owning spouse’s burden not stated
in the statute. Courts must not construe the plain language of
a statute in a way that adds a requirement that the General
Assembly did not expressly include in the statute. Vaughn, Inc.
v. Beck, 262 Va. 673, 678-79, 554 S.E.2d 88, 91 (2001) (“[An
unintentional result], however, cannot be remedied through
judicial construction by imposing a . . . requirement that
effectively would add new language to the statute. Any such
change to the statute must be a legislative, rather than a
judicial, undertaking.”).
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The General Assembly chose to explicitly state that
causation must be disproved by the owning spouse after the non-
owning spouse satisfies his or her statutorily imposed burden of
proof, which does not include causation. See Code §§ 20-
107.3(A)(3)(a)(i) and (ii). The Court presumes that the
legislature has purposefully chosen the precise statutory
language, “and we are bound by those words when we apply the
statute.” Halifax Corp. v. First Union Nat’l Bank, 262 Va. 91,
100, 546 S.E.2d 696, 702 (2001). “[W]hen the General Assembly
has used specific language in one instance, but omits that
language or uses different language when addressing a similar
subject elsewhere in the Code, we must presume that the
difference in the choice of language was intentional.” Zinone
v. Lee’s Crossing Homeowners Ass’n, 282 Va. 330, 337, 714 S.E.2d
922, 925 (2011).
Code § 20-107.3(A)(3)(a) indicates that a presumption of
causation is created upon the non-owning spouse’s satisfying his
or her statutorily imposed burden of proof. Interpreting Code §
20-107.3(A)(3)(a) as creating a burden on the owning spouse to
disprove causation is not manifestly absurd. Cf. Parfitt v.
Parfitt, 277 Va. 333, 340, 672 S.E.2d 827, 829 (2009)
(explaining the burden shift that occurs in cases involving
claims of undue influence after a plaintiff presents evidence of
weakness of mind and grossly inadequate consideration,
12
suspicious circumstances or confidential relationship); see also
Bass v. City of Richmond Police Dep’t, 258 Va. 103, 112, 515
S.E.2d 557, 561-62 (1999) (recognizing a rebuttable presumption
of causation created by a workers’ compensation statute). 4
Code § 20-107.3(A)(3)(a) places the burden of disproving
causation on the owning spouse, once the non-owning spouse makes
a prima facie showing of a spouse’s personal efforts during the
marriage or the contribution of marital property and an increase
in value of the separate property. The plain language of Code §
20-107(A)(3)(a) does not require the non-owning spouse to prove
causation. Thus, the Court Appeals erred in assigning the
burden to prove causation to Wife and holding that Wife failed
to meet that burden. To the extent that the Court of Appeals
has in its decisions interpreted Code § 20-107.3(A) in a manner
4
We do not consider the legislative history of a statute if
the statutory language is plain and unambiguous. Newberry
Station Homeowners Ass’n v. Board of Supervisors, 285 Va. 604,
614, 740 S.E.2d 548, 553 (2013). While it is not necessary to
resort to legislative history, we note that the legislative
history of Code § 20-107.3(A)(3)(a) is consistent with the
Court’s ruling today. The report to the General Assembly
regarding the 1991 amendment, which added the burden of proof
provision to Code § 20-107.3(A)(3)(a), explicitly states, “Once
[the non-owning spouse’s] burden of proof is met, there [will]
be . . . a presumption of ‘active’ appreciation by presuming a
causal nexus between the efforts . . . and the appreciation in
value during the marriage.” House Doc. No. 19, at 11. The
report states that the rationale behind allocating the burden of
proof in this manner is that the owning spouse is better-
equipped to prove “that the increase in value was due to
‘passive’ or ‘economic’ reasons.” Id.
13
inconsistent with the holding we express here, we overrule those
portions of any such decisions.
Conclusion
For the reasons stated above, the Court of Appeals erred in
interpreting Code § 20-107.3(A)(3)(a) as placing an initial
burden on the non-owning spouse to prove that significant
personal efforts or marital contribution caused a substantial
increase in the value of separate property. Therefore, the
judgment of the Court of Appeals will be reversed, and this case
will be remanded to the Court of Appeals for further proceedings
consistent with this opinion.
Reversed and remanded.
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