Harry D. Campbell v. Betty J. Campbell ( 2011 )

COURT OF APPEALS OF VIRGINIA
Present: Judges Elder, Kelsey and Powell *
Argued by teleconference
HARRY D. CAMPBELL
MEMORANDUM OPINION ** BY
v. Record No. 1629-10-2 JUDGE LARRY G. ELDER
AUGUST 9, 2011
BETTY J. CAMPBELL
FROM THE CIRCUIT COURT OF ALBEMARLE COUNTY
Cheryl V. Higgins, Judge
Donald K. Butler (Player B. Michelsen; Butler Armstrong, LLP,
on briefs), for appellant.
Sidney H. Kirstein for appellee.
In this second appeal from a final decree of divorce, Harry D. Campbell (husband) argues
that the trial court erred in: (1) classifying husband’s stock in Campbell Lumber Company
(CLC) as entirely marital property; (2) classifying husband’s stock in Campbell Lumber
Company of Appomattox (CLCA) as entirely marital property; and (3) failing to adjust the value
of CLC for certain assets the company no longer owned. We hold that (1) the trial court properly
classified CLC as marital property because husband did not meet his burden of tracing his
separate property into CLC and proving his post-separation efforts caused CLC to appreciate in
value; (2) the trial court properly relied on the use of marital property as collateral to purchase
CLCA as evidence of transmuting CLCA into marital property; and (3) the trial court did not err
*
Justice Powell participated in the hearing and decision of this case prior to her
investiture as a Justice of the Supreme Court of Virginia
**
Pursuant to Code § 17.1-413, this opinion is not designated for publication.
in disbelieving husband’s testimony regarding the alleged diminutions in CLC’s value.
Accordingly, we affirm the challenged rulings.
I.
BACKGROUND
“We review the evidence in the light most favorable to . . . the party prevailing below and
grant all reasonable inferences fairly deducible therefrom.” Anderson v. Anderson, 29 Va. App.
673, 678, 514 S.E.2d 369, 372 (1999). So viewed, the evidence establishes that husband and wife
married in January 1973 and separated in December 1996. Four children were born of their marital
union, all of whom were emancipated at the time of the divorce proceedings. Husband had two
children from a previous marriage. Husband filed for divorce on January 29, 1997, on the grounds
of constructive desertion, alleging wife shot him following an argument on December 21, 1996.
Wife originally indicated she was the shooter, but she claimed in later proceedings that one of the
parties’ children shot husband.
One of the contested issues in the divorce proceeding was the validity of an agreement that
purportedly conveyed CLC to wife if husband proceeded with the divorce. Both parties presented
expert witnesses to support their respective theories concerning the enforceability of the agreement,
and the trial court ruled that the agreement was binding on the parties such that CLC “shall be the
sole and separate property of [wife].”
The trial court issued a letter opinion, memorialized in a final decree of divorce (collectively
the 2006 decree) addressing the remaining issues the parties raised. Pertinent to this appeal, the trial
court valued the parties’ properties and, after consideration of all the evidence, awarded husband
seventy-two percent of the marital property and wife twenty-eight percent.
Both parties appealed the 2006 decree. Campbell v. Campbell, 49 Va. App. 498, 500, 642
S.E.2d 769, 771 (2007) (Campbell I). The only issue this Court addressed was whether “the trial
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court erred when it prevented [husband] from cross-examining wife’s expert witness and a factual
witness” regarding the agreement, id., and held that the circuit court “abused its discretion, as a
matter of law, by preventing husband from cross-examining wife’s witnesses due to the time limits
it imposed,” id. at 507, 642 S.E.2d at 774. We did not address the remaining assignments of error
“with respect to the agreement itself and the equitable distribution of the remaining marital
property” because they “depend[ed] upon the validity of the agreement.” Id. at 507 n.5, 642 S.E.2d
at 774 n.5. Accordingly, the mandate accompanying Campbell I “reversed and annulled” the 2006
decree and “remanded to the trial court for further proceedings in accordance with the views
expressed in [Campbell I].”
On remand, the trial court held an evidentiary hearing to determine the validity of the
agreement. The trial court held that wife did not meet her burden of proving the agreement was an
enforceable contract, and it scheduled the matter for hearings beginning April 7, 2009, to address
the equitable distribution of the marital assets (2009 proceedings). Upon motion by the parties, the
trial court held that it would value the real and personal property of the parties based on the
appraisals contained within the 2006 decree (2009 valuation order). The trial court noted that the
parties did not possess sufficient liquid assets to pay for a new appraisal and a second appraisal
would lengthen the litigation that had continued for the past ten years. However, the trial court
allowed the parties to “utilize the actual sales price for any and all real estate sold by the parties”
since the 2006 decree “to increase or decrease the overall valuation of the said property or
entity.” Further, husband reserved “the right to show that the sales proceeds . . . from the sales of
the real estate tracts . . . were expended,” and “to argue that the value of the two corporate
entities [CLC and CLCA] . . . should be reduced from the said 2005 valuation due to the loss,
sale or dissipation.”
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At the 2009 proceedings, the parties presented extensive evidence in the form of
testimony and documentary exhibits regarding the classification of CLC and CLCA. Further,
husband presented evidence relating to several pieces of personal property that he claimed were
“broken down” or “removed by wife.”
At the conclusion of the evidence, the trial court issued a letter opinion and final decree
for divorce (collectively the 2010 decree). Pertinent to this appeal, the trial court classified CLC
as entirely marital property. The trial court reasoned that because husband’s testimony indicated
most of the separate property he owned prior to the marriage was replaced with new equipment
throughout the course of the marriage, husband was unable to prove that he maintained separate
assets in CLC. Significant to the trial court’s classification was its finding that husband’s
recollections concerning the separate property was not credible.
The trial court further classified CLCA as marital property because CLC provided the
funds to make the down payment on CLCA. The trial court found it significant that husband
used real estate owned by CLC as collateral to secure a loan to pay the remainder of the purchase
price. Thus, even though husband purchased CLCA after the date of separation, the trial court
held that the evidence overcame the presumption of separate classification such that wife did not
need to trace the marital funds back to CLCA.
Finally, the trial court valued CLC at $5,377,491. The trial court did not specifically
address husband’s evidence offered to prove CLC’s diminution in value, though it reiterated that
husband’s “memory does not appear to be reliable in this area.” Further, the trial court did not
explain the discrepancy between the value it assigned to CLC in the 2010 decree and the
$5,369,665 value given in the 2005 valuation.
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Both parties filed objections and legal memoranda in support of their respective
positions. At a hearing on June 14, 2010, the trial court declined to hear additional arguments in
the matter and denied all outstanding motions for reconsideration.
This appeal followed.
II.
ANALYSIS
“A trial court’s decision, when based upon credibility determinations made during an ore
tenus hearing, is owed great weight and will not be disturbed unless plainly wrong or without
evidence to support it.” Douglas v. Hammett, 28 Va. App. 517, 525, 507 S.E.2d 98, 102 (1998).
We owe the trial court this deference “[b]ecause the trial court’s classification of property is a
finding of fact.” Ranney v. Ranney, 45 Va. App. 17, 31, 608 S.E.2d 485, 492 (2005). Moreover,
“‘[t]he credibility of the witnesses and the weight accorded the evidence are matters solely for
the fact finder who has the opportunity to see and hear that evidence as it is presented.’” Thomas
v. Thomas, 40 Va. App. 639, 644, 580 S.E.2d 503, 505 (2003) (quoting Sandoval v.
Commonwealth, 20 Va. App. 133, 138, 455 S.E.2d 730, 732 (1995)).
A.
CLASSIFICATION OF ASSETS
Under Code § 20-107.3(A), the trial court must determine “the ownership and value of all
property, real or personal, tangible or intangible, of the parties and shall consider which of such
property is separate property, which is marital property, and which is part separate and part
marital property.” We will reverse the trial court’s decision only upon a showing of abuse of
discretion. von Raab v. von Raab, 26 Va. App. 239, 246, 494 S.E.2d 156, 159 (1997).
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1. CLC
It is undisputed that husband began a sawmill business in 1957, which he initially
operated as a partnership with his brothers. In 1977, husband began developing a sawmill in a
different location, North Garden, and in 1979, that sawmill became his principal place of
business. Husband incorporated the North Garden sawmill in 1983 and renamed it CLC.
Husband argues the trial court erred in classifying CLC as entirely marital property
because CLC existed under husband’s control prior to the marriage. Husband contends the
assets he owned prior to the marriage maintained their separate identity when they were
commingled with the business that became the North Garden sawmill and again when said
sawmill was incorporated into CLC. Husband avers the trial court erroneously focused on the
turnover in these assets and instead asserts that he met his burden of tracing distinct assets in
CLC to his separate property via the list of separate assets he presented.
The property subject to classification is husband’s stock in CLC, which is presumptively
marital property because it came into existence in 1983 when CLC became incorporated. Code
§ 20-107.3(A)(2)(iii) (defining marital property as “all other property acquired by each party
during the marriage which is not separate property”). It is therefore husband’s burden to prove
that the CLC stock was “acquired . . . in exchange for or from the proceeds of sale of separate
property, provided that such property acquired during the marriage is maintained as separate
property.” Code § 20-107.3(A)(1)(iii).
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 to 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
original classification.
Code § 20-107.3(A)(3)(e).
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In other words, if a party “chooses to commingle marital and
non-marital funds to the point that direct tracing is impossible,” the
claimed separate property loses its separate status. Melrod v.
Melrod, 574 A.2d 1, 5 (Md. [Ct. Spec.] App. 1990). Even if a
party can prove that some part of an asset is separate, if the court
cannot determine the separate amount, the “unknown amount
contributed from the separate source transmutes by commingling
and becomes marital property.” Brett R. Turner, Equitable
Distribution of Property 268 (1994).
Rahbaran v. Rahbaran, 26 Va. App. 195, 208-09, 494 S.E.2d 135, 141 (1997). “Whether a
transmuted asset can be traced back to [its original] property interest is determined by the
circumstances of each case, including the value and identity of the separate interest at the time of
the transmutation.” von Raab, 26 Va. App. at 248, 494 S.E.2d at 160.
Here, husband submitted an itemized list of property and equipment he allegedly owned
in 1973 (Schedule M) for the purpose of identifying his separate property that contributed to the
sawmill. 1 Husband testified that he continued to use these items in the course of operating his
lumber business. However, the trial court did not err in finding that husband did not meet his
burden of proving retraceability because the record casts doubt on the trustworthiness of
husband’s evidence. For example, Schedule M listed the Covesville property as belonging to
husband prior to 1973, but wife introduced a deed that conveyed the property to husband on
October 17, 1974, almost two years after the parties married. Further, husband admitted multiple
times on cross-examination that he did not have documentation to prove his ownership of the
items on Schedule M or their respective values. Finally, husband acknowledged that a fire
destroyed much of his sawmill equipment in 1979. Significantly, the fire occurred
approximately two weeks before husband opened the North Garden sawmill that would later
become CLC. Husband’s testimony established that he replaced these pieces of equipment and
1
It appears husband and his daughters from a previous marriage compiled the list of
items and their corresponding values.
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property, but husband failed to provide specific information as to which equipment was replaced
with new equipment during the marriage or the source of funds used to replace each piece.
Since the beginning of the marriage, husband’s efforts increased the value of CLC from
the $330,000 he claims to be his separate property to a multi-million dollar business. This
increase in value during the marriage constitutes marital property. Congdon v. Congdon, 40
Va. App. 255, 267, 578 S.E.2d 833, 839 (2003) (“Separate property that increases in value
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, provided that any such
personal efforts must be significant and result in substantial appreciation of the separate
property’” (quoting Code § 20-107.3(A)(3)(a)). And throughout CLC’s existence, husband
repeatedly replaced equipment that was once his separate property with items that were acquired
during the marriage. See Code § 20-107.3(A)(2)(iii) (“Marital property is . . . all other property
acquired by each party during the marriage.”). Given the complexity of CLC’s business and the
vast commingling of separate and marital funds, we hold the trial court did not err in concluding
husband’s articles of husband’s separate property did not retain their separate classification
amongst CLC’s numerous assets and acquisitions. See McIlwain v. McIlwain, 52 Va. App. 644,
659, 666 S.E.2d 538, 546 (2008) (holding that separate funds deposited in a marital account
“were so commingled with the marital funds” due to multiple significant withdrawals and
deposits, thereby “treat[ing] the account as a unified source of funds to pay marital debt”).
Accordingly, the trial court did not err in holding that CLC was entirely marital property.
Husband argues that even if CLC was entirely marital property until the parties’
separation in 1997, the trial court nevertheless erroneously failed to classify as his separate
property the appreciation in the value of CLC after the date of separation. Husband contends he
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“made substantial and continuous efforts to enhance the value of CLC” and wife “played no role
in these acquisitions nor in the appreciation in value of these assets.”
Code § 20-107.3(A)(3)(a) specifically provides that the increase in value of separate
property that occurs during marriage “shall be marital property only to the extent that marital
property or the personal efforts of either party have contributed to such increases.” In other
words, where the non-owning spouse contributes “significant” personal effort that “result[s] in
substantial appreciation of the separate property,” id., the otherwise separate property transmutes
into hybrid property and the non-owning spouse may collect a portion of the marital increase as
part of the equitable distribution, see Moran v. Moran, 29 Va. App. 408, 412, 512 S.E.2d 834,
835 (1999). See generally Martin v. Martin, 27 Va. App. 745, 751, 501 S.E.2d 450, 453 (1998)
(“[W]here separate property can be retraced from commingled property, the increased value in
that separate property is presumed to be separate, unless the non-owning spouse proves that
contributions of marital property or personal effort caused the increase in value.”).
The converse also holds true. “Generally, property acquired by one partner after the last
separation when ‘at least one of the parties intends that the separation be permanent’ is not
‘acquired . . . during the marriage’ or as part of the marital partnership and will not be marital
property, unless it was obtained, at least in part, with marital funds.” Dietz v. Dietz, 17 Va. App.
203, 210, 436 S.E.2d 463, 468 (1993) (quoting Price v. Price, 4 Va. App. 224, 230, 355 S.E.2d
905, 908 (1987)).
Property acquired by one partner totally separate and apart from
the marital partnership does not imbue the other partner or spouse
with rights and equities in such property. Where partnership
efforts have contributed nothing to the acquisition or maintenance
or preservation of the property, no basis exists for its being
classified as a marital asset.
Id. Thus, where the parties have separated and one spouse contributes significant personal effort
that results in substantial appreciation of the marital property, that spouse is able to claim the
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increase in value of the marital property as his own separate property immune from equitable
distribution. Cf. Tucker v. Wilmoth-Tucker, No. 2008-09-2, 2010 Va. App. LEXIS 199, at *15
(Va. Ct. App. Mar. 18, 2010) (“Any increase in value of [husband’s] shares that occurred after
the date of separation due to husband’s personal efforts is husband’s separate property.”). The
spouse claiming the increase in value as his separate property bears the burden of proof. See
Gilman v. Gilman, 32 Va. App. 104, 120, 526 S.E.2d 763, 771 (2000).
Husband relies entirely on the testimony of his expert witness, Robert Raymond, and his
appraisal report of CLC. That report calculated the value of CLC at the time of marriage in 1973
at $330,000 and concluded CLC’s net worth had grown to approximately $2,500,000 at the time
of separation in 1997. The report further computed CLC’s value at the time of the 2005
proceedings to be approximately $5,700,000. Of the $3,200,000 increase in value between the
time of the separation and the date of the 2005 proceedings, the report estimated that husband’s
active efforts in maintaining CLC accounted for approximately $2,487,000 in appreciation.
The evidence, viewed in the light most favorable to wife, supports a finding that husband
failed to meet his burden of proving that the substantial appreciation in CLC’s value was due
solely to his significant personal efforts. As detailed in the report, Raymond analyzed “each
piece of real estate [to] see when it was purchased” and “attempted to analyze the source of
funds for [those] purchases.” Indeed, the report attributed most of CLC’s active appreciation to
the acquisition of pieces of real estate. However, despite Raymond’s reliance on information
that “some of the other assets were purchased with [separate property in the form of]
post-separation debt . . . or earnings from the corporation,” none of husband’s evidence supports
such a conclusion. Raymond did not specify which properties he concluded were acquired with
post-separation funds, and the record contains no supporting documentation. At most, the record
indicates that the properties were acquired by “settlement statement[s].” Evidence of CLC’s
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income and cash flow statements shows husband may have had the means to acquire additional
property after the date of separation, but husband cannot meet the burden of proving he actually
used separate funds to make that acquisition based on mere speculation and conjecture.
Further, the record supports the trial court’s implicit rejection of Raymond’s testimony
and report. See Stratton v. Stratton, 16 Va. App. 878, 883, 433 S.E.2d 920, 923 (1993) (“‘[T]he
finder of fact is not required to accept as conclusive the opinion of an expert.’” (quoting Lassen
v. Lassen, 8 Va. App. 502, 507, 383 S.E.2d 471, 474 (1989))). As a starting point, the report
“[v]alue[d] the premarital property, determine[d] if it increased in value between the marriage
date and the separation date and then quantif[ied] the causation of such increase as to active or
passive factors.” The report assumed “increases in value of separate property during the
marriage [were] separate property.” However, Raymond confirmed that the source of his
information regarding the premarital property was Schedule M, the list of fixed assets compiled
by husband that “estimated the realizable value of each such asset.” (Emphasis added). As
discussed supra, the trial court affirmatively rejected Schedule M because husband’s “memory
does not appear to be reliable in this area.” In other words, the report began with the assumption
that the $330,000 in assets listed in Schedule M were separate property and retained their identity
as separate property throughout CLC’s existence, but the trial court ruled, and we affirm, that
those assets were so commingled with marital funds that they lost their separate identity.
Because the results of the report were “based, primarily, on different ways of looking at th[e]
separate estate that existed on the date of marriage,” credible evidence in the record supports the
trial court’s implicit rejection of husband’s expert testimony. Without that evidence, husband
did not meet his burden, as the non-owning spouse, of proving “that the increase in value was
attributable to the contribution of [separate] property.” Gilman, 32 Va. App. at 119, 526 S.E.2d
at 770.
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2. CLCA
Husband argues the trial court erred in classifying CLCA as entirely marital property
because wife did not meet her burden of proving that marital funds secured the post-separation
purchase of CLCA.
Husband purchased CLCA in 1999, three years after the parties separated, for $625,000.
To make the down payment, husband issued two checks from CLC in the amounts of $25,000
and $50,000. Husband testified he intended to treat these payments as loans that he would
eventually repay. To cover the remainder of the cost, husband arranged to borrow $750,000
from a bank. Husband signed the deed of trust both as president and representative of CLC and
in his own personal capacity. Wife did not sign off on the loan. Husband testified that he
initially wanted to borrow in excess of the purchase price so that CLCA would have working
capital, but he ultimately decided to immediately repay the money CLC had contributed.
Further, in addition to the real property and equipment located at the CLCA location, husband
pledged as collateral four properties owned by CLC. 2 Husband testified that the entire $750,000
loan was paid off using funds from CLC and CLCA, though the record contains no
documentation to support husband’s claim.
Husband argues the $75,000 down payment from CLC did not contribute permanent
value to the acquisition of CLCA and, thus, the fact that CLC was classified as marital did not
transmute CLCA into marital property. Husband reasons that the $75,000 was a “loan” that was
immediately paid back using excess proceeds from a $750,000 bank note he obtained using CLC
real estate as collateral to cover the remainder of CLCA’s purchase price. Husband further
contends “both debts have been fully paid off” using funds “acquired by CLCA after separation.”
2
Husband and wife originally owned two of the tracts, Eastview and Maxie. They
conveyed the properties to CLC on April 2, 1997.
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Thus, husband contends it was wife’s burden to prove that marital funds were used to pay off the
loan.
In opposition, wife argues she overcame the presumption of separate classification
because funds from CLC, which the trial court had deemed marital, were used to acquire CLCA.
Wife contends that without CLC’s money, financial standing, and collateral, the bank loan would
not have been made and CLCA would have no assets and no existence. To that end, wife asserts
that the burden shifted back to husband to prove that a portion of CLCA became hybrid property.
We agree with wife.
The property subject to classification is husband’s stock in CLCA, which came into
existence in 1983 when CLC became incorporated, and is presumptively separate property. See
Dietz, 17 Va. App. at 211, 436 S.E.2d at 469 (“Code § 20-107.3(A)(2) does not expressly state
that property acquired after the last separation shall be presumed to be separate property.”).
However, “[p]roperty acquired after separation is presumed to be separate property unless the
party claiming otherwise demonstrates that it was obtained with marital funds.” Luczkovich v.
Luczkovich, 26 Va. App. 702, 712, 496 S.E.2d 157, 162 (1998). The use of marital property as
collateral to secure a loan in order to purchase additional property constitutes an exchange
because the transaction “compromis[es] the borrower’s full ownership rights in [the] asset in
order to use that asset as security for [the] loan.” Gilman, 32 Va. App. at 118, 526 S.E.2d at 770.
In other words, property acquired using the proceeds from a loan takes on the classification of
any property used to secure that loan.
Here, husband used funds from CLC to make the $75,000 down payment for CLCA. The
trial court rejected husband’s testimony that this money was a loan because it held the “two
checks . . . came from [CLC] directly.” (Emphasis added). Husband provided no documentary
evidence that calls this ruling into question. Indeed, the checks explicitly state that the funds
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were to be used for the “down payment on [the] sawmill.” Thus, CLC contributed $75,000 in
marital property to the purchase of CLCA, rendering that portion of CLCA marital property.
Turning next to the $750,000 loan that comprised the remainder of the CLCA purchase
price, we hold that once wife proved that marital property was used to secure the loan, it became
husband’s burden to prove that separate funds discharged the debt. “The discharge of a debt
secured by an asset that results in an increase in equity in the asset constitutes an ‘increase in
value.’” Gilman, 32 Va. App. at 119, 526 S.E.2d at 770 (quoting Code § 20-107.3(A)(1)). “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.” Code § 20-107.3(A)(1).
“The non-owning spouse has the burden of proving that the increase in value was attributable to
the contribution of marital property.” Gilman, 32 Va. App. at 119, 526 S.E.2d at 770.
In Gilman, we held that once the husband proved that property acquired during the
marriage was purchased “using loan proceeds that were [secured by] his separate property, the
land was his separate property, and [the wife] had the burden of proving that marital funds were
used to discharge the loans.” Id. Thus, even though the disputed property was initially
presumed to be marital, the burden shifted to husband because he proved that the property was
actually acquired in an exchange under Code § 20-107.3(A)(1). Based on the record, we noted
that wife “presented no evidence that marital funds were used to pay any portion of the balloon
note[,]” and the husband was “scrupulous in not using marital funds to satisfy any of the
monetary obligations incurred when purchasing his separate investment properties.” Id. at
119-20, 526 S.E.2d at 771.
The converse holds true in this case. CLCA was presumptively husband’s separate
property because he purchased it after the parties separated, and wife was required to provide
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sufficient evidence to prove otherwise. However, wife met her burden by providing evidence
that proved marital property was used as collateral to secure the loan required to cover the
remainder of the purchase price. Much like the wife in Gilman had to prove that marital funds
discharged the loan on the once-presumptively marital property, it became husband’s burden
here to prove that separate funds were used to discharge the loan on the once-presumptively
separate property. The only evidence husband presented on this point was from his accountant,
who merely stated that the loan had “been paid off.” The accountant did not elaborate as to how
the loan was discharged. Further, the record contains no ledgers or bank statements that show
how the loan was repaid, if at all. Mere speculation that income from CLCA was used to
discharge the debt does not meet the burden of proof. Because the burden of proof rested with
husband once wife proved the loan was secured using marital property, the trial court did not err
in finding that CLCA was marital property.
B.
VALUATION OF CLC
Husband’s final assignment of error challenges the trial court’s valuation of CLC.
Specifically, husband contends the trial court erroneously ignored his evidence tending to prove
that certain property CLC once owned was either worn out or expended. Husband argues the
2009 valuation order expressly granted him the right to present such evidence to equitably reduce
the value of CLC for property it no longer owned. Husband further takes issue with the trial
court’s unexplained upward deviation from the 2005 appraisal, which increased the value of
CLC from $5,369,665 to $5,377,491, a difference of $7,826.
“Code § 20-107.3(A) directs that the trial court value all property of the parties, but it
does not define the term, ‘value,’ for equitable distribution purposes.” Howell v. Howell, 31
Va. App. 332, 338, 523 S.E.2d 514, 518 (2000).
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The court shall determine the value of any such property as of the
date of the evidentiary hearing on the evaluation issue. Upon
motion of either party made no less than 21 days before the
evidentiary hearing the court may, for good cause shown, in order
to attain the ends of justice, order that a different valuation date be
used.
Code § 20-107.3(A). The trial court’s valuation is a finding of fact, and “[w]e [will] affirm if the
evidence supports the findings and if the trial court finds a reasonable evaluation.” Russell v.
Russell, 11 Va. App. 411, 415-16, 399 S.E.2d 166, 168 (1990). The parties bear the burden of
providing the trial court with sufficient evidence from which it can value their property. See
Taylor v. Taylor, 5 Va. App. 436, 443, 364 S.E.2d 244, 248 (1988).
The parties do not challenge the trial court’s decision to use the 2005 appraisals as the
basis for valuing the separate and marital property. Contrary to husband’s argument, however,
the 2009 valuation order did not mandate any consideration of evidence that would tend to prove
the value of CLC decreased due to the loss, sale or dissipation of any equipment, vehicles or
other tangible personal property. Rather, the order simply granted husband “the right to argue
that the value of the two corporate entities . . . should be reduced.” (Emphasis added). Further,
the order required husband to “provide counsel with copies of any documents supporting said
loss, sale or dissipation.” The only evidence husband submitted was a hand-generated
spreadsheet of eight pieces of property that husband claimed were “broken down” or “removed
by wife.” Husband offered no documentation to prove his ownership in or the respective values
of the listed properties. Husband therefore testified relying on his memory, and the trial court
held that his “memory does not appear to be reliable in this area.” Significantly, husband
contends one Caterpillar Wheel Loader was “broken down” while another was “removed by
wife,” and thus had no value. However, he admitted that he had included the vehicles in CLC’s
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2007 Chapter 11 bankruptcy petition at their full values of $54,000 and $38,000. 3 And, husband
admitted on cross-examination that he did not actually observe wife take the property. Because
the trial court did not find husband’s evidence credible, it was not required to reduce the value of
CLC from its 2005 appraisal.
Further, we hold the trial court did not commit reversible error by failing to articulate a
justification for the slight increase from the 2005 appraisal. The entire marital assets are worth
approximately $17 million. The difference between the trial court’s 2010 valuation and the 2005
appraisal is $7,826. Such error, if any even exists, is de minimis.
III.
CONCLUSION
In summary, husband did not meet his burden of proving that his premarital property
retained its separate identity despite the numerous transactions and replacements throughout
CLC’s existence. Further, the trial court did not err in implicitly rejecting husband’s expert
evidence regarding his efforts in increasing the value of CLC after the parties’ separation.
Without such evidence, husband did not meet his burden of proving the amount he claims CLC
increased in value as a result of his significant efforts. Second, husband was unable to meet his
burden of proving that the loans used to purchase CLCA were repaid using separate funds, and
thus CLCA retained its classification as marital property. Finally, the trial court did not err in
rejecting husband’s evidence regarding the alleged diminutions in CLC’s value since the 2005
appraisal. Accordingly, we affirm the 2010 decree.
Affirmed.
3
The bankruptcy petition was not included in the record, so it is beyond this Court’s
review. However, the trial court considered the discrepancy in its letter opinion, and the record
does not contain any indication that this was in error.
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Powell, J., dissenting.
Although I agree with the majority that it is husband’s initial burden to prove that the
CLC stock was his separate property, I must respectfully dissent. I believe that the trial court
erred in finding that husband had not met his burden of proving that CLC was his separate
property. I disagree with the majority’s analysis that husband’s stock in CLC is presumptively
marital because it was “acquired” during the marriage and that husband has the burden of tracing
all of the separate assets of CLC because marital and separate property were commingled into
newly acquired property.
The majority’s focus on the incorporation of CLC is misplaced. Nothing in our
jurisprudence holds that the act of incorporating a company during the marriage creates a “newly
acquired property resulting in the loss of identity of the contributing properties.” Code
§ 20-107.3(A)(3)(e). Rather, I would hold that the stock acquired by incorporation of a
separately held business clearly falls within the definition of separate property, as it is “property
acquired during the marriage in exchange for . . . separate property.” Code § 20-107.3(A)(1)(iii).
It has been recognized that such “[e]xchange provisions are construed liberally . . . to include any
transaction where the owner gives away one asset and acquires another of roughly equal value.”
Brett R. Turner, 1 Equitable Distribution of Property 606 (3d ed. 2005); see also Sayer v. Sayer
492 A.2d 238, 239 (Del. 1984) (noting that “[t]he ‘exchange’ provision is intended to exclude
from marital property only that which is ‘swapped’ for pre-marital assets”). Furthermore, by
definition, the act of incorporation is merely the exchange of assets from a sole proprietorship to
a corporation; it does not create any new property and the stock exchanged for clearly maintains
the original character of the original property. Indeed, I fail to see how husband’s ownership of
all of the stock in the company is any different from husband’s ownership of the company. The
few states that have addressed this issue have all held that the act of incorporation has no effect
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upon the classification of a property. See, e.g., Dalrymple v. Dalrymple, 47 S.W.3d 920, 923
(Ark. Ct. App. 2001); Long v. Long, 743 A.2d 281, 289-90 (Md. Ct. Spec. App. 2000); In re
Marriage of Phillips, 615 N.E.2d 1165, 1173-74 (Ill. App. Ct. 1993). Accordingly, I would hold
that the act of incorporating CLC is irrelevant to the classification of the CLC stock.
In my opinion, the proper focus must be on the date the unincorporated business was
acquired. “The character of property classified pursuant to Code § 20-107.3(A) is initially
ascertained as of the date that it is acquired.” Wagner v. Wagner, 4 Va. App. 397, 404, 358
S.E.2d 407, 410 (1987) (emphasis added).
Property that is acquired by either party before the marriage is
separate property, Code § 20-107.3(A)(1)(i), subject to being
transmuted into hybrid property -- that is, part marital and part
separate -- (1) by virtue of an increase in value due to personal
efforts or contributions of marital funds, Code § 20-107.3(A)(3)(a);
or (2) by having been commingled with marital funds when the
marital funds can be retraced, Code § 20-107.3(A)(3)(d); or (3) by
being commingled with marital property into newly acquired
property when the separate property can be retraced. Code
§ 20-107.3(A)(3)(e).
Moran v. Moran, 29 Va. App. 408, 411-12, 512 S.E.2d 834, 835 (1999).
Here, the evidence demonstrates that CLC was wholly owned by husband prior to the
marriage. Although the majority references the fact that “husband began a sawmill business in
1957,” it does not mention the name of the business: “Campbell Lumber Company.” Further,
wife confirmed that CLC existed prior to the marriage and that it was owned and operated by
husband. 4
4
I would further note that this Court has previously acknowledged that CLC existed at the
time of marriage. See Campbell v. Campbell, 49 Va. App. 498, 501, 642 S.E.2d 769, 771 (2007)
(“CLC was worth approximately $330,000 at the time of the marriage”).
Furthermore, because wife previously had the opportunity to object to the initial
valuation of CLC in the previous appeal of this case, but failed to do so, the law of the case
doctrine prevents either the trial court or the majority from questioning the value of CLC at the
time of the marriage.
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Moreover, I disagree with the majority’s focus on the assets of the business as the
underpinning for its position that husband has failed to meet his burden. In its analysis, the
majority, like the trial court, focuses not on CLC as a whole, but on the individual assets
allegedly owned by CLC at the time of marriage. Specifically, the majority relies upon
husband’s failure to “provide specific information as to which equipment was replaced with new
equipment during the marriage or the source of funds used to replace each piece.” By taking this
approach, the majority ignores the fact that the property to be classified is CLC itself, not the
individual assets of CLC.
Furthermore, by focusing on the fact that “throughout CLC’s existence, husband
repeatedly replaced equipment that was once his separate property with items that were acquired
during the marriage,” the majority ignores the plain language of Code § 20-107.3(A)(3)(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.
Clearly, the “property” at issue in this case is CLC as a whole, not the individual assets of
CLC. In my opinion husband proved, and wife acknowledged, that CLC existed in an
unincorporated form long before the marriage. Upon husband meeting his burden of proof, the
burden shifted to wife to prove “that (i) contributions of marital property or personal effort were
made and (ii) the separate property increased in value.” Code § 20-107.3(A)(3)(a). However, as
in Duva v. Duva, 55 Va. App. 286, 294-95, 685 S.E.2d 842, 846-47 (2009),
the trial court did not consider marital funds losing its
classification as marital property when commingled with the
receiving property. It did not consider whether wife traced the
marital funds. Thus, the trial court applied the incorrect standard
in determining whether the property is separate, marital, or hybrid.
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In that respect, we find the trial court erred. “As the Supreme
Court has recognized, a trial court “‘by definition abuses its
discretion when it makes an error of law.’” Shooltz v. Shooltz, 27
Va. App. 264, 271, 498 S.E.2d 437, 441 (1998) (quoting Koon v.
United States, 518 U.S. 81, 100, 116 S. Ct. 2035, 135 L. Ed. 2d
392 (1996)).
As the trial court clearly erred, I would remand this matter, as well as the matter of
properly classifying CLCA, to the trial court to revisit its equitable distribution award.
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