In Virginia, in the event of a divorce, courts follow the equitable distribution method of dividing property. Under equitable distribution, courts will divide property “equitably,” or fairly, between spouses, but not necessarily evenly. A couple’s property upon divorce is classified as marital, separate, or part marital and part separate. Marital property is jointly-owned property and other property (other than separate property) obtained from the date of marriage through separation. Marital property is subject to equitable distribution during a divorce proceeding. Separate property is all property acquired by one spouse prior to marriage and property obtained during marriage by inheritance or gift.
In a recent case, the Virginia Court of Appeals offered guidance on the equitable distribution process and the burden of each spouse during that process. There, the court determined what portion of a home was marital and separate property and considered whether an increase in value of the home was considered marital property. The court also discussed the need for evidence in substantiating the value of separate and marital property.
Spaid v. Spaid
In Spaid v. Spaid, William Keith Spaid and Alisa Spaid married in 2014. Keith purchased a home in Winchester, Virginia, before the marriage, for $289,900, financing the purchase with a $231,900 mortgage loan and personally paying the remaining balance at closing. At the time of the marriage, the mortgage loan had a remaining balance of $227,197. Neither Keith nor Alisa added to or remodeled the Winchester home during their marriage, and Keith remained the sole titled owner of the home since he purchased it. Keith also purchased a Toyota 4Runner prior to the marriage, which remained solely in his name. In 2015, the parties had a child diagnosed with Down Syndrome and they agreed Alisa would stay home and care for the child. After this, Keith’s income paid all the bills, including mortgage payments. Keith and Alisa separated in October 2020 and Alisa filed for divorce, requesting equitable distribution of their property.
During the trial it was determined that the Winchester home had a present fair market value of $485,000. Keith admitted that the value of the Winchester home increased due to the mortgage payments and “the economy.” The mortgage payments made from marital contributions reduced the balance of the mortgage loan by $18,149 and the loan had a remaining balance of $209,048.29 when the parties separated. Keith made further payments of $3,207 on the mortgage loan following their separation. The circuit court concluded that the marital portion of the total equity in the Winchester home was $64,207 and that loan payments during the marriage created a marital interest in the Toyota and that the Toyota was marital property. Keith challenged the equitable distribution of the Toyota and the Winchester home.
Keith argued that the circuit court erred by finding that Alisa was entitled to any increase in equity in the Winchester home “caused by market forces” because she did not present evidence that marital contributions affected those market forces or the increase in value. Under Virginia law, if the value of separate property increases during marriage, any increase in value is considered 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.”
Once the non-owning spouse makes a prima facie showing of the contribution of marital property and an increase in value of the separate property, the spouse owning the property has the burden of disproving causation. Here, since marital funds contributed to payments on the Winchester home and the home’s value increased, the court determined Keith bore the burden to prove that “the increase in value or some portion thereof was not caused by contributions of marital property or personal effort.”
While Keith argued that the Winchester home increased in value due to “the economy,” the court rejected that argument finding that Keith’s separate interest in the home was limited to the separate payments he made before the marriage and after the separation. The court explained that the Brandenburg formula, which is the method for ascertaining the value of the separate and marital components of hybrid property used here, considers only the degree to which payment on that loan reduces the loan principal, thereby resulting in the acquisition of equity.” Thus, the court upheld the circuit court’s finding that the increase in value of the home was marital property proportional to the marital equity in the home.
Keith also argued that the court erred by finding the Toyota was marital property. The Toyota was purchased before the marriage, making it separate property. However, unlike for the Winchester home, Alisa did not meet her burden to prove that any contributions of marital property were made to pay for the Toyota, or that the equity in the Toyota increased during the marriage. The court found that nothing in the record shows whether the purchase of the Toyota was secured by a loan, when that loan was paid off, or whether marital contributions were used to pay off the loan. Thus, the court determined that the circuit court’s finding that the Toyota was marital property was an abuse of discretion, since there was no evidence supporting that finding.
Takeaways
One of the biggest takeaways of this case is the importance of documentation in the equitable distribution process. Here, when deciding what property was marital or separate (or a hybrid of both), the court stressed the burden on each of the parties for a showing of whether property was marital or separate and the evidence required to substantiate that finding. There are multiple factors considered when a court makes an equitable distribution of property after a divorce and even though one spouse may have purchased an asset prior to marriage, that asset may still be partially marital property if certain conditions are met. If you’re currently going through a divorce or plan to soon, gathering documentation relating to financials and assets may help make the equitable distribution process smoother and allow you to substantiate whether assets are really separate or marital property.
While not discussed here, the court also spent time in this case discussing what evidence was or was not allowed to be considered. Certain evidence was not considered because the correct administrative procedures were not followed or deadlines were not met. This highlights the importance of having knowledgeable counsel during divorce proceedings. Attorneys experienced in the divorce and equitable distribution process will know what documentation is needed to bolster your arguments and ensure that administrative mistakes don’t result in an unfavorable property division.
Led by Joanna Foard, General Counsel, P.C.’s family / divorce practice can help you. Divorce and related matters can be complex and because of their importance, it is beneficial to consult with an attorney experienced in family law matters. Our family law attorneys are well versed in divorce matters, including the equitable distribution process and can help you navigate the process and protect your rights. Email us at intake@gcpc.com or call us at 703-556-0411 and see how we can help you.