Wednesday, August 17, 2011

What Constitutes Separate Property in Virginia?

Separately owned property does not automatically become marital upon marriage, even when it is placed into joint names. If one party invested separate funds into a marital asset, if they can trace out or prove that investment, they may be entitled to a return of the asset or the amount invested plus appreciation. This is a substantial issue in many cases.
The goal of the tracing process is to link every asset to its primary source, which is either separate property or marital property. Harris v. Harris, 2004 Va. App. LEXIS 138 (2004). See also Mann v Mann, 22 VA. App 459; 470S.E. 2d 605, 1996, holding that the interest passively earned on the husband’s premarital assets are separate.
The Code of Virginia, §20-107.3(A)(1)(iv) defines “separate property” as “that part of any property classified as separate pursuant to subdivision A.3. Code of Virginia, §20-107.3(A)(3)(e) provides that “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.” (emphasis added). Code of Virginia, §20-107.3(A)(3)(g) provides that section (e) of this section shall apply to jointly owned property. No presumption of gift shall arise under this section where (ii) newly acquired property is conveyed into joint ownership.
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. See Code of Virginia, §20-107.3(A)(3)(a). All of the increases of the real estate in this case are attributable to market fluctuations.
Tracing involves a two-prong, burden shifting test. First, a party has to prove he invested separate property into the real estate, which he did. It is undisputed that all of the money used to purchase the real estate was his traceable separate property. Then the burden shifts to the Complainant to prove, by clear and convincing evidence, that the transmutation was a gift. There is no presumption of a gift that arises from the fact that one party put the real estate in the parties’ joint names. If the party claiming a separate interest proves retraceability and the other party fails to prove transmutation of the property by gift, "the Code states that the contributed separate property 'shall retain its original classification.
            The second issue is the passive appreciation in the value of the jointly titled real estate. Pursuant both to Virginia Code Va. 20-107.3(A), and using the Brandenburg formula, which has never been held erroneous by the Virginia appellate courts, (See Turonis, Supra) All of the passive appreciation on a party’s separate investment in real estate is also separate property. By contrast, although the customary care, maintenance, and upkeep of a residential home may preserve the value of the property, it generally does not add value to the home or alter its character. Martin, Supra.  The Court held that the Wife's evidence that at some time during the twelve years of marriage she personally painted, wallpapered, and carpeted parts of the house does not prove a "significant" personal effort.” These activities constitute part of the customary maintenance and upkeep that homeowners typically perform in order to preserve the home's value; they do not by their nature impart value to the home. Courts have held that the trial judge has a duty "to determine the extent to which [a spouse's] separate property interest in the home increased in value during the . . . marriage."
In the case of Hargrave v. Wienckowski, 2000 Va. Cir. LEXIS 208, the Court states that “traceable separate property that is commingled with marital property, whether to acquire new property or otherwise, is subject to being restored to the contributing party.” The Court analyzes the issue and finds that “parties are under no requirement to contribute their separate property, whether acquired before or during the marriage, to the marriage. If a party does so, he or she does so voluntarily and should be reimbursed for it unless the party intended to make a gift of such property to his or her spouse.” This holding is consistent with the purpose of the Virginia legislature in enacting the equitable distribution law which was to give courts power to compensate a spouse for his or her contribution to the acquisition of property obtained during the marriage.
If tracing separate property is an issue in a case, records proving the separate ownership are very important. Records include bank accounts, HUDs, deeds, mortgage and payments. Property acquired during the marriage or jointly titled is presumed to be marital without proof of a separate investment or ownership. Of course, the easiest way to resolve this issue is a prenuptial agreement.

When does adultery bar spousal support in Virginia?

In Virginia, a spouse is often entitled to spousal support when the other spouse makes significantly more gross income. A rule of thumb is that if one spouse makes 70% or more of the amount earned by the other spouse, there is generally no spousal support awarded. If they make less, than the spouse earning less income can be entitled to spousal support.
Virginia recognizes three types of spousal support: pendent elite, temporary, and permanent. Pendente lite spousal support is spousal support awarded while a trial is pending or after separation and before divorce. Temporary support is also known as defined duration support and can be awarded for up to 50% of the time the parties were married and together. Permanent support is just what it sounds like: permanent or until one of the parties dies or the one receiving spousal support remarries or cohabitates with another person for over a year. Pendent elite is calculated based on a formula (usually the Fairfax Guidelines) while temporary and permanent support is not. Adultery can be a bar to most types of spousal support although not usually pendente lite.
Virginia Code § 20-107.1(B) provides that "no permanent maintenance and support shall be awarded from a spouse if there exists in such spouse's favor a ground of divorce under the provisions of subdivision (1) of § 20-91," which includes adultery. The bar, however, is subject to one exception: that the court may make such an award notwithstanding the existence of such ground if the court determines from clear and convincing evidence, that a denial of support and maintenance would constitute a manifest injustice, based upon the respective degrees of fault during the marriage and the relative economic circumstances of the parties.

Tuesday, August 16, 2011

When can a property settlement or marital agreement be set aside as unconscionable?

When can a property settlement or marital agreement be set aside as unconscionable?
Virginia favors written agreements (contracts) especially among married parties. The person claiming the agreement is unconscionable has the burden of proof to prove it. An agreement is unconscionable if it is lopsided and significantly favors one party over the other. However, it is not enough that the agreement be disparate. It has to be so disparate that it “shocks the court.” There must also be some type of wrong doing by the other party like fraud, misrepresentation, or duress of some type. Otherwise, the court will not save one party from their bad bargain.

When is a pre or post marital agreement not enforceable in Virginia?

Virginia Code Section 20-151 provides that a premarital agreement is not enforceable if (1) it was not executed voluntarily or (2) it was unconscionable when executed and the person against whom enforcement is sought proves they were not provided a fair and reasonable disclosure of property or financial obligations of the other party or that they did not voluntarily and expressly WAIVE, in writing, their right to those disclosures. It is thus important that the Agreement contain exhibits showing assets and liabilities of each party or that a specific written waiver of that disclosure be provided. A refusal to provide the financial information can raise suspicions so if the parties are actually all in agreement regarding the terms of an agreement, it is best to include a list of assets and liabilities along with statements of net worth so there is no question of disclosure.

Monday, August 15, 2011

What are schedules I and J in a bankruptcy petition

If you pass the Means Test, the next question is whether you qualify under Schedules I (Income) and J (Expenses). Schedules I and J measure your actual income and expenses but totally disregard any expenses you will get rid of in the bankruptcy. All income counts. Child support counts. Social Security income counts. Unemployment income counts (but not in the means test). Profits you make from your business count but not the gross income of the business. All income counts. Not all expenses count.

 You are not allowed to have too high a budget for discretionary items like recreation. You can tithe up to 10% of your income to churches or give it to charities. Your grocery bill on Schedule J is often less than it actually is. Clothing expenses are limited. What isn’t limited are medical expenses, health insurance, car insurance, and other necessities. Most people actually have more expenses than income to cover them when Schedules I and J are done.

You also want to look at the assets you are allowed to keep to see what you may have to give up to your creditors. Most people can exempt everything they own but check my website at to see a list of items you are allowed to keep in Virginia and West Virginia.

Also, remember bankruptcy consultations are free at the Law Firm of Marilyn Solomon.

What is the Means Test to qualify for bankruptcy?

When the bankruptcy law was totally revised in 2005, a new requirement called "the means test" was added to it. The Means Test is supposed to measure the average income in each state. The debtor's income is compared to the "mean" or "average" state income. If your income is less than the mean income in your state, you qualify to file a Chapter 7 bankruptcy under the law assuming you meet other requirements. If your income is more, than you must take "part two" of the means test.

Part two of the Means Test calculates your particular allowable expenses including priority expenses like child and spousal support and taxes, your secured debt like the debts against your house, car, or furniture, and other expenses like health insurance and medical expenses then determines if you have any money left over to pay your creditors. Basic living expenses are filled in for you depending on the city or county you live in and are based on what the IRS thinks it cost, not what it actually cost. The second part of the Means Test is, thus, partly hypothetical.

If you have no money left over to pay creditors, you qualify. If you do have money left over, you have to file Chapter 13. Many people pay enough for health insurance or medical expenses or support that they qualify even with a very high income.

As it happens, some people have money left over under the second part of the means test but do no actually earn enough money to qualify for Chapter 13 because the means test does not use all of your actual living expenses and for some of your expenses, it substitutes hypothetical ones. It assigns expenses to you based on where you live except for priority and medical expenses. Many people are trapped in the middle and thus have no bankruptcy option available to them. They make too much for Chapter 7 and not enough for Chapter 13.

The good news for Virginia is that the Means Test here is about the third highest in the nation as all the high wage earners in Northern Virginia pull up the average income for everyone. Right now, a family of one (just you) can make up to almost $50,000 and a family of four can earn up to about $86,000. These numbers change every month or two and, because of the economy, have gone down a time or two as well.

If you make more than the mean amount, it is still worth inquiring about Chapter 7 as you may pass part two of the means test and be eligible anyway.

Monday, August 8, 2011

Adultery as grounds for divorce in Virginia

Virginia still recognizes fault grounds for divorce, and adultery is the only one that does not require any waiting period. If you can prove your spouse committed adultery by “clear and convincing evidence,” you can get an immediate divorce. Virginia Code Annotated Sections 20-91(A)(1) is the law providing adultery as a ground for divorce and Section 20-94 provides that it must be within five years of filing suit without any cohabitation after finding out about the adultery.
While adultery eliminates the 6 or 12 month waiting period for a divorce based on separation, it may not make a difference regarding equitable distribution of property unless there is an “economic impact.” Examples of economic impact include things like your spouse spending marital money or income on his or her lover. While the law requires an economic impact, many judges take adultery into account as a negative contribution to the marriage. Also, it is specifically relevant to the consideration of spousal support. If the spouse who wants support commits adultery, they are barred from support unless the other spouse has also cheated or unless it creates a “manifest injustice.” A manifest injustice means it is unfair to deny spousal support. This could be because the cheating spouse has given up a career to stay at home for the sake of the family or because the cheating spouse was physically abused by the other spouse. The determination of manifest injustice is usually fact specific and decided on a case by case basis.

If one spouse committed adultery and both parties want a divorce and just don’t want to wait the 6 or 12 months required, an uncontested divorce can be obtained on the grounds of adultery if the paramour is willing to sign an affidavit admitting to the sexual relationship.

Monday, August 1, 2011

Equitable distribution of marital property in Virginia

Division of marital assets in Virginia is called equitable distribution. The trial court is required to consider ten factors before deciding how to divide assets and debts, but it is typically close to or at a 50-50 division unless there are extenuating circumstances. Fair is not always equal in Virginia. Each case must be evaluated on its own facts. Did you put separate money into a marital asset? Did you inherit property or money? Did you help pay your spouse’s separate debts? Did you personally improve property? Did you gift or deed your spouse real estate or did they do so to you? Did your spouse spend marital money on a lover? All of these issues can have a significant impact on the equitable division of assets in a divorce. Some assets are marital, others are separate while still others are hybrid: part marital and part separate.

If one party has invested separate funds in a marital asset and can trace that investment, the property may be a “hybrid” property, part marital and part separate. The investing party is entitled to reclaim their separate investment if they can prove it, plus appreciation on it, if any, unless the other party can prove, by clear and convincing evidence, that it was a gift to them.

The court is required to decide which property is marital, separate, or hybrid. Separate property belongs to the person who owns it, and the other spouse receives no interest in that property. Separate property includes property owned before the marriage, property inherited by or given to only one spouse during the marriage, and assets acquired with money earned after the parties’ separation. Assets acquired during the marriage are marital even if they are only in one spouse’s name like a pension or retirement account. If one spouse invests personal effort or marital funds into the separate property of the other, the property may also become hybrid depending on the circumstances.
 If part of the pension or retirement account was earned before the marriage, it becomes hybrid property, part separate and part marital. Debts acquired during the marriage are also marital even if they are only in one spouse’s name.