Brown v. Brown

• Decision Date: 20 October 1987
• Docket Number: No. 0832-86-4,0832-86-4
• Citation: 361 S.E.2d 364,5 Va.App. 238
• Parties: Albert R. BROWN v. Esther S. BROWN. Record
• Court: Virginia Court of Appeals

Page 364

361 S.E.2d 364

5 Va.App. 238

Albert R. BROWN v. Esther S. BROWN.

Record No. 0832-86-4.

Court of Appeals of Virginia.

Oct. 20, 1987.

Nan M. Joseph, Leesburg, for appellant.

Dexter S. Odin (Leslye S. Fenton, Odin, Feldman & Pittleman, P.C., Fairfax, on brief), for appellee.

Present: BARROW, COLEMAN and KEENAN, JJ.

KEENAN, Judge.

Albert R. Brown (husband) appeals from a final decree in which a monetary award was granted to Esther R. Brown (wife). The issues we decide are whether the trial court erred in finding: (1) that the husband's interest in the Brown family farm was eighty-two percent marital property; (2) that the husband's interest in a farming partnership with his father was marital property; (3) that the wife waived her right to spousal support; and (4) that the monetary award made to the wife should be paid within 120 days. We find that the trial court failed to follow the statutory scheme of Code § 20-107.3 in deciding that the husband's interest in the family farm was eighty-two percent marital property and in ordering that the monetary award had to be paid within 120 days. We further find that the trial court did not err in finding that the husband's interest in the farming partnership was marital property and in finding that the wife waived her right to spousal support. ¹

I.

Classification of the husband's interest in a 515.7 acre farm was in dispute. This farm had been in his family for several generations. The husband acquired a one-half interest in the farm from his father by deed dated December 23, 1975. At this time, the husband assumed an obligation jointly with his father for payment of a loan secured on the property in the amount of $194,830. The father filed a gift tax return in 1975 stating that the value of the property was $239,161, and the value of his gift to his son resulting from the conveyance was $22,165. The father determined the value of the gift by subtracting the amount of the deed of trust from the fair market value, and taking one-half of that balance. At the time of this transaction, the husband and wife had been married for six years. ² In an earlier transaction, the husband's father gave the parties, by deed of gift, a five acre portion of the farm on which the parties subsequently built their marital home. It is undisputed that this five acres and the home are marital property.

The wife claimed that in addition to the five acre tract and home, the husband's undivided interest in the farm was marital property. She acknowledged, however, that the only part of the farm titled in her name was the five acres. She testified that the husband's father wanted to give half the farm to both parties in 1975, but excluded her from the deed after receiving legal advice that for tax purposes he should title the property in the husband's name alone.

The wife further testified the husband told her that they should "reinvest everything that we have into the farm, so that we'll be sitting pretty." According to her, when she suggested starting an Individual Retirement Account or some other retirement program, the husband responded that the farm was their future and that everything should be invested in the farm. Finally, the wife testified the husband told her that when his parents died the "entire farm would be ours." The husband acknowledged that one of the goals of their marriage was to reinvest as much as possible in the farm. To provide funds needed for the farming operation and existing debts in 1981 and 1985, the wife executed with the husband deeds of trust secured on the farm totaling $367,500.

Aubrey Owen, an attorney consulted by the husband and his father regarding the father's estate planning, testified that the purpose of the 1975 deed was "to devise a mechanism by which [the senior Brown] could transfer a half interest in [the farm] to his son, Albert R. Brown." Owen testified that the deed was not prepared as a deed of gift because "there was consideration that Albert Brown agreed to assume a proportionate part of the indebtedness. He [Albert] had also agreed to pay the gift taxes."

Owen understood that the elder Brown intended the transaction to benefit his son. Owen did not recall any expression of intent to benefit the wife. He testified that the father's objective "was to make that transaction with a minimum of taxation."

The husband's father testified that he intended to benefit Albert "eventually, at my death." He further testified that, although he originally liked the wife, he became disappointed in her before the parties separated. He acknowledged, however, that prior to his disappointment he wanted to help her. He denied discussing with the wife about putting her name on the deed and further denied that he intended to give her a part of the farm.

The trial court found, in effect, that the 1975 transaction was a partial gift. Using figures from the 1975 gift tax return filed by the husband's father, the court determined that eighteen percent of the transaction was a gift. Thus, the court calculated that eighty-two percent of the husband's interest in the present value of the farm was marital property.

II.

The husband argues that his entire interest in the farm was a gift from his father and therefore is separate property. Code § 20-107.3(A)(1)(ii). He contends that his father's intent in 1975 was only to benefit him and not the wife, and that this intent controls the determination whether the property was acquired by gift. In support of his position, the husband argues that if his father had intended to benefit the wife he would have included her on the deed as was the case with the 1972 transaction.

The wife relies on the statutory presumption that all property acquired during the marriage is marital property. Code § 20-107.3(A)(2)(ii). She argues that the husband failed to produce satisfactory evidence to overcome the presumption and was unable to establish that the farm was a gift to him or that he maintained the farm as his separate property. In support of her position, the wife cites evidence that the 1975 transaction was for valuable consideration, and was not made by deed of gift. Finally, she relies on the fact that she signed three notes to borrow funds for the farming operation and consented to reinvest marital assets into the farm on the husband's assurance that one day it would be theirs. Therefore, she contends that the trial court erred by classifying a part of the farm as the husband's separate property.

In Smoot v. Smoot, 233 Va. 435, 357 S.E.2d 728 (1987), the Supreme Court considered the statutory scheme under Code § 20-107.3 for classification of property. It stated:

Code § 20-107.3 contemplates only two kinds of property--marital property and separate property, each expressly defined. Our statute does not recognize a hybrid species of property. The discrete definitions are reinforced by the statutory rule that '[a]ll property acquired ... during the marriage ... is presumed to be marital property'. Code § 20-107.3(A)(2)(ii).

Id. at 441, 357 S.E.2d at 731.

The court observed that if separate property and marital property are commingled the trial court must classify that property as marital. Id. at 441, 357 S.E.2d at 731. Further, the court held that a "marital home cannot be classified as part marital and part separate." Id. at 441, 357 S.E.2d at 731.

In the present case, the court treated the husband's interest in the farm as part marital and part separate. We find that this was improper under Code § 20-107.3 as interpreted in Smoot, and hold that this error requires that we reverse the decree. The trial court should not have classified a single asset as both marital and separate property. Smoot requires the trial court to classify the husband's interest in the farm as either a marital or a separate asset.

We find that applying Smoot to the evidence before us mandates a conclusion that the husband's farm interest was marital property. It was acquired during the marriage by sale and was not purchased in exchange for or from the proceeds of sale of separate property. That the husband paid less than full consideration in purchasing the property does not alter the fact that he did pay valuable consideration. Further, we find that his father's treatment of eighteen percent of the transaction as a gift for tax reasons does not change the transaction from a sale to a gift for purposes of equitable distribution. Therefore, we hold that the husband's interest in the farm was marital property, and the trial court is instructed to reconsider the monetary award based on this classification.

This is not to say that on remand the court should ignore the manner in which the asset was acquired. To the contrary, it must consider how and when the asset was acquired in determining the amount of any monetary award. Code § 20-107.3(E)(6). Under the statutory scheme the factors bearing on the amount and method of payment of a monetary award as set out in Code § 20-107.3(E) are only to be applied after the assets of the parties are classified and evaluated under Code § 20-107.3(A). Rexrode v. Rexrode, 1 Va.App. 385, 394, 339 S.E.2d 544, 550 (1986).

III.

Although our finding that the trial court misapplied Code § 20-107.3 requires reversal of the decree, we deem it necessary to address the issues which must be considered on remand.

First is the husband's argument that the court erred in finding that his partnership interest in the farming operation was marital property. ³ The husband argues that his partnership with his father began prior to the marriage and was acquired by gift from his father. Thus, he argues, the partnership was separate property under Code § 20-107.3(A)(1). He relies on his father's testimony, as well as his father's 1969 will and an unsigned partnership agreement drawn in 1979, to establish that the partnership began prior to the parties' marriage.

The wife argues that the husband did not become a...