Cirrito v. Cirrito

• Decision Date: 23 November 2004
• Docket Number: Record No. 3248-03-4.
• Citation: Cirrito v. Cirrito, 44 Va. App. 287, 605 S.E.2d 268 (Va. App. 2004)
• Court: Virginia Court of Appeals
• Parties: Karen M. CIRRITO v. Thomas J. CIRRITO.

605 S.E.2d 268

44 Va. App. 287

Karen M. CIRRITO v.Thomas J. CIRRITO.

Record No. 3248-03-4.

Court of Appeals of Virginia, Alexandria.

November 23, 2004.

Glenn C. Lewis(Stacy M. Davis; The Lewis Law Firm, P.C., on briefs), for appellant.

James Ray Cottrell(Kyle F. Bartol; Gannon & Cottrell, P.C., Alexandria, on brief), for appellee.

Present: FRANK and CLEMENTS, JJ., and WILLIS, S.J.

FRANK, Judge.

Karen Cirrito, wife, appeals from a final decree of divorce from Thomas Cirrito, husband, contending the trial court erred in: (1) finding a payment to husband pursuant to a non-competition clause was separate property; (2) determining wife had the burden to prove husband's significant personal efforts were the "proximate cause" of a substantial increase in the value of certain assets; (3) failing to classify certain increases in separate property as marital property, including a failure to determine whether husband's salary adequately compensated the marital estate; (4) reducing an earlier award of attorney's fees and costs; (5) finding that jointly titled property was not gifted to wife; (6) refusing to award child support retroactive to the date the divorce was filed; and (7) ordering wife to produce reports from her experts and in limiting and excluding certain testimony of wife's experts.For the reasons stated, we affirm in part and reverse in part.

ANALYSIS

I. NON-COMPETE PAYMENT

Prior to the marriage, the husband owned LDWC, a long distance telephone service.On April 1, 1996 the husband sold his interest in LDWC to Telco Communications Group.In exchange for his shares in LDWC, husband received Telco shares and became President of Telco's Consumer Division with an annual salary of $375,000.As part of the sales agreement, he agreed to a non-compete provision where he would receive one million dollars within one year after his termination of employment with Telco, provided he would not engage in any competing business.The employment agreement provided in relevant part:

6.Covenants and Confidential Information.

(a) The Executive acknowledges the Company's reliance on and expectation of the Executive's continued commitment to performance of his duties and responsibilities during the Term.In light of such reliance and expectation on the part of the Company, during the periods hereafter specified in Section 6(b), the Executive shall not, directly or indirectly, do or suffer either of the following:

(i) Own, manage, control or participate in the ownership, management or control of, or be employed or engaged by or otherwise affiliated or associated as a consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association or other business entity directly or indirectly engaged in the business or, or otherwise directly or indirectly engage in the business of, marketing or providing telecommunication services within the United States; . . .

(ii)Disclose, divulge, discuss, copy of otherwise use or suffer to be used in any manner . . . any confidential or proprietary information relating to the company's business. . . .

* * * * * *

(b) The applicable periods shall be: as to clause (i) of Section 6(a) so long as the Executive is an employee of the Company and for a period of one year after termination of employment; and as to clause (ii) of Section 6(a), during the term and at any time after the Executive is no longer an employee of the Company.

As additional consideration for Executive's non-competition obligation pursuant to Section 6(a)(i) during the one year period after termination of employment for Cause, without Cause, for Permanent Disability, or because of the expiration of the Term, the Company shall make an additional payment of $1,000,000 to Executive within ninety (90) days after such termination.

The parties married April 13, 1996, twelve days after husband executed the agreement.During the marriage, husband upheld his obligation to not compete and in 1997 Telco paid husband one million dollars.The wife argued below that this payment is marital property and that husband "effectively waived his right to work and receive compensation in his field of expertise" during the term of this non-compete agreement.The husband characterized the payment as separate property, claiming that it was an aspect of his sale of stock to Telco.The trial court agreed with the husband, stating that the money was "in the bank before he was married."

Wife contends on appeal that the payment is marital property because "the $1 million in compensation was in exchange for Mr. Cirrito's forbearance from competing with his former employer for one year after his employment ceased."Husband argues that he earned the right to receive payment under the agreement on April 1, 1996, the date he signed the contract.¹We find that the trial court erred in finding the payment was husband's separate property.

Code§ 20-107.3(A)(1)(i) defines separate property as "all property, real and personal, acquired by either party before the marriage. . . ."Marital property is defined as all other property acquired by each party during the marriage that is not separate property.Code§ 20-107.3(A)(2)(iii).

The non-compete agreement, contingent upon forbearance of employment, is analogous to a severance package.Severance pay contemplates a salary substitute for future lost wages.Much like severance pay, the one million dollars replaced lost earnings during the period of time the husband was not working in competition with Telco.

Luczkovich v. Luczkovich,26 Va.App. 702, 496 S.E.2d 157(1998), in which we discussed the classification of severance pay, is instructive.In Luczkovich the husband contended his severance pay was separate property because he negotiated and received the severance pay two years after the parties separated.While agreeing with husband, we established the criteria for determining whether severance pay is marital or separate property.In reviewing decisions from other states, we concluded "[t]hose decisions provide that the touchstone of the classification is whether the severance pay was intended to compensate the employee for efforts made during the marriage or to replace post-separation earnings."Id. at 708-09, 496 S.E.2d at 160.We also opined that "severance pay is `a mere expectancy,' it has no value until the termination of employment."Id. at 709, 496 S.E.2d at 160.

Similarly, our analysis here is whether the one million dollars for non-competition was to compensate husband for forbearance made prior to the marriage or to compensate him for efforts made during the marriage.When husband executed the non-compete agreement, the million-dollar payment was a "mere expectancy."It would only be earned for events that took place during the marriage.The non-compete clause is intended to curtail husband's ability to earn his livelihood for one year following his termination from employment.This livelihood, had it been earned, would clearly be marital property.Although the agreement was negotiated prior to the marriage, the right to receive payment was contingent upon the husband not engaging in a particular business in the future.While married, husband fulfilled this obligation and Telco paid him the sum of one million dollars.

Husband claims no effort was required by him to collect his money.He earned it as soon as he signed the contract.We do not agree.Consummation of the contract depended on husband's conduct during the period following his employment with Telco.Any decision to breach or not breach the agreement would have been made during that time and during the course of the marriage.Additionally, had he violated the agreement, any income earned as a result of the prohibited employment would have been earned during the marriage and become marital property.

It is clear that the payment for not competing with Telco is within the definition of marital property since the right to receive the money was acquired during the marriage and is not separate property as defined in Code§ 20-107.3.As to this issue, we remand to the trial court to classify this item as marital property and to determine whether this asset is subject to equitable distribution.

II.BURDEN OF PROOF—PERSONAL EFFORTS

Wife contends the trial court incorrectly determined that Code§ 20-107.3 places the burden on her to prove husband's efforts were the proximate cause "of the substantial increase in the value of" his Telco stock.The correct burden of proof, she claims, is on the husband to prove the increase in value of the separate asset was not attributable to marital efforts.

Wife concedes that our decisions in Martin v. Martin,27 Va.App. 745, 501 S.E.2d 450(1998)(en banc), andGilman v. Gilman,32 Va.App. 104, 526 S.E.2d 763(2000), establish the correct burden of proof under Code§ 20-107.3.Wife argues in her brief that because Code§ 20-107.3(A)(3)(a) allows the owning spouse to claim rights to "passive appreciation" in the value of separate property, the statute therefore places the burden on the owning spouse to prove that the increase in value of the separate property was not attributable to marital efforts.

The trial court relied on Martin in determining the "non-owning spouse must prove that the personal efforts were significant and resulted in substantial appreciation."The trial court also cited Gilman while reasoning:

So by the time we have the appellate court talking about those particular parts of 20-107.3, we have the discussion of "significant efforts,""substantial appreciation," and "proximate cause."As noted in Defendant's brief in closing, the use of proximate cause unites the law of personal injury with the law of equitable distribution—in an ingenious way, I believe—that is logical and certainly helpful to the Court.

We conclude the trial court properly articulated and applied the correct burden of proof.

Code§ 20-107.3(A) provides:

1.

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