Mayhew v. Mayhew

Decision Date14 July 1999
Docket NumberNo. 25214.,25214.
Citation205 W.Va. 490,519 S.E.2d 188
CourtWest Virginia Supreme Court
PartiesNancy H. MAYHEW, Plaintiff Below, Appellant, v. Robert E. MAYHEW, Defendant Below, Appellee.

Ward D. Stone, Jr., Spilman Thomas & Battle, Morgantown, West Virginia, Attorney for Appellant.

J. David Judy, III, William H. Judy, III, Judy & Judy, Moorefield, West Virginia, Attorneys for Appellee.

DAVIS, Justice:

For a second time, this case is before the Court. Nancy H. Mayhew, appellant/plaintiff below, (hereinafter referred to as Ms. Mayhew) challenges the ruling of the Circuit Court of Hampshire County as the same relates to the disposition of 24 shares of corporate stock.1 Specifically, Ms. Mayhew seeks reversal of the circuit court's apportionment and calculation regarding the active and passive appreciation in value of the 24 shares of stock of Mayhew Chevrolet-Olds-mobile, Inc. The stock in question was gifted to Robert E. Mayhew, appellee/defendant below (hereinafter referred to as Mr. Mayhew) by his father. Simply put, Ms. Mayhew asserts that all appreciation in value of Mr. Mayhew's 24 shares of stock was the direct result of active appreciation and therefore any increase in its value is marital property. In contrast, Mr. Mayhew argues that any increase in the stocks's value was the result of passive appreciation and therefore remains his separate property. Accordingly, Mr. Mayhew presents as a cross-assignment of error the lower court's ruling that the sum of $60,525.00 represents the active appreciation of Mr. Mayhew's separate property and, as such, is marital property subject to equitable distribution. Finally, Mr. Mayhew assigns as error the circuit court's ruling that there be no adjustment to the amount and duration of alimony awarded to Ms. Mayhew.2 We conclude that the lower court erred in its analysis regarding the active appreciation of the 24 shares of stock in Mayhew Chevrolet-Oldsmobile, Inc. and further conclude that the circuit court abused its discretion by determining that the active appreciation was determined to be $60,525.00. Moreover, we conclude that as a result of Mr. Mayhew's failure to preserve at the trial court level his appeal of an alimony award to Ms. Mayhew, we now decline to address the issue.

I. FACTUAL AND PROCEDURAL HISTORY

In Mayhew v. Mayhew, 197 W.Va. 290, 475 S.E.2d 382 (1996), (hereinafter referred to as Mayhew I), we affirmed the divorce granted to the parties and resolved other matters. In Mayhew I, the Court ruled that Mr. Mayhew had received 24 shares of stock during his marriage, as a gift from his father.3 As a result of the stock being gifted to Mr. Mayhew, this Court appropriately ruled in Mayhew I that the 24 shares of stock were the separate property of Mr. Mayhew. Further, in Mayhew I, the Court valued the stock at $457,826.00.4 However, in Mayhew I, we reversed and remanded two specific issues to the circuit court.5 We instructed the circuit court to make an evidentiary determination as to the monetary value to be assigned to any active and passive appreciation of the 24 shares of corporate stock of Mayhew Chevrolet-Oldsmobile, Inc. held by Mr. Mayhew. Additionally, Mayhew I instructed the circuit court to revisit the issue of rehabilitative alimony.

Specifically, Mayhew I further directed the circuit court on remand to make two analytical determinations regarding any appreciation in the stock's value. First, a determination of the stock's value had to be made for each date on which the stock was gifted to Mr. Mayhew.6 Once having determined the stock's value on each gifted date, that value had to be deducted from the stocks' overall valuation of $457,826.00 and awarded to Mr. Mayhew as his separate property. The first analytical step established the gross7 appreciated value without regard to the appreciation being active or passive. Next, the circuit court was directed to separate the stock's gross appreciated value into passive appreciation or active appreciation. Ms. Mayhew would then be entitled to one-half of the stock's active appreciation based upon the second analytical step.

On remand and in its first step analysis, the circuit court determined that the value of the stock on the four dates gifted was $113,045.00. This amount was deemed, as a matter of law, to be Mr. Mayhew's separate property. The circuit court then deducted $113,045.00 from the stocks' total valuation, erroneously stated by the circuit court as $457,824.00, leaving a balance of $344,779.00 as the stock's gross appreciated value.8 As to the second step in its analysis, the circuit court determined that the gross appreciated value of the stock, in the sum of $344,779.00, was further divisible into active and passive appreciation. It was determined by the circuit court that $60,525.00 was active appreciation. The remaining balance of $284,254.00 was determined to be the result of passive appreciation. As such, the circuit court awarded to Mr. Mayhew, as his separate, nonmarital property, the full amount of the passive appreciation. Ms. Mayhew was awarded one-half of the value of the stock's active appreciation calculated to be $30,262.50. This appeal resulted from those rulings.9

II. STANDARD OF REVIEW

In the instant proceeding the circuit court adopted the recommended decision of the family law master. We have held that "[i]n reviewing challenges to findings made by a family law master that also were adopted by a circuit court, a three-pronged standard of review is applied. Under these circumstances, a final equitable distribution order is reviewed under an abuse of discretion standard; the underlying factual findings are reviewed under a clearly erroneous standard; and questions of law and statutory interpretations are subject to a de novo review." Syl. Pt. 1, Burnside v. Burnside, 194 W.Va. 263, 460 S.E.2d 264 (1995).

III. DISCUSSION
A. The Doctrine Of Active And Passive Appreciation

Ms. Mayhew invites this Court to adopt a "bright line" test or formula for determining active and passive appreciation involving closely-held corporations. Ms. Mayhew suggests that this Court adopt the following closely-held corporation formula:

When a spouse receives stock of a closely-held corporation as a gift and that spouse devotes all of his time and effort to the operation and management of the closely-held corporation and also derives most or all of the family income from said business, and when the non-titled spouse provides all the domestic and homemaker services for the family so the titled spouse can devote all his time to the operation of the closely-held corporation, then one hundred percent (100%) of the increase of the value of the stock during the years of marriage will be active appreciation subject to equitable distribution.

The formula suggested by Ms. Mayhew is both pragmatic and efficient. However, as we endeavor to explain, the doctrine of active and passive appreciation in West Virginia is defined and controlled by statute. It is because of such statutory constraints that we cannot and do not adopt Ms. Mayhew's "bright line" test.

In general, the doctrine of active and passive appreciation provides that any increase in the value of separate, nonmarital property acquired before or during marriage may be classified as either active, passive, or both. Any increase in the value of nonmarital property caused by marital contributions is deemed to be active appreciation and constitutes marital property. Any increase in the value of nonmarital property caused by nonmarital factors is deemed passive appreciation and constitutes separate property. See Brett R. Turner, Equitable Distribution of Property § 5.22, at 233 (1994).

The active and passive appreciation rule accurately reflects the marital partnership theory that supports our equitable distribution principles. That is, increased value resulting from spousal efforts becomes the property of the marital partnership. Whereas, increased value attributable to other sources remains separate property. See Deborah H. Bell, Equitable Distribution: Implementing the Marital Partnership Theory Through the Dual Classification System, 67 Miss. L.J. 115, 147-149 (1997). Professor Bell noted in her article that one of the most troubling issues involving the active and passive appreciation doctrine is finding a viable "method or formula for determining the portion of appreciation attributable to spousal efforts and the portion that resulted from third party or market forces." Id., 67 Miss. L.J. at 149.

Equitable distribution jurisdictions have rejected all efforts to make the "causation" determination for active and passive appreciation, be based exclusively upon a set formula. Instead, courts "uniformly apply a flexible, discretionary approach." Turner, Equitable Distribution of Property § 5.22, at 247.10 The discretionary or fact-based approach used by courts in assessing causation in active and passive appreciation, reflects the belief that "there is no `bright line' distinction between active and passive increases in value, and any attempt to create one is likely to do more harm than good."11 Sally B. Sharp, The Partnership Ideal: The Development of Equitable Distribution in North Carolina, 65 N.C. L.Rev. 195, 233 (1987). While the fact-based approach is the preferred method in equitable distribution jurisdictions, the fact-based approach has been criticized as making "appreciation much harder to classify, increasing litigation costs and discouraging negotiated settlements." Turner, Equitable Distribution of Property § 5.22, at 247.12

Criticism of the fact-based approach to causation in the active and passive appreciation analysis is legitimate. In none of this Court's seminal opinions have we questioned applying the fact-based approach to causation in an active and passive appreciation analysis. See Mayhew I; Smith v. Smith, 197 W.Va. 505, 475 S.E.2d 881 (1996); Shank v....

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