McDavid v. McDavid

• Citation: 451 S.E.2d 713,19 Va.App. 406
• Decision Date: 13 December 1994
• Docket Number: Nos. 2158-93-2,2171-93-2,s. 2158-93-2
• Parties: Judy M. McDAVID v. Frank E. McDAVID. Frank E. McDAVID v. Judy M. McDAVID. Record
• Court: Virginia Court of Appeals

Page 713

451 S.E.2d 713

19 Va.App. 406

Judy M. McDAVID v. Frank E. McDAVID.

Frank E. McDAVID v. Judy M. McDAVID.

Record Nos. 2158-93-2, 2171-93-2.

Court of Appeals of Virginia.

Dec. 13, 1994.

Donald K. Butler, Richmond (W. Christopher Currie, Morano, Colan & Butler, on brief), for Judy M. McDavid.

Edward D. Barnes, Chesterfield (Brian J. Grossman, Richmond, Edward D. Barnes & Associates, P.C., Chesterfield, on briefs), for Frank E. McDavid.

Present: BENTON, WILLIS and ELDER, JJ.

ELDER, Judge.

Judy M. McDavid, wife, and Frank E. McDavid, husband, filed cross-appeals from the chancellor's equitable distribution award. Wife objects to the valuation and classification of property referred to as Arcadia Street and contests the overall percentage distribution of the award. Husband contests the trial court's valuation of the Ocean Creek property and FEMCO stock and its classification of the FEMCO stock and Tilghman Beach property as marital property.

We are guided by the principle that decisions concerning equitable distribution rest within the sound discretion of the trial court and will not be reversed on appeal unless plainly wrong or unsupported by the evidence. Srinivasan v. Srinivasan, 10 Va.App. 728, 732, 396 S.E.2d 675, 678 (1990). For the reasons that follow, we affirm the chancellor's award.

The parties married in 1969 and had two children. Husband worked as a salesperson, and wife formed a corporation to provide secretarial services for husband, services which she was able to perform at home.

In 1977, the parties formed FEMCO to sell tennis equipment out of their home. Husband handled sales, and wife operated the administrative aspects of the business from home. They held the stock as tenants by the entireties with the right of survivorship.

In 1986, wife entered the real estate market as a salesperson. The parties then moved FEMCO to a commercial location, hired a manager and employees, phased out wife's responsibilities, and retitled all stock in husband's name. Wife testified that she agreed to retitle all stock in husband's name only because he claimed that he wanted to attract outside investors and that any subsequent transfer of stock would be easier if it was all in his name. Wife remained an active board member.

In 1989, the parties acquired property located at 235 Arcadia Street. The parties took title as tenants by the entireties because the wife was a real estate agent and they could avoid paying the real estate commission. The wife deeded her interest in the property to husband shortly after closing. Wife testified that she did so based on husband's representations that it was necessary to facilitate a marital trust he had established several years earlier.

Husband testified that FEMCO was placed in his name in order to make it easier to negotiate with investors and to protect wife from creditors of the company. After the Arcadia Street property was deeded to the husband, he leased it to FEMCO. By agreement between the husband and FEMCO, substantial improvements were later made to the Arcadia Street property. Those improvements and the debt service on the mortgage were paid from lease payments made by FEMCO to the husband.

Wife's appraiser testified that the fair market value of the Arcadia Street property was $175,000, which gave the parties $100,000 worth of equity in it. The cost of the appraisal was $1,000. The commissioner ultimately concluded that the property [19 Va.App. 409] at 235 Arcadia Street was husband's separate property under the terms of the deed of gift. He did not determine the value of the property, and he refused to allocate the cost of the appraisal between the parties. Wife excepted to these findings.

Husband testified that the market value of FEMCO was "probably ... around $105,000," based on the value of inventory, accounts receivable, and fixed assets. On cross-examination, however, when asked whether his "value was $115,000 (sic) based on what Bobby Raymond told [him]," he responded, "Yes, because that's the only professional that I've ever heard [give] an opinion on it." Raymond apparently was an accountant whom husband had hired, through his attorney, for the purpose of valuing FEMCO. Raymond did not testify.

Wife presented the testimony of Robert Brydon, who had been the parties' accountant for over twenty years and had advised husband and his friend, Dave Martel, as to the relative value of McDavid's company, FEMCO, and Martel's company, DaMar, when the two were considering a merger. Brydon testified that although he did not "do a valuation" of FEMCO, he did determine its "net worth" or book value as of August 31, 1988. He testified that this method involved a tally of assets--including cash, accounts receivable and inventory--and did not account for depreciation of fixed assets. He later explained that the fixed assets, which originally had a value of $27,057, had been depreciated "on the books," apparently based on certain income tax code provisions. He also testified, however, that "the actual value of the fixed assets was $6,302. There [weren't] a lot of fixed assets." The building had not yet been built at that time. Based on that information, Brydon calculated husband's ninety-two percent share as having a value of $137,189. He admitted on cross-examination that his calculations did not include "the collection factor ... on the accounts receivable."

The commissioner found the FEMCO stock to be marital property. He also expressly rejected husband's valuation of the FEMCO stock and found it to be worth $137,189. Husband excepted to these rulings.

The parties stipulated that the Ocean Creek property was marital property. Husband testified that he "would have to say" its market value was $39,000 but that "[he] wouldn't know." He also testified that it was encumbered by a loan of $53,292.25. Wife testified that she thought the property had no value for equitable distribution purposes. The commissioner determined that the property had no value. Husband excepted to this finding.

The Tilghman Beach property was purchased in 1984 and titled in husband's name. At the time of the purchase, wife executed a document relinquishing her dower rights in the property as against the bank but did not sign a note or deed of trust. Wife testified that she subsequently wrote checks for payments on that property, but the commissioner found that all mortgage payments were made by husband. He ultimately concluded, however, that although wife "relinquished her interest in the property to the lender," the property was marital for purposes of equitable distribution. Husband excepted to this ruling.

The commissioner found that both parties made equal contributions to the well-being of the family, but that husband's contributions to the acquisition, care, and maintenance of the marital property were superior to wife's. He awarded husband fifty-two percent of the estate. Wife excepted to this distribution.

The circuit court adopted the commissioner's report and entered the final decree of divorce.

I. Classification

The version of Code § 20-107.3 in effect at the time the divorce suit was filed in February, 1990, gave the court the authority to classify all property of the parties as either marital or separate. All property acquired by either party during the marriage is presumptively marital unless acquired "by bequest, devise, descent, survivorship or gift from a source other than the other party" or "in exchange for ... the proceeds of sale of separate property, provided ... [it was] maintained as [such]" during the marriage. Code § 20-107.3(A). How the property is titled generally is not dispositive of its classification. See Code § 20-107.3(B), (C).

Although property is initially classified as of the date of acquisition, once acquired, its character may change. Wagner v. Wagner, 4 Va.App. 397, 404, 358 S.E.2d 407, 410 (1987). Property which is initially separate may become marital property either by express agreement, Westbrook v. Westbrook, 5 Va.App. 446, 454, 364 S.E.2d 523, 528 (1988), or by the manner in which it is maintained. Id.; see Smoot v. Smoot, 233 Va. 435, 441, 357 S.E.2d 728, 731 (1987). However, property which is marital may become separate only through "a valid, express agreement by the parties," Wagner, 4 Va.App. at 404, 358 S.E.2d at 410; Code § 20- 155 (marital provision of the Premarital Agreement Act), or as provided in Code § 20-107.3(A)(3)(d). In this case, all disputed property was marital when acquired. The critical question in regard to each piece of property is whether the parties' subsequent actions resulted in its transmutation into husband's separate property. Husband bore the burden of proof on this issue. Rexrode v. Rexrode, 1 Va.App. 385, 392, 339 S.E.2d 544, 548 (1986).

A. Arcadia Street Property

Despite wife's contentions, we cannot conclude that the commissioner and chancellor erred in finding that the Arcadia Street property was husband's separate property. Although the property was marital when acquired by the parties as tenants by the entireties in 1989, husband and wife executed a deed of gift transferring the wife's interest to husband immediately after closing. That deed provided that the property was to be held by husband "in his own right as his separate and equitable estate as if he were an unmarried man ... free from the control and marital rights of his present ... spouse" and "with full and complete power ... [to] dispose of the ... property ... during his lifetime ... [or by] devise." Had this transaction occurred in the absence of a statute such as Code § 20-155, ¹ the language at issue--which is in essence the language historically used to allow a married woman who was considered to be under a legal disability to retain power over her property as if she were a single woman or femme sole--would have been insufficient to rebut the presumption that property acquired during marriage with marital funds is...