Opinion
Record No. 0162-03-2.
March 30, 2004.
Appeal from the Circuit Court of Henrico County, George F. Tidey, Judge.
J.W. Harman, Jr. (Harman Harman, P.C., on briefs), for appellant.
Thomas W. Blue for appellee.
Present: Judges Benton, Elder and Senior Judge Hodges.
MEMORANDUM OPINION
Pursuant to Code § 17.1-413, this opinion is not designated for publication.
The trial judge ruled that the marital residence was entirely marital property. Stuart Lee Harris contends the trial judge erred in finding that contributions of money and personal effort by his wife were sufficient to transmute his separate property to marital property and in finding that the evidence was insufficient to retrace his separate property from the marital residence. Judy Ballance Harris contends that the trial judge erred by ruling that her husband had not made a gift to her of a one-half interest in the marital residence. We hold that the evidence was sufficient to retrace the husband's separate property, and, therefore, we reverse the trial judge's decision.
I.
Stuart Lee Harris and Judy Ballance Harris were married on June 11, 1989. When they separated on October 16, 2001 their marital residence was a condominium on Regency Woods Road, which they purchased during their marriage. No children were born of the marriage.
The evidence proved that the husband purchased a house on West End Drive twenty-four years prior to the marriage. He maintained the West End house as rental property until the parties decided, several months before their marriage, they would live in it with the wife's son from a prior marriage. The wife testified that she and the husband began renovating the house prior to their marriage and that they moved into the house with her son before they married and while it was being renovated. The wife testified that the house was "run down and had been torn up pretty badly by many tenants" and that she and the husband "ripped out all of the carpet . . . [p]aint[ed], wallpaper[ed], put in new countertops, linoleum floors, tubs, toilets, tore out paneling off the walls and refixed the plaster and that kind of stuff, light fixtures." The wife also testified that she took money from her pension fund in 1989 and gave $15,000 to the husband for use in repairing and renovating the house. Although she had no documents to show either the receipt of the pension funds or the amount of money she actually contributed, she recalled that her money "was put in the house after the marriage because [they] were living there when [they] got married at the house." She also testified that their renovations "probably increased the value of the house by about $25,000."
The husband testified that he had been buying, selling, and renting real estate for more than forty years. He testified that he "hired a contractor to bring the [West End] place up to date, put in air-conditioning, redid the floors, took out a wall, put up moldings and repaired the bathroom . . . [using] a contractor to do all of that." He testified that he paid for the renovations from "money [he] had saved through the years of buying and selling of real estate." He further testified that the wife never gave him money for the renovation and that they "kept separate accounts, banking accounts, checking accounts." He testified that "she may have done some painting, but basically, the contractor was hired [and] did everything" and that "[a]fter all of the work was done, . . . [they] moved in."
They married in June 1989 and lived in the West End house until November 1989, when they sold it. The wife testified they had lived in the house for about a year. The settlement statement for the sale of the West End house established that the sale price was $76,500; the payoff of mortgage loans was $13,057.29; and the cash proceeds totalled $58,335.58. The deed recited that the property was owned by the husband.
At this same time, the husband and wife bought a house on River Road as tenants by the entirety with the right of survivorship. The settlement statement indicated the purchase price of the River Road house was $125,000; a mortgage loan was $57,090; the deposit plus cash paid to complete the purchase totalled $74,060.29. The wife testified that the proceeds from the West End house were used to purchase the River Road house and that she did not contribute additional money to the purchase of the River Road house. Likewise, the husband testified that the money to purchase the River Road house came from the sale of the West End house and from savings he accumulated prior to the marriage. The wife also testified that the River Road property "need[ed] a lot of work on it" and she "went from renovating the West End right into that one." While living in the River Road house, they encumbered the property with a second mortgage. Neither the husband nor the wife testified about the use of the money they obtained from that loan.
The wife testified that they sold the River Road house in April 1999 after her son left home. The settlement statement shows that they sold the River Road house for $175,000. After paying the first mortgage of $52,406.24, the second mortgage of $37,265.23, and closing costs, the parties received proceeds of $84,049.09.
They purchased a condominium in Regency Woods for $76,266.83, using some of the proceeds from the sale of the River Road house, and titled it as tenants by the entirety with the right of survivorship. Although the parties did not obtain a purchase mortgage, they later obtained an equity loan. The Regency Woods condominium was their marital residence when they separated on October 16, 2001 and was valued at $110,000, with an equity loan balance of $17,319.
In the trial judge's letter opinion, the trial judge found as follows:
The whole of this evidence showed that the Regency Woods property is marital property. It was purchased during the marriage as the couple's home. Their home immediately preceding this purchase, [the] River Road [property], was also jointly titled. While [the husband] proved that [the wife] did not contribute to the down payment for the River Road home . . ., credible testimony showed also that [the wife] made contributions of personal effort to improve the homes at West End Drive and River Road. The evidence of conduct . . . when they bought Regency Woods, did not show what was formerly separate was "maintained as separate property." Va. Code § 20.107.3(A)(1)(iii). The separate nature of [the husband's] West End Drive property was transmuted when it was retitled jointly and the evidence did not allow retracing by preponderance. Va. Code § 20-107.3(A)(3)(f).
At the hearing on the motion to reconsider, the trial judge amended the findings by deleting her reference to Code § 20-107.3(A)(1)(iii) and said she committed an error in stating that the property must be "maintained as separate property" in order to trace. The trial judge also made additional findings, including the following:
The Court finds as a fact that [the husband] did not prove by a preponderance that the Regency Woods condominium, which was commingled property, was separate property. The testimony that the Court relies on is, first, [the wife] testified that the West End [house] was a mess. She said she used her own funds to pay for totally gutting the house and renovating it, and her exact testimony was, "Everything that I had went into the family." And by that the only reasonable inference the Court could draw as the trier of fact was that she spent her personal funds to improve the West End . . . house because according to [the husband] . . . they got married five months before they sold the West End . . . house, so that made sense to me.
Then they used the West End . . . house to buy or the profits from that to put into the River Road house, and [the husband] said he, in addition to the profit from the West End . . . house, contributed some separate savings of his. And the Court accepts the testimony from [the wife] that she was an economic partner of [the husband] in that purchase and acquisition which was taken in joint title. And I just find that it was too attenuated to say that they married while he still owned [the] West End [house], that they bought the River Road house together jointly, and that they then bought another home, which is at issue today, jointly, and throughout that time the contributions of the parties to the increase of value of the asset were discernible from this evidence that I heard as being capable of retracing to separate contributions by [the husband].
The testimony from [the wife] was that she lived in the West End [house] from before the time they were married and that she used her pension . . . approximately $15,000, for the renovation of the West End . . . house. So I just can't find from this evidence that [the husband] proved that what was jointly acquired and titled could be retraced separately to the satisfaction of this Court, and I adhere to the ruling under 20-107.3(A)(3)(F) that this asset, the Regency Woods condominium, is marital property; and I adhere to all the other rulings in the letter opinion.
The final decree of divorce was entered on December 30, 2002 by another circuit court judge.
II.
The husband contends the trial judge erred when she found that the Regency Woods condominium was marital property subject to equitable distribution. He argues that the record contains sufficient evidence of retracing to demonstrate that the entire value of the Regency Woods condominium was his separate property. On the other hand, the wife contends that the Regency Woods condominium was marital property and subject to equitable distribution.
In pertinent part, Code § 20-107.3(A) provides as follows:
Upon decreeing the dissolution of a marriage, . . . the court, upon request of either party, shall determine the legal title as between the parties, and the ownership and value of all property, real or personal, tangible or intangible, of the parties and shall consider which of such property is separate property, which is marital property, and which is part separate and part marital property in accordance with subdivision A 3.
"Although property is initially classified as of the date of acquisition, [our domestic relations statutes provide that,] once acquired, [a property's] character may change." McDavid v. McDavid, 19 Va. App. 406, 410, 451 S.E.2d 713, 716 (1994). For example, under the following circumstances, the classification of separate property during the marriage may change:
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.
Code § 20-107.3(A)(1). In addition, the statute provides that separate property may be "transmuted" as follows:
When separate property is retitled in the joint names of the parties, the retitled property shall be deemed transmuted to marital property. However, to the extent the property is retraceable by the preponderance of the evidence and was not a gift, the retitled property shall retain its original classification.
Code § 20-107.3(A)(3)(f). Thus, "depending on how property is utilized during the marriage, property that was at one time 'separate' can be converted into either 'marital' property or 'part marital property and part separate property' for the purposes of equitable distribution."von Raab v. von Raab, 26 Va. App. 239, 246, 494 S.E.2d 156, 159 (1997).
Neither party disputes that the husband acquired the West End house before the marriage, that the proceeds from the sale of the West End house and money from the husband's separate savings comprised part of the funds used to purchase the River Road house, and that the Regency Woods condominium was purchased using only proceeds from the sale of the River Road house. The husband contends, however, that the evidence sufficiently traced his separate property from the West End house into the Regency Woods condominium.
"The goal of the tracing process is to link . . . [every] asset to its primary source, which is either separate property or marital property."Id. at 248, 494 S.E.2d at 160 (citing Brett R. Turner, Equitable Distribution of Property § 5.23 (2d ed. 1994)). The parties' testimony was at variance regarding the wife's initial contribution toward the renovation of the West End house. The trial judge's findings clearly indicate, however, the judge credited the wife's testimony that she contributed $15,000 from her pension fund, which the wife owned prior to the marriage, for the renovation of the house. The wife also testified that these funds were "put in the house after the marriage." Although the husband denied that the wife contributed $15,000 for the renovations, we cannot say that the trial judge erred in rejecting his testimony and accepting the wife's contrary testimony. "The credibility of witnesses was crucial to the determination of the facts, and the findings of the trial [judge] based upon the judge's evaluation of the testimony of witnesses heard ore tenus are entitled to great weight." Shortridge v. Deel, 224 Va. 589, 592, 299 S.E.2d 500, 502 (1983).
The record, therefore, establishes that the wife contributed $15,000 during the marriage to help with the renovation of the husband's West End house, his separate property. This contribution was from funds she acquired before the marriage. No statute provides, however, that an increase in one spouse's separate property resulting from a contribution of the other spouse's separate property converts to marital property the separate property receiving the contribution. Cf. Code § 20-107.3(A)(3)(a) (providing "[i]n the case of the increase in value of separate property during the marriage, such increase in value shall be marital property . . . to the extent that marital property . . . contributed to such increase"). Indeed, we recently held in Fowlkes v. Fowlkes, 42 Va. App. 1, 590 S.E.2d 53 (2003), that the wife's home, which was separate property and which the parties improved using their separate funds, was not transmuted to marital property. In so holding, we commented as follows:
Husband, although he paid [from his separate funds] for a substantial portion of the addition [to the wife's separate property], never received title to the house or the addition, which is one method for transmuting separate property into a marital asset. See Code § 20-107.2(A)(3)(f). Neither party used marital funds to pay for the construction, so the separate property was not commingled with marital property, which could transmute the character of the contributed property. See Code § 20-107.3(A)(3)(d) (e).
Id. at 8, 590 S.E.2d at 56.
As in Fowlkes, the wife's monetary contribution in this case did not transmute the West End house to marital property. The wife also testified that she and the husband expended personal efforts assisting in the renovations. The wife did not describe her personal efforts in a way that quantified them, and the trial judge declined to assess a value to them. No evidence proved, and the trial judge did not find, that the wife's personal efforts expended in the West End house after the marriage were significant and resulted in substantial appreciation of the separate property so as to convert the increase in value of the West End house into marital property. See Code § 20-107.3(A)(1). Similarly, we observed as follows in Fowlkes:
The trial court did find "[e]ach party made non-monetary contributions to the construction of the addition," which can alter the classification of separate property under Code § 20-107.3(A)(3)(a). However, the trial court did not find these contributions were significant and resulted in substantial appreciation of wife's home, as required by Code § 20-107.3(A)(3)(a) before finding the character of the property has changed.
42 Va. App. at 8, 590 S.E.2d at 56. To satisfy these statutory requirements, "[t]he record should include evidence of the monetary value of the . . . spouse's personal efforts as well as evidence of a substantial increase in the value of the property resulting from those efforts." Bchara v. Bchara, 38 Va. App. 302, 315, 563 S.E.2d 398, 404 (2002).
The evidence in this case proved the West End house was titled solely in the husband's name and was sold for $76,500. At settlement, the net proceeds totalled $58,335.58, after the payment of mortgage loans in the amount of $13,057.29. No evidence proved when those loans were created, how their proceeds were used, or any other circumstances. The wife testified, however, that the renovations "probably increased the value of the house by about $25,000." Thus, even if the trial judge could have concluded that the wife's $15,000 contribution of her separate funds was to be credited for the entire increase in value of $25,000, which the wife testified was created by the renovations, the proceeds from the sale of the house produced, at best, $25,000 in separate funds for the wife and $33,335.58 in separate funds for the husband.
Using the proceeds from the sale of the West End house, separate funds contributed by the husband, and a mortgage loan of $57,000, the parties purchased the River Road house for $125,000. The deposit plus cash that the parties paid at settlement was $74,060.29. Thus, to acquire the River Road house, the husband contributed at settlement at least $33,335.58 of separate funds from the proceeds from the West End house and approximately $15,724.71 of other separate funds.
When the parties acquired the River Road house, they titled it jointly, as tenants by the entireties with the right of survivorship. Code § 20-107.3(A)(3)(f) provides as follows:
When separate property is retitled in the joint names of the parties, the retitled property shall be deemed transmuted to marital property. However, to the extent the property is retraceable by a preponderance of the evidence and was not a gift, the retitled property shall retain its original classification.
The parties sold the River Road house for $175,000. No evidence proved, and the trial judge did not find, that marital property or significant personal efforts of either party contributed to the increase in value of the River Road house during the ten years they lived there.See Martin v. Martin, 27 Va. App. 745, 757, 501 S.E.2d 450, 456 (1998) (en banc) (holding that proof must establish that "personal efforts in fixing up the house were 'significant' and 'resulted in a substantial appreciation' of value to the home"). Moreover, no evidence proved either the source of funds used to pay the mortgage or the use of proceeds from a second mortgage. At settlement, the parties received net proceeds of $84,049.09 from the sale of the property, after paying mortgages totalling $99,671.47. Thus, the evidence proved that no equity was created in the River Road house by a curtailing of the mortgages.
The evidence also proved that the husband owned other separate real estate and the wife owned other separate real estate.
The evidence proved the parties purchased the Regency Woods condominium for $76,266.83. It was acquired without a mortgage, using proceeds from the River Road house, and it was jointly titled as tenants by the entireties with the right of survivorship. At the time of the hearing, the Regency Woods condominium was valued at $110,000 with a lien of $17,319 from an equity loan. No evidence proved how the proceeds from the equity loan were used or what funds, if any, had been used to pay the equity loan.
In summary, the evidence proved the wife contributed her separate property to assist in the renovation of the West End house, which was the husband's separate property. Neither that contribution or any other personal effort converted the West End house to marital property. Although the River Road house and the Regency Woods condominium were titled in the joint names of the parties and, thus, "deemed transmuted to marital property," Code § 20-107.3(A)(3)(f), the evidence recited above was sufficient to retrace those properties to the separate property sources. We hold, therefore, that the trial judge erred in ruling that the evidence was insufficient to establish the trace.
III.
The wife contends that, in any event, we should affirm the decision because the trial judge erred in ruling that the evidence did not prove the husband made a gift to the wife of a one-half interest in the Regency Woods condominium. See Code § 20-107.3(A)(3)(f) (providing that "to the extent the property is retraceable by the preponderance of the evidence and was not a gift, the retitled property shall retain its original classification").
Code § 20-107.3(A)(3)(g) provides as follows:
Subdivision A 3 d, e and f of this section shall apply to jointly owned property. No presumption of gift shall arise under this section where (i) separate property is commingled with jointly owned property; (ii) newly acquired property is conveyed into joint ownership; or (iii) existing property is conveyed or retitled into joint ownership. For purposes of this subdivision A 3, property is jointly owned when it is titled in the name of both parties, whether as joint tenants, tenants by the entireties, or otherwise.
Applying this statute, we have held that the party seeking to prove a gift had the "burden of proving the three elements of a gift: (1) intention on the part of the donor to make a gift; (2) delivery or transfer of the gift; and (3) acceptance of the gift by the donee." Rowe v. Rowe, 24 Va. App. 123, 137, 480 S.E.2d 760, 766 (1997).
The wife argues that evidence of cooperation proving "longstanding marital harmony" and "the fact . . . the houses . . . were titled jointly" constitutes proof of donative intent. As we held in Rowe, proof "that property is jointly titled must be considered by the trial court in determining if a gift was made, but alone, it is insufficient proof of a gift." Id. In this case, the evidence of marital harmony added little of probative value to the issue of donative intent. In essence, the major factor the wife established was the joint titling. The trial judge in this case found the evidence insufficient to prove donative intent and ruled "that the evidence did not establish that [the husband] made a gift of this particular asset, the Regency Woods condominium, to his wife." We hold that the evidence supports the judge's finding because the evidence was insufficient to prove donative intent by clear and convincing evidence. See Dean v. Dean, 8 Va. App. 143, 146, 379 S.E.2d 742, 744 (1989) (holding that one who claims ownership of property by virtue of a gift bears the burden of proving by clear and convincing evidence the donor's donative intent and delivery of the gift). Accordingly, the trial judge did not err in ruling that the wife failed to prove a gift.
IV.
We hold, therefore, that the trial judge erred in ruling the evidence was insufficient to retrace the husband's separate property. Accordingly, we reverse the decision and remand for reconsideration.
Reversed and remanded.