David v David – A Goliath Shift in Burden of Proof

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By Molly Garrett – Published in the Virginia Family Law Quarterly (Spring 2015)

I. A Brief History of the Equitable Distribution World

“With a bold stroke of the legislative pen, the 1982 Virginia General Assembly enacted § 20-107.3, thereby bringing to the Commonwealth a form of equitable distribution of marital assets and a revolutionary change in the practice of domestic relations law.”[1] Prior to 1982, title to property determined its ownership in divorce cases. The non-titled spouse was left trying to establish an interest in property through a constructive or resulting trust and support awards were used as the method to compensate that spouse for any interest they had in the property. The statutory limitations (i.e fault being a bar, modifiability and termination upon death of obligor) surrounding support made it an imperfect, unreliable vehicle to accomplish equitable distribution. In 1982, a joint subcommittee formed upon request of the General Assembly acknowledged shift from the common law approach to equitable distribution exhibited a “historical trend to recognize the inequity inherent under the common law schedule and provide for some form of equitable property distribution when a marriage is terminated.”[2]

The Equitable Distribution Act (hereafter ‘Act’) gave the court the authority to enter a monetary award “based upon the equities and the rights and interests of each party in the marital property.”[3] The court could not affect a spouse’s legal interest in property and it could not distribute or divide assets unless they were jointly titled. The Act also defined separate property and in its definition it did not allow for property to be part-marital or part-separate.

II. Identification of Hybrid Property

Since 1982, the Act has undergone multiple amendments and revisions. Many of these modifications have been in direct response to implementation issues that had been experienced in cases where the court was bound to rule a particular way, when equity, fairness or even common sense would offer a different outcome. Such was the case five years later when the Legislature amended §20-107.3 in response to the Virginia Supreme Court case of Smoot v. Smoot, 233 Va. 435 (1987). In Smoot, the Supreme Court held that Code § 20-107.3 contemplated only two kinds of property; marital property and separate property, each expressly defined. The Court held that the statute did not recognize a hybrid species of property.

In response to the Supreme Court’s ruling in Smoot, the General Assembly significantly amended §20-107.3 by enacting a “source of funds” or “dual classification” methodology.”[4] The Amendment included language recognizing that property could be ‘hybrid’ having both marital and separate interests and permitting the court to divide the marital portion of any such hybrid property. The Amendment specifically addressed the increase in value of separate property during the marriage by providing that such increase in value shall be marital property only to the extent that marital property or the personal efforts of either party, have contributed to such increases, provided that any such personal efforts must be significant and result in substantial appreciation of the separate property.[5]

Over the eight years it had been in place, practioners experienced a high level of complexity of matters arising under the Act.[6] As a result, the Family Law Section of the Virginia State Bar was asked to form a Committee to conduct a review of the Act and report its findings back to the General Assembly. Although prior to the completion of the Report, the Legislature had amended the statute to acknowledge the presence of hybrid property and to empower the court to divide the marital portion of the same, the Committee recommended further statutory amendments regarding the apportionment of the proper burden of proof in establishing the marital portion of property were based upon the increase in value due to contributions of marital property or the personal efforts of either party.[7] Particularly, the Committee was concerned that the adoption by the Courts of strict or harsh burdens of proof on the non-owning spouse could defeat the remedial purposes of the dual classification status as intended and enacted by the 1990 Virginia General Assembly.[8]

Upon the recommendation of the Committee, the equitable distribution statute was amended in 1991. This amendment provided for the inclusion of language that specifically addressed the burden of proof and provides: “For purposes of this subdivision, the non-owning spouse shall bear the burden of proving that (i) contributions of marital property or personal effort were made and (ii) the separate property increased in value. Once this burden of proof is met, the owning spouse shall bear the burden of proving that the increase in value or some portion thereof was not caused by contributions of marital property or personal effort.”[9]

After the 1991 Amendment, a few cases came before the Court of Appeals dealing with the amendment and new burden shifting language. In a couple of unreported cases, the issue of a martial interest in the increase in value of separate property, the Court of Appeals applied the plain meaning of the statute and found that the owning spouse did not meet his burden to prove the increased value was not the result of contributions of marital property or personal efforts [10].

However, things changed in 1998 as the result of an en banc ruling from the Court of Appeals in the case of Martin v. Martin (27 Va. App. 745, 1998). In Martin, the Court of Appeals held that “When subsections (1), (2), and (3)(a) of Code § 20-107.3(A) are read together, they provide that where separate property can be retraced from commingled property, the increased value in that separate property is presumed to be separate,unless the non-owning spouse proves that contributions of marital property or personal effort caused the increase in value. To the extent the non-owning spouse claims that the increase in value was attributable to personal efforts, the non-owning spouse must prove that the personal efforts were “significant” and resulted in “substantial appreciation” of the owning spouse’s separate property interest.”

The Martin case was the start of a noticeable trend among subsequent decisions that expanded the non-owning spouse’s burden. Time after time, the Court of Appeals required that the non-owning spouse prove a causal connection between the increase in value and the personal efforts or marital property before any burden shifted to the owning spouse. This standard became the law of the land and the understanding by practioners with regard to this issue. In order to show a marital interest in separate property, not only did the non-owning spouse have to show that significant contributions of marital property or personal effort were made and that there was a substantial increase in value of the asset over the course of marriage, but they also had to be able to prove that one caused the other. Based on this understanding, many non-owning spouses were forced to abandon any claim of a marital interest in separate property of a spouse as they could not hurdle the three burdens of proof before being able to shift any burden of proof to the owner.

III. The World Has Changed.

The requirement of proving a causal connection, although not provided for verbatim in the portion of §20-107.3 which specifically addresses burden of proof, came up again in the case of David v. David 2012 WL 5866464 (2012), where an unreported decision of the Court of Appeals led to a ruling by the Virginia Supreme Court which, by a bold stroke of a judicial pen, has turned years worth of stare decisis upside down.

The David case originated in Hanover County Circuit Court. The trial court found that the increase in value of the husband’s premarital brokerage account during the marriage was marital property because the husband’s personal efforts during the marriage caused the increase in value. The trial court awarded the wife one-half of the appreciation of the account. Husband appealed the ruling, arguing that the court erred in classifying the appreciation in value of the brokerage account as marital because the appreciation was not due to his personal efforts.

The Court of Appeals in held that the evidence failed to show how husband’s research and trading activity ‘impart[ed] intrinsic value to the [brokerage account] and materially change[d] the character thereof.’ (David v. David, 2012 WL 5866464 (2012) The Court stated that “Assuming without deciding that Husband’s research and trading activity constitute [‘personal effort’]” for purposes of Code § 20–107.3(A)(3)(a), Wife failed to satisfy her burden of proof concerning the extent to which the increase in value was due to Husband’s personal efforts.” The Court held that the wife failed to meet her burden of proof because it was apparent from the record that at least a portion of the appreciation in value of husband’s brokerage account was attributable to passive factors and because wife offered no evidence concerning the extent to which husband’s personal efforts resulted in a substantial increase in the value of his separate brokerage account. The Court went on to say that “Because wife failed to sustain her burden of proving to what extent husband’s personal efforts contributed to the substantial appreciation of his brokerage account, the trial court lacks sufficient evidence to make such a determination on remand.” The Court reversed the equitable distribution award and remanded the case to the trial court for reclassification of the brokerage account consistent with its opinion.

The Wife then appealed the Court of Appeals’ ruling to the Supreme Court. In the case of David v. David, 287 VA. 231 (2014), the Supreme Court issued a ruling which was shocking to some. The issue before the Court was whether a non-owning spouse who seeks to establish that appreciation in value of separate property during marriage is marital property has the burden of proving that significant personal effort during marriage or marital property proximately caused such appreciation. Wife argued that the Court of Appeals misinterpreted Code § 20–107.3(A) in holding that Wife had to prove “[H]usband’s personal efforts were the proximate cause of the entire increase in the value of the [account].” She maintained that the Court of Appeals’ holding is contrary to the plain language of Code §§ 20–107.3(A)(3)(a)(i) and (ii), which only requires the non-owning spouse to prove that personal efforts were made and that the separate property increased in value, after which the burden shifts to the owning spouse to disprove causation. Husband’s position was that pursuant to Court of Appeals precedent, wife had to prove three elements before the burden of proof shifted to husband: “(1) significant personal efforts were contributed to the property, (2) a substantial appreciation in the value of the property and (3) a causal connection between the personal efforts and the appreciation (i.e., personal efforts were the ‘proximate cause’ of the appreciation).”

The Supreme Court held that the issue presented by the wife was a pure question of law concerning statutory interpretation. The Supreme Court noted that upon review, the main concern in statutory interpretation is to give effect to the legislature’s intent as evidenced by the plain meaning of statutory language, “unless a literal interpretation would result in manifest absurdity.” Hollingsworth v. Norfolk S. Ry. Co., 279 Va. 360, 366, 689 S.E.2d 651, 654 (2010). The Wife cited to the 1991 Report, which addressed specifically how the burden of proof should be applied and the reasoning and intent behind it.

Regarding the causal connection that must be shown, the 1991 Report noted that “Once this threshold burden of proof is met, there would be apresumption that the increase in value was due to the personal efforts or contributions of marital property, in essence providing a presumption of “active” appreciation by presuming a causal nexus between the efforts or contributions, and the appreciation in value during the marriage.” The 1991 Report went on the state that “The committee felt this rule was a proper apportionment of the burden of proof since the owner of a pre-marital asset, such as a business, would be in the best position economically to prove that the increase in value was due to “passive” or “economic” reasons, and thus excluded as marital property.”

The Supreme Court held that upon review of the plain language of Code § 20–107.3(A)(3)(a), it is clear that the statute does not require the non-owning spouse to prove causation, therefore, the Court Appeals erred in assigning the burden to prove causation to wife and holding that wife failed to meet that burden. The Supreme Court held that the Court of Appeals’ interpretation of Code § 20–107.3(A) added a requirement to the non-owning spouse’s burden not found in the statute. The Supreme Court stated that “courts must not construe the plain language of a statute in a way that adds a requirement that the General Assembly did not expressly include in the statute. The General Assembly chose to explicitly state that causation must be disproved by the owning spouse after the non-owning spouse satisfies his or her statutorily imposed burden of proof, which does not include causation. Code § 20–107.3(A)(3)(a) places the burden of disproving causation on the owning spouse, once the non-owning spouse makes a prima facie showing of a spouse’s personal efforts during the marriage or the contribution of marital property and an increase in value of the separate property.” The Supreme Court further stated that to the extent that the Court of Appeals interpreted Code § 20–107.3(A) in a manner inconsistent with the holding in David, those portions of any such decisions are overruled.

The list of cases which are effectively overruled by David is long. Cases such as Martin, Moran, Gilman, Congdon, Bchara, Cirrito, andRobinson, all have done so and those portions of the rulings are now overruled by David[11]. However, those cases still have great weight as they provide guidance of what constitutes significant personal efforts of a party and substantial appreciation of the separate property. These two requirements, regardless of who has the burden to prove the connection between the two, are the keystones to this issue. All along, one spouse’s claim of a marital interest in the other spouse’s separate property has succeeded or failed based on whether they were proved by a preponderance of the evidence. Therefore, prior case law regarding this issue remains useful (crucial?) to practioners in dealing with this issue, even if the burden had been misapplied.

Some parties may use this shifting of the burden from the non-owning spouse to the owning spouse to create additional issues in future equitable distribution cases. Attorneys should rethink their approach to this matter, both in the advice given the clients as well as their perspective on the merits of their position and likelihood of their success when these issues arise. While the placement of the burden regarding who must show causation between personal efforts or marital property and the increase in value of an asset has been taken back to the beginning, the practical approach to issues related to this matter should remain largely the same as the actual burden itself and the standard of proof remain.

Yes, it may be easier for a non-owning spouse to raise this issue and shift the burden to the owning spouse given the outcome of the David case. Along those lines, concerns have been expressed that the Supreme Court’s decision will likely cause a significant difficulty in future settlements and an increase the number of cases that end up in litigation. The rationale seems to be that the non-owning spouse will simply prove an increase in value and make an allegation of personal effort and suddenly the owning spouse has to go to great lengths to prove a negative. While that may be true in some cases, the same scenario often plays out in other areas to family law when one party takes what the other side determines be to a wholly unreasonable position with little backing, such as a lifetime support award demand for a marriage of a short duration, a demand by a spouse that they keep all of the marital estate or even that the other parent have no visitation with a child. In all of these situations, practioners have to weigh the possible evidence that would be presented to the Court and determine the likelihood of success and course of action.

Even prior to the Supreme Court’s ruling in David, in cases where there was a legitimate question regarding whether a spouse’s actions were significant enough or whether the appreciation of the separate property was substantial enough to create a marital interest in separate property, the owning spouse likely had prepared their case and aligned their evidence to support their position that the property was separate; not hybrid. The only difference now is who is playing defense.

[1] Ingrid Michelsen Hillinger, Sharon A. Henderson, and David A. Glazer. “Equitable Distribution: Virginia Code Section 20-107.” Virginia Bar Association Journal 8, (1982): 4-12.

[2] Report of the Joint Subcommittee Studying Section 20-107 of the Code of Virginia to the Governor and the General Assembly of Virginia, H. Doc. No. 21 (1982 session)

[3] Va. Code, § 20-107.3(D) (Supp. 1982).

[4] Report of the Family Law Section of the Virginia State Bar on Equitable Distribution in Divorce Proceedings, H. Doc. No. 19 (1991 session)

[5] Va. Code, § 20-107.3(A) (3)(a)(Supp. 1990).

[6] Report of the Family Law Section of the Virginia State Bar on Equitable Distribution in Divorce Proceedings, H. Doc. No. 19 (1991 session)

[7] Report of the Family Law Section of the Virginia State Bar on Equitable Distribution in Divorce Proceedings, H. Doc. No. 19 (1991 session)

[8] Report of the Family Law Section of the Virginia State Bar on Equitable Distribution in Divorce Proceedings, H. Doc. No. 19 (1991 session)

[9] Va. Code, § 20-107.3(A) (3)(a)(Supp. 1991).

[10] Pembelton v. Pembelton, 1996 WL 721861 (1996) and DeHaven v. DeHaven; 1997 WL 161869 (1997)

[11] Martin v. Martin 27 Va.App. 745, 501 S. Eed. 420 (1998); Moran v. Moran 29 Va.App. 408, 512 S.E.2d 834 (1999); Gilman v. Gilman 32 Va.App. 104, 526 S.E.2d 763 (2000); Congdon v. Congdon 40 Va.App. 255 578 S.E.2d 833, 835 (2003); Bchara v. Bchara 38 Va.App. 302, 563 S.E.2d 398 (2002); Cirrito v. Cirrito 44 Va.App. 287, 413 S.E.2d. 642 (2004); Robinson v. Robinson, 46 Va. App. 652, 621 S. E.2d 147 (2005)

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