What Constitutes Separate Property in Virginia?
The separately owned property does not automatically become marital upon marriage, even when it is placed into joint names. If one party invested separate funds into a marital asset if they can trace out or prove that investment, they may be entitled to a return of the asset or the amount invested plus appreciation. This is a substantial issue in many cases.a
The goal of the tracking process is to link every asset to its primary source, which is either separate property or marital property. Harris v. Harris, 2004 Va. App. LEXIS 138 (2004). See also Mann v Mann, 22 VA. App 459; 470S.E. 2d 605, 1996, holding that the interest passively earned on the husband’s premarital assets are separate.
The Code of Virginia, §20-107.3(A)(1)(iv) defines “separate property” as “that part of any property classified as separate pursuant to subdivision A.3. Code of Virginia, §20-107.3(A)(3)(e) provides that “when marital property and separate property are commingled into newly acquired property resulting in the loss of identity of the contributing properties, the commingled property shall be deemed transmuted to marital property. However, to the extent the contributed property is retraceable by a preponderance of the evidence and was not a gift, the contributed property shall retain its original classification.” (emphasis added). Code of Virginia, §20-107.3(A)(3)(g) provides that section (e) of this section shall apply to jointly owned property. No presumption of the gift shall arise under this section where (ii) newly acquired property is conveyed into joint ownership.
The increase in the 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. See Code of Virginia, §20-107.3(A)(3)(a). All of the increases of the real estate, in this case, are attributable to market fluctuations.
Tracing involves a two-prong, burden-shifting test. First, a party has to prove he invested separate property into the real estate, which he did. It is undisputed that all of the money used to purchase the real estate was his traceable separate property. Then the burden shifts to the Complainant to prove, by clear and convincing evidence, that the transmutation was a gift. (See Va. Code Ann. § 20-107.3(A)(3)(g)) and Tunis v Turonis, 2003 Va. App. LEXIS 130, (2003)). There is no presumption of a gift that arises from the fact that one party put the real estate in the parties’ joint names. There is no evidence of a gift in this case. (See also Von Raab, 26 Va. App. at 248, 494 S.E.2d at 160 and Utsch v. Utsch, 38 Va. App. 450, 458, 565 S.E.2d 345, 349 (2002) (quoting Theismann, 22 Va. App. at 566, 471 S.E.2d at 813).If the party claiming a separate interest proves traceability and the other party fails to prove transmutation of the property by gift, “the Code states that the contributed separate property ‘shall retain its original classification.'” (emphasis added) Hart v Hart, 27 Va. App. 46, 68, 497 S.E. 2d 496, 506 (1998). (quoting Code § 20-107.3(A)(3)(d), (e)) West v West, 2003 Va. App. LEXIS 512 (2030).
The second issue is the passive appreciation in the value of the jointly titled real estate. Pursuant both to Virginia Code Va. 20-107.3(A), and using the Brandenburg formula, which has never been held erroneous by the Virginia appellate courts, (See Turonis, Supra) All of the passive appreciation on a party’s separate investment in real estate is also separate property. ” This issue was addressed in Kelley v. Kelley, No. 0896-99-2, 2000 Va. App. LEXIS 576 (Ct. of Appeals Aug. 1, 2000) holding that the trial court erred in failing to recognize that passive appreciation on the husband’s separate investment to the real estate was also the husband’s separate property. (emphasis added0. This issue was also addressed in the case of Stark v. Rankins, 2001 Va. App. LEXIS 375 (2001), holding that “in pertinent part, Code § 20-107.3(A)(1) provides that “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.” Read as a whole, subsection (A) of the statute contains a “presumption that the increase in the value of the separate property is separate.” (emphasis added) Martin v. Martin, 27 Va. App. 745, 753, 501 S.E.2d 450, 454 (1998). Moreover, we have held that the trial judge has a duty “to determine the extent to which [a spouse’s] separate property interest in the home increased in value during the… marriage.” Id. at 752, 501 S.E.2d at 453. There is a statutory presumption that the increase in the value of the separate property is separate. Id.
By contrast, although the customary care, maintenance, and upkeep of a residential home may preserve the value of the property, it generally does not add value to the home or alter its character. Martin, Supra. The Court held that the Wife’s evidence that at some time during the twelve years of marriage she personally painted, wallpapered, and carpeted parts of the house does not prove a “significant” personal effort.” These activities constitute part of the customary maintenance and upkeep that homeowners typically perform in order to preserve the home’s value; they do not by their nature impart value to the home. (See also Biviano v. Kenny, 2002 Va. App. LEXIS 157 (2002)). The Code of Virginia, Section 20-107.3(A)(3)a) places the burden on the non-owning spouse to prove that “(i) contributions of marital property or personal effort were made and (ii) the separate property increased in value.” Hoffman v. Hoffman, 2004 Va. App. LEXIS 216 2004). In pertinent part, Code § 20-107.3(A)(1) provides that “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.” Read as a whole, subsection (A) of the statute contains a “presumption that the increase in the value of the separate property is separate.”