Martin v. Martin

COURT OF APPEALS OF VIRGINIA

Present: Chief Judge Fitzpatrick, Judges Baker, Benton, Coleman,
Willis, Elder, Bray, Annunziata, Overton and Bumgardner
Argued at Richmond, Virginia

JOHN JEFFERSON MARTIN
OPINION BY
v. Record No. 1772-96-3 JUDGE SAM W. COLEMAN III
JULY 14, 1998
JOYCE KATHRYN MOSES MARTIN

UPON REHEARING EN BANC
FROM THE CIRCUIT COURT OF FRANKLIN COUNTY
B. A. Davis, III, Judge

David A. Furrow (Law Offices of David A.
Furrow, P.C., on briefs), for appellant.

John W. Acree (Alton B. Prillaman; Jolly,
Place, Fralin & Prillaman, P.C., on brief),
for appellee.

In this equitable distribution case, John Jefferson Martin

(husband) appeals the trial court's award to him of $26,634.22

representing his contribution of separate property to purchase

the marital residence valued at $110,000. He contends the trial

court erred by failing to classify as his separate property the

portion of the increased value of the home attributable to his

separate property contribution. A panel of this Court affirmed

the trial court's decision, holding that the wife's testimony was

unrebutted that the entire increase in value was marital property

because she had contributed marital property and significant

personal efforts that resulted in a substantial increase in the

value of the marital residence. See Martin v. Martin, 25 Va.

App. 551, 489 S.E.2d 727 (1997). Upon rehearing en banc, we hold
that the trial court erred by failing to determine the increase

in value of husband's separate property share. We further hold

that the evidence failed to prove that wife contributed marital

property or significant personal efforts that caused an increase

in value of the home. Accordingly, we reverse the trial court's

equitable distribution award. Because the evidence failed to

prove that the increase in value of the home resulted from the

post-purchase expenditure of marital funds or significant

personal efforts for home improvements, we hold that the increase

in value should be proportionally divided between the separate

and marital shares. Therefore, we remand the case for the trial

court to determine how to divide the marital share in accordance

with the Code § 20-107.3(E) factors.

BACKGROUND

Husband and Joyce Kathryn Moses Martin (wife) were married

in 1981. Just before their marriage, husband and his former wife

owned, as tenants in common, a home which was the subject of a

partition sale. Wife, who had been "studying to be a realtor,"

testified that the house which was listed through a real estate

agent for $60,100 was, in her opinion, selling too "cheaply."

She testified she persuaded husband to purchase the house and

later resell it for a profit. They purchased the home for

$60,100 in 1981. Husband contributed $26,634.22 of his separate

property to acquire the home. The parties jointly borrowed

$30,000 and applied that amount toward the purchase price.

- 2 -
Husband claimed the remaining $3,465.78 of the purchase price

came from his separate property received from his previous

divorce.

In 1993, wife filed for divorce. The commissioner in

chancery to whom the case was referred determined the value of

the marital home to be $110,000. The commissioner further found

that husband was entitled to be reimbursed $26,634.22, the amount

of his separate funds contributed to purchase the home, and that

the remaining $83,365.78 was marital property, which should be

equally divided. The effect of the commissioner's finding was to

classify as marital property the entire increase in value of the

home from $60,100 to $110,000 during the twelve years the parties

owned it. The trial court overruled husband's exceptions to the

commissioner's report and by final decree adopted the

commissioner's findings. On appeal, we review the trial court's

holding that wife's initial recommendation that the home would be

a sound investment, and her efforts at painting, wallpapering,

and carpet installation in the home were significant personal

efforts that resulted in a substantial increase in the home's

value.
ANALYSIS

Code § 20-107.3, which governs equitable distribution

awards, requires a trial court to classify and evaluate the

parties' marital and separate properties. The court is no longer

required to classify property as all separate or all marital.

- 3 -
See Smoot v. Smoot, 233 Va. 435, 357 S.E.2d 728 (1987). Applying

Code § 20-107.3(A), the court may classify the property as

separate or marital, or part separate and part marital.

In pertinent part, Code § 20-107.3(A) provides that:
1. Separate property is . . . that part
of any property classified as separate
pursuant to subdivision A3. . . . 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.
2. Marital property is . . . that part
of any property classified as marital
pursuant to subdivision A3 . . . .
3. The court shall classify property as
part marital property and part separate
property as follows:
a. . . . In the case of the
increase in value of separate property during
the marriage, 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.
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 or marital property or personal
effort.
"Personal effort" of a party shall be

- 4 -
 deemed to be labor, effort, inventiveness,
physical or intellectual skill, creativity,
or managerial, promotional or marketing
activity applied directly to the separate
property of either party.

(Emphasis added).

Under Code § 20-107.3(A)(3)(e), when separate and marital

property are commingled to acquire new property, "the commingled

property shall be deemed transmuted to marital property," except

to the extent the property can be retraced and was not a gift.

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. Code § 20-107.3(A)(1), 20-107.3(A)(3)(a).

Once the non-owning spouse overcomes the presumption of

separateness of the increase in value, the burden shifts to the

owning spouse to prove that the increase in value or some portion

thereof was not caused by contribution of marital property or

significant personal effort. Code § 20-107.3(A)(3)(a). 1
1
Code § 20-107.3(A)(1), (2), and (3)(a) provide, in effect,
that when commingled property has been retraced to separate

- 5 -
 In the present case, the parties agreed and the trial court

found that husband had retraced from the commingled funds used to

purchase the house, $26,634.22 as his separate property. The

evidence proved that $30,000 in marital funds were used to

acquire the house. The trial court treated the remaining

$3,465.78 of the purchase price as marital property. Thus,

pursuant to Code § 20-107.3(A)(3)(e), the trial court found that

$26,634.22 of the commingled funds used to purchase the home was

retraceable to separate property, and the remaining $33,465.78 of

the purchase price was traceable to marital property. Although,

on appeal, husband asserts that the trial court erred in not

classifying the $3,465.78 as separate property, husband did not

object to the findings of the commissioner or the trial court

classifying and valuing husband's separate interest at

$26,634.22. We will not consider for the first time on appeal an

issue that was not preserved in the trial court. See Rule 5A:18.

However, the trial court erred in failing to determine the
(..continued)
property, the separate property interest and the increase in
value of that interest shall retain the classification of
separate property unless transmuted into marital property by the
addition of marital property or funds or by the contribution of
significant personal efforts that substantially increase the
value of the separate property interest. However, once the
non-owning spouse has proven that the increase in value of the
separate property interest is transmuted to marital property by
additions of marital funds that caused the increase in value
and/or significant personal efforts that resulted in "substantial
appreciation," the owner of the separate share shall be entitled
to that portion of the increase in value that the owner can prove
was attributable to passive market forces and not caused by the
addition of marital property or expenditure of marital funds and
not by the non-owning spouse's personal efforts.

- 6 -
extent to which husband's separate property interest in the home

increased in value during the twelve years of marriage. See Code

§ 20-107.3(A)(1) ("The increase in value of separate property

during the marriage is separate property . . . ."). The trial

court ruled that the husband was only entitled to a return of his

$26,634.22 separate funds used to purchase the home. 2 The trial

court did not determine whether any portion of the $49,000

increase in value was attributable to a passive appreciation in

market value of property, exclusive of improvements or additions

resulting from marital property contributions, or significant

personal effort. The question we decide here is whether the wife

has overcome the presumption that the increase in value of the

separate property is separate.
Code § 20-107.3(A)(1) expressly provides that the increase

in value of the retraceable separate funds shall be separate

unless the non-owning party proves that all or a portion of the

increase was due to the contribution of marital funds or

significant personal effort. The trial court erred by failing,

as an initial matter, to determine whether and to what extent

husband's separate share increased in value.
2
In returning husband's initial investment, the trial court
relied upon our unpublished opinion in Hauger v. Hauger, 1995 Va.
App. Lexis 206. The trial court misconstrued the holding in
Hauger. In Hauger, we merely rejected the wife's claim that the
trial court erred by awarding to husband as his separate property
the retraceable separate funds that he had contributed to
purchase the marital home. We did not have the occasion to
decide whether the husband was entitled to the passive increase
in value of his separate property.

- 7 -
 We have not adopted an exclusive method for determining how

to apportion the increase in value of retraced separate property.

In Hart v. Hart, 27 Va. App. 46, 65-66, 497 S.E.2d 496, 505

(1998), we approved the "Brandenburg formula" as one method for

ascertaining the value of the separate and marital components of

hybrid property in relation to the original contributions.

Although other methods may be equally acceptable, where the

separate and marital funds were commingled into "newly acquired"

property, by applying the "Brandenburg formula," which we deem

appropriate on these facts, we hold that the husband's

presumptive separate share in the hybrid property valued at
3
$110,000 is $48,748.16. Thus, the increase in value of

husband's retraceable separate funds is $22,113.88. 4 Under the

provisions of Code § 20-107.3(A), the $22,113.88 increase in

husband's separate share is presumed to be separate property.

The trial court should have applied the Brandenburg method, or

another acceptable method, to initially calculate the increase in

value of husband's separate property share of the marital

residence.

We next consider whether the wife, as non-owning spouse,

proved that all or a portion of the increase in value of the

3
$110,000 X ($26,634.22 ÷ $60,100) = $48,748.16. See Hart,
27 Va. App. at 65-66, 497 S.E.2d at 505 (formula that apportions
the marital and non-marital components of hybrid property).
4
$48,748.16 - $26,634.22 = $22,113.88.

- 8 -
retraced separate property was transmuted to marital property.

Wife contends she contributed marital property and significant

personal efforts that resulted in the substantial increase in

value of the home by (1) applying her real estate acumen and

persuading husband to purchase the home and (2) "fixing up" the

home with new "carpet, paint, [and] wallpaper" purchased with

marital funds.

A. Wife's Real Estate "Acumen"
At the commissioner's hearing, wife testified that she was

"studying to be a realtor" when the parties purchased the marital

home. Wife testified that she determined that purchasing the

house for $60,100 was a "good deal" and "felt like [the house]

was worth maybe $79,000." She encouraged husband to invest in

the home using his $26,634.22 equity from the partition sale. In

this regard, wife contends that applying her "real estate

knowledge and acumen" and urging husband to invest in the house

were "significant" personal efforts that resulted in the

immediate appreciation of the parties' $60,100 investment to

$79,000, thereby proportionately increasing the value of

husband's separate interest in the house. Wife's argument fails

for two reasons.

First, wife failed to prove that her real estate knowledge

and efforts to persuade husband to acquire the property resulted

in an increase in the value of husband's separate property. See

Code § 20-107.3(A)(3)(a)(ii). The parties purchased the house

- 9 -
for $60,100 through a court-approved partition sale. Wife

offered no evidence as to the value of the property before or

after the parties purchased the house. She offered no appraisal,

tax records, or proof of comparable sales to establish the value.

She offered no evidence that she had training or experience in

real estate valuation, or that she was capable of appraising real

estate or preparing a market study or comparison of sales to

determine the fair market value of the property. Wife's

unsubstantiated assertion that she "felt" the house was worth

$79,000 should be accorded no weight. Other than her conclusory

assertion that she had some real estate "acumen," wife offered no

evidence to prove the property was more valuable than the price

paid or that husband relied upon her "personal efforts" in

investing in the property. See Code § 20-107.3(A)(3)(a)

("personal efforts must . . . result in substantial appreciation"

(emphasis added)).

Second, even if wife possessed "some real estate knowledge

and 'acumen,'" her suggestion to purchase the property was not a

contribution of a "significant personal effort" as required by

Code § 20-107.3(A). The statute contemplates a significant
personal effort that substantially affects the value of property,

not merely a joint decision that may have been influenced by one

spouse. "Significant" is defined as "having or likely to have

influence or effect; deserving to be considered; important,

weighty, notable." Webster's Third New International Dictionary,

- 10 -
2116 (1981). Wife's efforts were not "significant" factors

affecting the value of the property. Accepting her assertion and

according it its greatest evidentiary value, the evidence proves

nothing more than that she and her husband decided to purchase

the property because she thought it would be a good investment.

Moreover, her estimation that buying the house was a sound

financial decision was not a "personal effort" as contemplated by

the statute. She failed to prove that her "intellectual skill,

creativity, or managerial, promotional or marketing activity

[was] applied directly to the separate property." Code

§ 20-107.3(A)(3)(a) (defining "personal effort").

B. Painting, Wallpapering, and Carpeting

Wife also contends the house appreciated in value from

$79,000 on the date of purchase to $110,000 because she "fixed

[it] up" over the course of the twelve-year marriage. She

attributes none of the increase in value to a passive increase in

market value but rather claims that the entire increase was due

to her personal efforts. Wife testified that she was actively

involved in painting, wallpapering, and installing carpet and

that she expended $5,000 of marital funds to make such

"improvements." She argues the substantial increase in value of

the home, including husband's separate property interest, was

attributable to contributions of marital property and her

significant personal efforts in fixing up the home. We find no

merit in her argument.

- 11 -
 A party does not meet the burden of proving that

"contributions of marital property . . . were made" by merely

establishing that marital funds were expended for customary

maintenance and upkeep of the property. The term "contribution

of marital property" within the meaning of the statute

contemplates an improvement, renovation, addition, or other

contribution which, by its nature, imparts intrinsic value to the

property and materially changes the character thereof. See
Spindler v. Spindler, 558 N.W.2d 645, 650-51 (Wis. Ct. App.

1996). 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 and no evidence to the contrary was presented.

Here, wife's vague claim that over the years she expended

$5,000 for paint, wallpaper, and carpet proved nothing more than

that she used marital funds for the home's customary care,

maintenance, and upkeep. She proved neither when the

expenditures were made nor the amounts she spent for paint,

wallpaper, or carpet. Although installing the carpet may, in

some instances, be an addition or improvement that constitutes a

"contribution of marital property," wife's evidence failed to

prove when and the extent to which carpet was added, the amount

of marital funds expended for the carpet, or that installing

carpet significantly increased the value of the home, including

husband's separate property interest. Accordingly, wife failed

- 12 -
to prove that "contributions of marital property . . . were made"

to the marital home.

Wife further failed to prove that her personal efforts in

fixing up the house were "significant" and "resulted in a

substantial appreciation" of value to the home. For personal

labor contributed to property to be "significant" and to cause or

result in a substantial increase in value, without proof to the

contrary, the personal labor must amount to more than customary

care, maintenance, and upkeep. 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 under the facts of this case.

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.

There is no credible evidence in the record which supports a

finding that wife's efforts in painting, wallpapering, or

carpeting the home "resulted in [the] substantial appreciation"

in the value of the house. Wife's evidence consisted of the

following statements:
Q: And you did the fixing up of the house;
is that correct?

A: I bought the carpet, paint, the
wallpaper, did the labors, yes.

Q: All of those things?

A: Yes.

- 13 -
 Q: And then, apparently, it increased
through your efforts to $110,000?

A: I feel like that is a fair price, yes.

As noted, wife had the initial burden to prove that her personal

efforts "resulted" in the increase in value of the home. Wife's

claim that her efforts in "fixing up the house" caused the home

to appreciate in value from $79,000 to $110,000 is unsupported by

the evidence and fails to meet her burden under the statute.

- 14 -
 CONCLUSION

For the foregoing reasons, we hold that wife failed to meet

her burden of proving that either contributions of marital

property or significant personal efforts resulted in the increase

in value of the marital residence, including husband's separate

property interest. The trial court erred in failing to determine

the increase in value of the husband's separate property and in

classifying the total increase in value of the marital home as

marital property. We hold that husband's separate property

interest in the home is $48,748.16. The remaining $61,251.84

value in the marital home is marital property and must be

allocated between the parties in accordance with the factors

specified in Code § 20-107.3(E). Although the trial court

previously allocated the marital share equally between the

parties, the court did so after having erroneously found wife's

customary efforts in the care, maintenance, and upkeep

sufficiently "significant" to have caused the substantial

increase in value. Notwithstanding wife's failure to meet her

burden of proving that the increase in value of husband's

separate property was transmuted to marital property, she is

entitled to consideration under Code § 20-107.3(E)(2) in

determining whether her "contributions, monetary and nonmonetary

. . . [to the] care and maintenance of the marital property"

preserved the value of the marital home. Accordingly, we reverse

the trial court's decision and remand the case to the trial court

- 15 -
with directions to enter judgment for husband in the amount of

$48,748.16 for his separate property interest and to reconsider

its equitable distribution of the $61,251.84 marital share of the

home in accordance with the Code § 20-107.3(E) factors.

Reversed and remanded.

- 16 -