Luczkovich v. Luczkovich

COURT OF APPEALS OF VIRGINIA

Present: Chief Judge Fitzpatrick, * Judges Elder and Annunziata
Argued at Richmond, Virginia

MICHAEL L. LUCZKOVICH
OPINION BY
v. Record No. 2975-96-2 CHIEF JUDGE JOHANNA L. FITZPATRICK
FEBRUARY 24, 1998
KATHERINE H. LUCZKOVICH

FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY
John F. Daffron, Jr., Judge
Deanna D. Cook (Bremner & Janus, on briefs),
for appellant.

W. Christopher Currie for appellee.

In this domestic appeal, Michael L. Luczkovich (husband)

contends the trial court erred in its equitable distribution

decision of November 8, 1996. Husband argues that the court

erroneously: (1) classified husband's severance pay as marital

property; (2) classified three mutual funds as marital property;

(3) classified husband's profit sharing retirement plan as

marital property; (4) failed to reduce the proceeds from the sale

of the marital residence by the amount of the equity line balance

on the residence; and (5) classified two accounts as marital

property. Wife contends the court erroneously: (1) failed to

value certain accounts as of the date of separation; (2) failed

to value one account at the date closest to the taking of

evidence; (3) valued wife's vehicle; and (4) failed to award wife

*
On November 19, 1997, Judge Fitzpatrick succeeded Judge
Moon as chief judge.
attorney's fees and costs. For the following reasons, we affirm

in part, reverse in part, and remand.

I. Background

The parties married on October 10, 1981. Husband testified

that he and wife separated in April 1991, but that he did not

recall when he formed the intent for the separation to be

permanent. He admitted that they continued to have sexual

relations throughout the summer of 1991, but that he decided the

marriage was irretrievably broken "the late summer of '91. I

don't know exactly when." Wife testified that she did not

recognize husband's intent to end the marriage until the fall of

1991. She stated: "The way I remember it, it was not ever

initially whether we were going to end the marriage. It was

whether he was going to return to [the marital residence]. He

informed me in November of [1991] that he was not."
The January 5, 1995 final decree of divorce reserved issues

related to the equitable distribution of the parties' marital

property, debts, spousal support, and legal fees. The parties

submitted evidence by deposition, and the attorneys presented

closing arguments on September 1, 1994. On July 13, 1995, the

court indicated to the parties that it had made a preliminary

determination of the estate's value and that it should be divided

equally. The court then deferred formal ruling pending the

resolution of certain issues regarding the division of the

tangible personal property. As of September 1995, no ruling had

2
been made with regard to the marital estate. On September 18,

1995, wife filed a motion to have the value of the various

marital assets updated. The court granted the motion. However,

husband failed to supply the requested information, and wife

withdrew the motion.

The trial court issued its final letter opinion regarding

equitable distribution and attorney's fees on July 31, 1996. The

court "valued the parties' assets as of September 1, 1994, the

date of the evidentiary hearing." The court ruled that, in

accordance with Code § 20-107.3(E), an equal division of the

marital estate was appropriate and each party would receive

$307,557.31 as their equitable award.
The court made the following specific findings:
The Court also includes the Standard Drug
profit sharing plan in the marital
estate. . . . The Court finds that the funds
accumulated in this plan are marital
property.
. . . [T]he Court finds that [the three
Vanguard mutual funds numbered 40, 73, and
21] were funded by transfers from accounts
holding marital funds. The Court notes that
[husband] depleted over $70,000 in marital
funds after the parties [sic] separation.
While [husband] contends that he used these
funds to pay expenses of [wife], [husband]
does not indicate any payee or produce any
cancelled checks and he fails to establish by
a preponderance of the evidence that the
funds were spent in the manner he suggests.
Accordingly, the Court concludes that these
funds were used to establish the three mutual
fund accounts in question and includes the
mutual funds in the marital estate.

* * * * * * *

. . . [T]he Court includes the entire

3
 proceeds from the sale of the marital home,
$51,391.00, in the marital estate.
Finally, after careful consideration,
the Court finds that attorney's fees are not
justified. The Court finds that these fees
were rendered to protect each parties' [sic]
interests and the parties must bear their own
attorney's fees and costs.

A final equitable distribution order was entered on November

8, 1996.

II. Severance Pay

The proper classification of severance pay is an issue of

first impression in Virginia. Husband contends the trial court

erred in classifying his severance pay as marital property. He

argues that his severance pay should be considered his separate

property because he negotiated and received the severance package

two years after the dissolution of the marital partnership, and

the package was not compensation for services provided during the

marriage. We agree.
Husband began working for Standard Drug Company on December

1, 1990. In late June or July 1993, two years after the parties

separated, husband negotiated a severance agreement with Standard

Drug. 1 His position was eliminated on October 11, 1993, as a
1
The "Executive Severance Agreement" included the following
provision:
In recognition of the Executive's substantial
contribution to the Corporation, and to
encourage the Executive to remain with the
Corporation pending the sale of the
Corporation's stock or assets, the
Corporation would like to provide additional
compensation to the Executive if
substantially all the Corporation's stock or
assets are sold. The Board of Directors has

4
result of the company's acquisition by CVS. Husband testified

that the severance package included a lump sum distribution "in

excess of $300,000 pre-tax" and "eight months worth of continuing

salary plus benefits." Without making a specific finding, the

trial court classified the lump sum distribution as marital

property. 2

On appeal, the trial court's award of equitable distribution

will not be reversed "[u]nless it appears from the record that

the [court] has abused [its] discretion, that [it] has not

considered or has misapplied one of the statutory mandates, or

that the evidence fails to support the findings of fact

underlying [its] resolution of the conflict in the equities."
McClanahan v. McClanahan, 19 Va. App. 399, 401, 451 S.E.2d 691,

692 (1994) (citation omitted). Property acquired after the last

separation is presumed to be separate unless the party claiming

otherwise proves that the property "was acquired while some

vestige of the marital partnership continued or was acquired with

marital assets." Dietz v. Dietz, 17 Va. App. 203, 211-12, 436

S.E.2d 463, 469 (1993). "Where partnership efforts have

contributed nothing to the acquisition . . . of the property, no

determined that the compensation to be
provided under this Agreement is reasonable
compensation for the services rendered and to
be rendered by the Executive.

(Emphasis added).
2
The classification of the continuing salary and benefits
portion of the package is not contested on appeal.

5
basis exists for its being classified as a marital asset." Id.

at 211, 436 S.E.2d at 468.

Although the classification of severance pay is a question

of first impression in Virginia, several sister states have

addressed this issue. Those decisions provide that the

touchstone of the classification is whether the severance pay was

intended to compensate the employee for efforts made during the

marriage or to replace post-separation earnings. See, e.g.,
Franklin v. Franklin, 859 P.2d 479 (N.M. Ct. App. 1993), cert.

denied, 858 P.2d 1274 (N.M. 1993) (severance pay received after

divorce as compensation for future earnings is separate

property); Ressler v. Ressler, 644 A.2d 753 (Pa. Super. 1994)

(severance pay is separate property). 3

The nature of post-separation severance pay as replacement

for post-separation wages supports a classification of separate

property.
Severance pay compensates the wage earner for
the economic exigencies and detriments
resulting from permanent separation from
service without fault . . . [and] is intended
primarily to alleviate the consequent need
for economic readjustment and to compensate
for certain losses attributable to dismissal.

In re Marriage of Bishop, 729 P.2d 647, 649 (Wash. App. 1986)

(severance pay is separate property and distinguishable from

3
But see Brotman v. Brotman, 528 So.2d 550 (Fla. Dist. Ct.
App. 1988) (severance pay received after separation but before
dissolution was acquired during the marriage and is marital
property).

6
deferred compensation). Accord In re Holmes, 841 P.2d 388 (Colo.

Ct. App. 1992) (although based on length of service provided

during the marriage, severance payment is conditional on

termination and replaces expected loss of income, therefore it is

separate property). See also Ryan v. Ryan, 619 A.2d 692, 695

(N.J. Super. Ct. Ch. Div. 1992) (severance payment where amount

was based on husband's past services to employer was compensation

for past labor and therefore marital property. However, "[i]f

the payment [had been] intended to replace post-marital earnings,

it [would be] separate property."). Additionally, severance pay

is "a mere expectancy"; it has no value until the termination of

employment. Bishop, 729 P.2d at 650. Consequently, when

termination does not occur during the marital partnership and the

right to severance pay is not established during the marriage,

severance pay is separate property. See Biddlecom v. Biddlecom,

495 N.Y.S.2d 301 (N.Y. App. Div. 1985) (severance pay is

husband's separate property because the right to receive the

payout did not exist prior to the commencement of the divorce

action).

As a replacement for lost future wages, which is contingent

upon termination, a severance package is analogous to an early

retirement incentive plan. Several states have found that

post-separation payments under such incentive plans are the

employee's separate property. 4 See McClure v. McClure, 647
4
But see, e.g., In re Heupel, 936 P.2d 561 (Colo. 1997) (en
banc) (voluntary separation incentive payments are retirement pay

7
N.E.2d 832, 841 (Ohio Ct. App. 1994), cert. denied, 645 N.E.2d

1260 (Ohio 1995) (despite being based on years of service, armed

forces voluntary separation incentive payments are analogous to

severance payments which "attempt to compensate . . . for future

lost wages" and are therefore separate property); LaBuda v.

LaBuda, 503 A.2d 971 (Pa. Super. 1986), cert. denied, 524 A.2d

494 (Pa. 1987) (early retirement incentives are not marital

property where husband's right to receive the benefits did not

accrue prior to the parties' separation; wife could not have

expected to enjoy these payments since neither party knew husband

would receive the payments until after they separated); Boger v.
Boger, 405 S.E.2d 591 (N.C. App. 1991) (payment under early

retirement incentive plan is separate property).

In the instant case, at the time of the separation husband

had been employed with Standard Drug for only a few months.

Neither party expected the sale of Standard Drug. Husband

negotiated the severance agreement almost two years after the

parties separated. Consequently, the severance package is

presumed to be separate property. To overcome the presumption,

wife bears the burden of showing the lump sum payment compensated

husband for services rendered during the marriage. See Dietz, 17

Va. App. at 211-12, 436 S.E.2d at 469.

rather than severance pay and are marital property); Fisher v.
Fisher, 462 S.E.2d 303 (S.C. Ct. App. 1995) (voluntary separation
incentive payments are tantamount to retirement benefits and are
marital property).

8
 On its face, the executive severance agreement indicated

that the package was in recognition of husband's "substantial

contribution to the Corporation, and to encourage the Executive

to remain with the Corporation pending the sale" and "for the

services rendered and to be rendered." Wife argues that this

language proves that the severance pay was intended as

compensation for services rendered during the marriage. However,

the agreement also stated that the Executive would receive the

severance compensation "if substantially all the Corporation's

stock or assets are sold." The entire severance package,

including the lump sum payment, was contingent upon the

occurrence of a condition: the sale of Standard Drug. This

condition did not occur during the marriage, and, as a

consequence, husband's right to the lump sum payment did not

accrue before the separation. The purpose of the severance

agreement was related to the sale of the corporation, not to

husband's work during his marriage. Consequently, we hold that

wife failed to meet her burden, and the trial court erred in

classifying the lump sum payment as marital property.
III. Vanguard Mutual Funds

Between July 18 and December 11, 1991, husband opened

Vanguard Mutual Funds 21, 40 and 73, titled in his name. Wife

offered evidence that husband opened the accounts with money

transferred from the parties' marital account. Husband testified

that the funds were established after separation with his

9
post-separation earnings. On June 30, 1993, Fund #21 had a

balance of $18,295.61, Fund #40 had a balance of $26,290.30, and

Fund #73 had a balance of $13,025.35.

The trial court found the three accounts "were funded by

transfers from accounts holding marital funds" and that after the

separation, husband "depleted over $70,000 in marital funds."

Although husband argued that he used this money to pay wife's

expenses, the trial court found that he "fail[ed] to establish by

a preponderance of the evidence that the funds were spent in the

manner that he suggests." The trial court concluded "that these

funds were used to establish the three mutual fund accounts in

question," and it included the mutual funds in the marital

estate. After the trial court's final letter opinion, husband

provided his own summaries of the sources of the mutual fund

money.
Husband argues the trial court abused its discretion by

classifying the three mutual funds as marital property. 5 This

argument lacks merit. Property acquired after separation is

presumed to be separate property unless the party claiming

otherwise demonstrates that it was obtained with marital funds.
See Dietz, 17 Va. App. at 210, 436 S.E.2d at 468. "In

determining whether credible evidence exists [to support the

court's finding,] the appellate court does not retry the facts,

5
Although husband addressed the question of the $70,000 as a
waste issue, this was not the approach of the trial court.

10
reweigh the preponderance of the evidence, or make its own

determination of the credibility of witnesses." Moreno v.

Moreno, 24 Va. App. 190, 195, 480 S.E.2d 792, 795 (1997)

(citation omitted). In the instant case, wife offered credible

evidence that the mutual funds were established with marital

assets. The trial court did not abuse its discretion in finding

the mutual funds to be marital property.

IV. Profit Sharing Plan
Husband began working for Standard Drug on December 1, 1990,

and began participation in the company profit sharing plan on

July 1, 1991. The trial court classified the plan as a marital

asset and valued it at $22,976.63, the balance as of December 31,

1993.

Husband argues that the parties separated before he became

eligible to contribute to the plan and that Code § 20-107.3(G)(1)

requires the profit sharing plan to be valued at the time of

separation. 6 He claims the plan did not exist at the time of

separation and concludes that the entire balance is his separate

property.

Although the parties physically separated in April 1991 and

husband asserts that he formed the intent to terminate the
6
"The court may direct payment of a percentage of the
marital share of [a profit-sharing plan] . . . which constitutes
marital property . . . . 'Marital share' means that portion of
the total interest, the right to which was earned during the
marriage and before the last separation of the parties, if at
such time or thereafter at least one of the parties intended that
the separation be permanent." Code § 20-107.3(G)(1).

11
marriage in the late summer of 1991, he did not evince that

intent until November 1991. Husband could not simply rest on his

argument that the separation occurred before the profit sharing

plan began. The trial court had discretion to conclude that the

separation occurred after the profit sharing plan began, and once

it did so, the burden shifted to husband to establish the amount

of his post-separation contributions and how much of the plan was

his separate property. "'All property including that portion

of . . . [a profit-sharing plan] acquired by either spouse . . .

before the last separation of the parties . . . is presumed to be

marital property in the absence of satisfactory evidence that it

is separate property.'" Frazer v. Frazer, 23 Va. App. 358, 370,

477 S.E.2d 290, 295 (1996) (quoting Code § 20-107.3(A)(2)).

Husband failed to provide evidence establishing the portion of

the plan that was his separate property, relying instead on his

contention that the plan was entirely separate. It was within

the trial court's discretion to reject this argument and classify

the entire balance as marital when husband failed to provide

evidence sufficient to determine how much of the plan was his

separate property.

V. Equity Line on Marital Residence

During the marriage and prior to December 1993, the parties'

marital home was encumbered by a mortgage and an equity line of

credit. Shortly after they filed for divorce, the parties

refinanced the mortgage and paid off the equity line. Without

12
consulting wife, husband borrowed against the equity line of

credit. In June 1994 the new outstanding balance was

approximately $44,000. 7 Husband asserted that he used $14,000 to

pay "[t]he mortgage payment and all the utilities [sic] bills and

so forth associated with [the marital residence]" for wife, and

he used the balance "for investment purposes for which I owe the

money back. She does not have any interest or obligation for

that difference." When asked what he did with this money,

husband answered that he "loaned it to [his] businesses."

Husband provided no evidence of these loans.
On December 7, 1994, the parties received $26,270.14 in net

proceeds from the sale of the marital residence. The equity line

balance on the property was $25,121.41 at that time. According

to husband's testimony, he spent $14,000 of the equity line funds

on marital expenses for wife. The trial court disregarded the

equity line balance, valued the property at $51,391, and included

it in the marital estate.

Husband contends the trial court abused its discretion by

failing to discount the value of the marital residence by the

amount of the outstanding balance on the equity line of credit.

As a general rule, "the use of [marital] funds for living

expenses while the parties are separated does not constitute

dissipation." Clements v. Clements, 10 Va. App. 580, 587, 397
7
During this period of time husband was being paid over
$10,000 a month from his severance package and his net pay was
approximately $6,000 per month.

13
S.E.2d 257, 261 (1990) (citations omitted). However, "the burden

is on the party who last had the funds to establish by a

preponderance of the evidence that the funds were used for living

expenses or some other proper purpose." Id. at 587, 397 S.E.2d

at 261. Husband had exclusive control of the equity line funds.

He incurred the debt without authority from wife, and he offered

insufficient proof of his use of these funds for marital

expenses. Consequently, the trial court did not abuse its

discretion by implicitly classifying the equity line debt as

husband's separate responsibility and valuing the marital home

without including the equity line.
VI. Vanguard IRA and Davenport Account

The balance of husband's Vanguard IRA at the parties'

separation was $73,122.39. The balance as of October 1993 was

$47,161.50. Husband testified that the value decreased due to

the market decline and that he made no withdrawal or transfer of

funds from this particular IRA. He also stated that the funds in

this account came from "self-employment earnings" from 1988-1990.

The trial court valued this asset as of the date of the

evidentiary hearing at $118,529.80.

At the time of separation, the equity in the Davenport

account was $8,534. The balance as of October 1993 was $42,394.

Husband testified that the increase in this account came from

the market increase. He stated that he "believed" he had

deposited $20,000 since the parties' separation, but he could not

14
remember where this amount came from. The trial court valued

this asset as of the date of the evidentiary hearing at

$50,444.50.

Husband argues the trial court erred in classifying these

accounts as entirely marital, since he deposited money in them

after the separation. Property is presumed to be marital if it

was "acquired by either spouse during the marriage, and before

the last separation of the parties," unless evidence proves that

the property is separate. Code § 20-107.3(A)(2). In the instant

case, husband offered only his own testimony to establish that

the deposits into these accounts were his separate property.

"'The weight which should be given to evidence and whether the

testimony of a witness is credible are questions which the trier

of fact must decide.'" Morse v. Commonwealth, 17 Va. App. 627,

631, 440 S.E.2d 145, 147-48 (1994) (quoting Bridgeman v.

Commonwealth, 3 Va. App. 523, 528, 351 S.E.2d 598, 601 (1986)).

Absent credible evidence establishing the separate nature of at

least a portion of the funds, we cannot hold that the trial court

erred in classifying these accounts as marital assets.

VII. Wife's Additional Issues

Wife contends the trial court erred in valuing her Ford

Escort at $9,500 rather than $8,500, as indicated by the only

evidence submitted on the issue. The court provided no

explanation for its deviation from the evidence, and the basis

for the $9,500 value does not appear in the record. Because the

15
trial court's value for wife's vehicle lacks evidentiary support

and may be merely a typographical error, we remand for

determination of the proper value.

Wife also argues that the trial court erred in failing to

value Vanguard account #5195-1030 as of the date closest to the

evidentiary hearing on September 1, 1994. Wife contends the

proper value of the account is $84,089.40, the value in August

1994, while the court valued the account at $42,722.88, its value

in 1993. In its letter opinion, the trial court indicated that

the parties' assets were valued "as of September 1, 1994," and it

valued the other assets as close to that date as possible. The

court offered no explanation for its failure to use the August

1994 statement to value account #5195-1030. We hold that the

trial court erred in treating this asset differently without

explanation, and we remand for determination of the proper value.
Additionally, wife contends the trial court erred in valuing

four of the parties' joint accounts as of the date of the

evidentiary hearing rather than the date of separation. Wife

claims the combined value of these accounts was $125,545.98 when

the parties separated while the combined value at the time of the

evidentiary hearing was $34.45. Wife concedes that the inclusion

of mutual fund accounts 21, 40 and 73 recovered $60,036.91, but

she argues the remaining $65,509.07 is unaccounted for.

Under Code § 20-107.3(A), at least twenty-one days before

the evidentiary hearing, a party may submit a motion for an

16
alternate valuation date. Wife failed to file a motion to value

the property as of the date of separation. While wife did file a

motion to update values, she subsequently withdrew it.

Consequently, we cannot hold that the trial court abused its

discretion in valuing the parties' assets as of September 1,

1994, the date of the evidentiary hearing.

Wife lastly argues the trial court erred in failing to award

her attorney's fees and costs. She contends the disparity in the

parties' incomes and their relative resources requires reversal.

An award of attorney's fees lies within the sound discretion of

the trial court. See Stumbo v. Stumbo, 20 Va. App. 685, 460

S.E.2d 591 (1995). In the instant case, the trial court gave

"careful consideration" to the question of attorney's fees and

found that an award of fees was not justified. We cannot hold

the court abused its discretion in declining to award attorney's

fees and costs. For the foregoing reasons, we affirm in part,

reverse in part, and remand.
Affirmed in part,
reversed in part,
and remanded.

17