COURT OF APPEALS OF VIRGINIA
Present: Judges Humphreys, Chafin and AtLee Argued at Lexington, Virginia

BENNY JOE DIXON MEMORANDUM OPINION * BY v. Record No . 1689-18-3 JUDGE TERESA M. CHAFIN APRIL 23, 2019 SCARLETT JEAN LOY DIXON

FROM THE CIRCUIT C OURT OF LEE COUNTY Jeffrey Hamilton, Judge Timothy W. McAfee (Timothy W. M cAfee, PLLC, on brief), for appellant. Thomas R. Scott, Jr. (Street Law Firm, LLP, on brief), for ap pellee.
Benny Joe Dixon (“the husband”) ch allenges an equitable distri bution decision from the Circuit Court of Lee County. He presents three assignments of error on appeal pertaining to a farm and residence owned by the pa rties. The husband contends that the circuit court erred by failing to (1) classify the far m and residence as hybrid proper ty, (2) determine the value of the marital share of the farm and r esidence, and (3) conclude that he adequately traced separate funds that were contributed t o the farm and residence. In an a dditional assignment of error, the husband argues that the circu it court erred by failing to “adju st the equitable distribution award” based on the payment of the separ ate debt of Scar lett Jean Loy Dixon (“the wife”) with marital funds. Upon review, we conclude t hat the husband failed to tra ce the alleged separate contributions to the parties’ farm and residence. We also conc lude that the husband failed to

* Pursuant to Code § 17.1-413, this op inion is not designated fo r publication.UNPUBLISHED- 2 - prove that the alleged marital con tributions to the wife’s sepa rate debt created any marital equity in her separate property. Accordi ngly, we affirm the circuit c ourt’s decision.
I. BACKGROUND “When reviewing a [circuit] court’s decision on appeal, we view the evidence in the light most favorable to the prevai ling party, granting it the benefit of any reasonable inferences.” Congdon v. Congdon, 40 Va. App. 255, 258 (2003). So viewed, th e evidence is as follows. 1 The parties married on July 23, 2005. Both the husband and th e wife owned separate assets at the time of their ma rriage. The wife owned a commerc ial rental property in Tennessee, and the husband owned a home in Kentucky. The husband also own ed a significant amount of stock in Arch Coal, Inc. Both t he husband and the wife were ga infully employed at the time of their marriage, and they each earned a substantial income. Around the time of their marri age, the parties decided to purc hase a farm in Lee County and build a house on the property. T he parties planned to fina nce the purchase and construction project using their separate funds and a loan secured by the hu sband’s home in Kentucky. On October 12, 2005, the parties bought a farm for $69,500. They subsequently improved the property and eventually built their marital home there. An app raisal of the Lee County property that was introduced into eviden ce indicated that the constructi on of the parties’ home was completed in 2009. The husband sold a substantial a mount of Arch Coal stock in th e same year that the parties purchased the Lee Count y farm. The record presented inthis case estab lished that the husband sold 931 shares of stock on January 1, 2005, for $31,95 5.48; 1,907 shares of stock on April 20, 2005, for $83,126.90; and 1,650 s hares of stock on Se ptember 6, 2005, for

1 The majority of our discussion of t he evidence presented in th is case comes from our review of the record rather th an our review of the appendix. S ee Rule 5A:25(h) (permitting this Court to consider parts of the record that are not included in the appendix).- 3 - $102,010.23. While numerous deposits were made into the husban d’s BB&T checking account throughout 2005, these deposits did not directly correspond to the husband’s stock sales. On September 30, 2005, the husband wr ote a check from his BB&T account for $6,950. On November 15, 2005, the husband wrot e another check from the BB&T account for $63,983.67. While the husband maintaine d that these checks wer e written for the purchase of the Lee County farm, the bank stateme nts pertaining to the BB&T acc ount did not indicate to whom the checks were written. A dee d of trust document was admitted into evidence that confirmed that the parties obtained a mo rtgage on the husband’s Kentucky home on October 14, 2005, consistent with their initial plan to obtain a loan to partiall y finance the purchase of the Lee County farm and the const ruction of their home. The bank statements from the husband’s BB&T account establishe d that it was converted into the joint checking account of the husband and the wife aro und March 8, 2007. After that date, both parties deposited their income into the BB&T account

. 2 The parties paid their bills and living expenses using funds from the BB&T account. They al so made payments on a debt that the wife owed on her separate property in Tennessee. Thro ughout their marriage, the parties paid approximately $700 per month from the BB&T account to sati sfy the debt on the wife’s Tennessee property. The parties separated on September 5, 2015. Both the husband and the wife filed complaints for divorce, and each of them requested the circuit court to equitably distribute their marital property. The husband ar gued that he contributed separ ate funds obtained from the sale of his Arch Coal stock to purchas e the Lee County farm and fina nce the construction of the parties’ marital home. The husba nd maintained that he should b e compensated for these separate

2 Although the wife retired fro m her employment in 2009 due to adisability, she continued to deposit approxima tely $80,000 into the BB&T accoun t each year.- 4 - contributions to the property. T he husband also argued that th e circuit court’s equitable distribution award should reflect t hat the wife’s separate debtwas paid using marital funds. In response, the wife maintain ed that both parties contributed separate funds for the purchase of the Lee County farm and the construction of their m arital residence. The wife also emphasized that the parties obtai ned a loan to p artially financ e the purchase of the farm and the construction project. While the w ife conceded that marital fun ds were used to pay the debt she owed on her Tennessee property, sh e noted that she deposited he r personal income into the BB&T account from which the payments were made. On July 12, 2018, the circuit court issued an opinion letter s etting forth its equitable distribution decision. Referen cing the loan obtained by the pa rties, the circuit court classified the Lee County farm and residence as marital property. The circuit court ultimately awarded the vast majority of the parties’ rea l and personal property to the husband and granted the wife a monetary award corresponding to h alf of the value of the partie s’ marital property. The circuit court declined to award the husba nd any credit or setoff based on his alleged contributions of separate property to the parties ’ farm and residence or the pay ment of the wife’s separate debt with marital funds. On August 23, 2018, the husband filed amotion requesting the circuit court to reconsider its equitable distribution d ecision. In his motion, the husban d argued that the Lee County farm and the marital residence we re hybrid property. The husband ma intained that he contributed separate funds obtained from the s ale of his Arch Coal stock to purchase this pr operty and that the bank statements of the BB&T account traced these contributi ons. The husband also argued that the circuit court failed t o consider that the wife’s separ ate debt on her Tennessee property was paid with marital funds thr oughout the parties’ marriage. The circuit court denied the- 5 - husband’s motion to reconsider a nd entered a final decree of di vorce incorporating its prior opinion letter on September 25, 2018 . This appeal followed.
II. ANALYSIS The husband’s four assignments of error address two primary arg uments. The husband contends that the circuit court erred by failing t o conclude th at he traced his separate monetary contributions to the parties’ farm and residence to the extent necessary to allow t hose assets to be classified as hybrid property. T he husband also argues that th e circuit court failed to adequately consider that the wife’s separ ate debt was reduced using marita l funds. We disagree with both of the husband’s arguments.
A. THE HUSBAND FAILED TO TRACE HIS SEPARATE C ONTRIBUTIONS TO THE PARTIES’ FARM AND RESIDENCE The husband maintains that the circuit court erred by classifyi ng the parties’ farm and residence as marital property. T he husband maintains that he c ontributed $175,000 of his separate funds to purchase the fa rm and construct the parties’ marital home. 3 Furthermore, the husband contends that he traced t he contribution of his separat e funds through the bank statements of the parties’ BB&T account that he introduced into evidence. Thus, the husband argues that the farm and reside nce should have been classified as hybrid property and that the circuit court should have determi ned the value of the marital p ortion of the farm and residence. The circuit court’s classification of pr operty is a finding of fact that “will not be reversed on appeal unless it is plainly w rong or without evidence to sup port it.” Ranney v. Ranney, 45 Va. App. 17, 31-32 (2005). Pursu ant to Code § 20-107.3, proper ty may be classified as

3 The husband’s brief states that “[t]he total amount of separat e funds used to purchase the land, build the home and purchase [farm] equipment was $175 ,000.” While we conclude that the evidence presented in this c ase failed to trace the husband ’s separate contributions to the parties’ farm and residence, we note that the evidence also fai led to establish how much of the alleged $175,000 contribution was u sed to purchase farm equipme nt.- 6 - “separate,” “marital,” or “pa rt marital . . . and part separate .” See Code § 20-107.3(A)(1)-(3). Code § 20-107.3(1)(A)(i) defines “s eparate property” as “all pr operty, real and personal, acquired by either party before the marriage.” Separate proper ty also includes “all property acquired during the marriage in e xchange for or from the procee ds of sale of separate property, provided that such property acqui red during the marriage is mai ntained as separate property.” Code § 20-107.3(A)(1)(iii). In cont rast, “marital property” in cludes “all property titled in the names of both parties,” Code § 20-107.3(A)(2)(i), and “all othe r property acquired by each party during the marriage which is not separate property,” Code § 20- 107.3(A)(2)(iii). “Property acquired during the marriage is pr esumptively marital property, unless shown to be separate property.” Ranney, 45 Va. App. at 32. Code § 20-107.3(A)(3) addresses “part marital . . . and part s eparate” property. This property is commonly known as “hybrid” property. See, e.g., Ra nney, 45 Va. App. at 33. Code § 20-107.3(A)(3)(e) applies when ne w property is acquired throu gh the contribution of both marital and separate property. When marital property and separate property are commingled into newly acquired property resulting in the loss of identity of th e contributing properties, the com mingled property shall be deeme d transmuted to marital propert y. However, to the extent the contributed property is retraceable by a preponderance of the evidence and was not a gift, the c ontributed prop erty shall ret ain its original classification. Code § 20-107.3(A)(3)(e). Similarly, Code § 20-107.3(A)(3)(g) applies when new property is acquired through the contributi on of the separate property of e ach party. When . . . the separate property of each party is commingled in to newly acquired property, to the e xtent the contributed property is retraceable by a preponderance of the evidence and was not a gi ft, each party shall be reimbursed t he value of the contributed property in any award made pursuant to this section. Code § 20-107.3(A)(3)(g).- 7 - The party seeking to segregate t he separate portion of hybrid property bears t he burden of tracing the separate compone nt of the property. See Hamad v. H amad, 61 Va. App. 593, 602 (2013). In order to trace the separate portion of hybrid property, a pa rty must prove that the claimed sep arate portion is identifiably de rived from a separate asset. This proc ess involves two steps: a par ty must (1) establish the identi ty of a portion of hybrid property and (2) directly trace that portion to a separate asset. Rahbaran v. Rahbaran, 26 Va. App. 195, 208 (1997). “If the party claiming a separat e interest in property acquired during the marriage fails to provide sufficient tracing evide nce, an asset purchased with bo th marital and separate funds ‘shall be deemed transmuted t o marital property.’” Ranney, 45 Va. App. at 34-35 (quoting Code § 20-107.3(A)(3)(e)). When separate and marital property are c ommingled “to the point that direct tracing is impossible, the claimed separate property los es its separate status.” McIlwain v. McIlwain, 52 Va. App. 644, 658- 59 (2008) (quoting Rahbaran, 26 Va. App. at 208). “[E]ven if a party can prove that some part of a n asset is separate, if the court cannot determine the separate amount, the unknown amount contribute d from the separate source transmutes by commingling and becomes marital property.” Ranney, 45 Va. App. at 35 (quot ing Rahbaran, 26 Va. App. at 208-09). In the present case, the husband failed to trace his alleged co ntributions to the parties’ farm and residence to his sepa rate property. Although the husb and contends that he sold the Arch Coal stock that he acquired b efore the parties’ marriage a nd contributed the proceeds to the purchase of the parties’ farm a nd the construction of their hom e, the record in this case did not establish that the p roceeds from the sale of the Arch Coal stoc k were actually used for these
purposes.- 8 - While the husband introduced a n exhibit showing that he sold s ignificant amounts of Arch Coal stock in 2005, the husba nd did not provide any eviden ce to establish where he deposited the proceeds of the sales. The bank statements of th e BB&T account showed that numerous deposits were made into the account throughout 2005. The bank statements, however, did not indicate the source of m ost of these deposits. Moreove r, none of the deposits that were made into the BB&T account duri ng 2005 matched the dollar amoun ts that the husband realized when he sold the Arch Coal s tock. Although the husband may hav e first deposited the proceeds of stock sales into a different savings or bank account before moving the proceeds to the BB&T account, he did not provide any bank records to prove that thes e deposits were made or any evidence to that effect at trial. Without evidence establishing t hat the separate funds the husba nd obtained through the sale of his Arch Coal stock were deposited into the BB&T accoun t (or deposited into another account and subsequently transfe rred to the BB&T account), the husband could not prove that the funds from the BB&T account that were used to purchase the parties’ farm and build their house were his separate funds. A s noted by the circuit court, the funds from the BB&T account that were used to purchase the farm and build the parties’ hous e may have been acquired through the loan the parties obtained dur ing their marriage. Both part ies acknowledged that they obtained a loan to finance the purchase of the Lee County farm and the construction of their home on that property, and a deed of trust document was admitte d into evidence that confirmed the parties obtained such a loan on October 14, 2005, two days after they bought the Lee County farm. Additionally, the evidence pres ented in this case suggested tha t some of the funds that the parties used to purchase the Lee County farm and build their ho me came from marital income. Even if the husband deposited the proceeds of the sale of his A rch Coal stock into the BB&T- 9 - account, those funds would have bee n commingled with the partie s’ marital income that was also deposited into the account. “Whe n a spouse commingles separate and marital funds in a single account created during the marriag e, the spouse claiming a sepa rate share must shoulder the burden of tracing. If he cannot do s o, the account remains who lly marital.” McIlwain, 52 Va. App. at 658 (quoting Robbins v. Robbins, 48 Va. App. 466, 4 78-79 (2006)). Although the BB&T account was owne d solely by the husband when the parties were married on July 23, 2005, he continued to deposit his monthly i ncome into the account following the parties’ marriage. As th e parties bought the Lee County fa rm on October 12, 2005, the purchase of the farm may have b een partially financed by the hu sband’s marital income. Moreover, the bank statements of the BB&T account established that the wife began depositing her income into the account around March 8, 2007. Therefore, a ny funds from the BB&T account that were used to finance the construction of the parti es’ home after this date may have originated from the marital income of either party. For these reasons, we conclude t hat the evidence presented in this case failed to trace the husband’s alleged separate contri butions to the parties’ farm a nd residence. Because the husband failed to establish where he depos ited the proceeds of the sale of his Arch Coal stock, he failed to prove that those funds were used to purchase the Lee County far m or build the parties’ house on that property. The evidence pr esented in this case implied tha t loan proceeds and marital income may have been used to purchase the farm and finance the constru ction of the marital residence. As the husband failed to trace hi s separate contributions to th e parties’ farm and residence, the circuit court did not e rr by classifying the m as marital property. See Hamad, 61 Va. App. at 602 (“If any link in the tracing c hain cannot be proven . . . the a sset is marital property.” (quoting 1 Brett R. Turner, Equitable Distribution of Property § 5:63, at 638 (3d ed. 2005))). In turn, the- 10 - circuit court did not err by failing to determine the value of the separate and marital portions of the farm and residence.
B. THE HUSBAND FAILED TO TRACE THE MARITAL C ONTRIBUTIONS TO THE WIFE’S SEPARATE DEBT TO AN INCREASE IN THE EQUITY OF THE WIFE’S SEPARATE PROPERTY The husband also contends that th e circuit court erred by faili ng to consider that the parties used marital funds thr oughout their marriage to pay the debt that the wife owed on her separate property. The husband arg ues that the undisputed evid ence presented in this case established that the parties paid approximately $700 per month from their BB&T account to reduce the debt on the wife’s Te nnessee property. Thus, the hu sband contends that the wife’s separate debt was reduce d by $84,000 during the course of their ten-year marriage. We acknowledge that the circuit court’s equitable distributiondecision did not expressly reference the marital funds tha t were used to reduce the wife’s separate debt on her Tennessee property. 4 Nevertheless, we conclude tha t the husband failed to sufficie ntly trace the alleged marital contributions to the wi fe’s Tennessee property. In ess ence, the husband argues that the wife’s separate Tennessee prope rty became hybrid property becau se the parties used marital income to pay the debt owed on the property throughout their ma rriage. The husband maintains that these payments created a marital component of the wife’s s eparate property. When marital property and separat e property are commingled by contributing one category of prope rty to another, resulting in the loss of identity of the contrib uted property, the classificatio n of the contributed property shall be transmuted to the category of property receiving the contribution. However, to the extent th e contributed property is retraceable by a preponderance of the

4 We also note that the husband presented a similar argument to the circuit court in both his post-trial brief and his motion to reconsider. In light of these pleadings, it appears that the circuit court considered the hus band’s argument and rejected it

.- 11 - evidence and was not a gift, suc h contributed property shall re tain its original classification. Code § 20-107.3(A)(3)(d). Pursuant to Code § 20-107.3(A)(3)(d), the marital income that the parties contributed to the wife’s separate property t hrough the payment of her debt tr ansmuted to separate property, “the category of property receiv ing the contribution,” unless t he contributed marital income was “retraceable by a preponderance of the evidence.” Therefore, t he husband was required to present sufficient evidence tracing the marital contributions t o the wife’s separate debt if he wished for those contributions to retain their original marital classification and t hereby create a marital interest in the wife’s Tennessee property. See Code § 20-107.3(A)(3)(d). This Court addressed a similar case in Moran v. Moran, 29 Va. App. 408 (1999). In that case, a party owed a separate debt on property that she purchas ed before her marriage. Moran, 29 Va. App. at 411. The party and h er husband subsequently pai d the debt using marital funds. Id. On appeal, this Court conclude d that the property at issue was correctly classified as hybrid property rather than separat e property because the husband pres ented “sufficient evidence to establish that a portion of th e equity in the . . . property co uld be traced to marital funds.” Id. at 414. While this Court acknowledged t hat the parties “commingle d marital funds with separate property, resulting in the presumption that the marital funds w ere transmuted to separate property,” id. at 413, it conclude d that the husband traced the marital funds to a corresponding reduction in the principal of t he debt owed on the property at issue. See id. (“[T] o the extent the marital funds reduced the principal of the mortgage, that amoun t is traceable from the separately acquired equity.”). In the present case, the eviden ce unequivocally demonstrated t hat the parties paid the debt that the wife owed on her separate property using marital funds. The evidence, however, did not establish that the marital payments reduced the princip al of the wife’s debt. Unlike the- 12 - husband in Moran, the husband in this case did not present adeq uate evidence to establish the amount of equity the wife acquire d in the Tennessee property as a result of the marital payments. The husband failed to conclusively establish the principal bala nce that the wife owed on the debt when the parties married or the pr incipal balance that the wife owed on the debt when the parties separated. Although the wife testified in her deposition 5 that she owed “maybe $45,000” on the Tennessee property when the partie s married, this claim was mer ely an estimate that was not supported by any additional documen tary evidence. Notably, the wife also testified that “the balance [of the debt] when we we nt into the marriage and the ba lance when we ended the marriage was about the same, r eally.” Although the parties pai d $700 per month on the wife’s debt, the husband did not present a ny evidence to establish tha t the principal owed on the debt was reduced by this amount with each monthly payment. Moreover , additional deposition testimony implied that the part ies may have obtained other loan s during their marriage that were secured by the wife’s Tennessee property. These loans may have actually increased the amount of the debt owed on the property. Under these circumstances, the circuit court could not possibl y calculate the “extent the marital funds reduced the pr incipal of the [debt].” See id. Thus, the husband failed to trace the marital contributions to a corr esponding marital equity in the Tennessee property. As the husband did not trace the marital contributions to an increase in equity in the wife’s separate property, the marital contributi ons transmuted to separate prop erty pursuant to Code § 20-107.3(A)(3)(d). Consequently, the circuit court did not e rr by classifying the Tennessee property as the wife’ s separate property.

5 The June 29, 2016 deposition of the wife and the July 11, 2016 deposition of the husband were admitted into evidence in this case.- 13 - III. CONCLUSION In summary, we conclude that th e husband failed to present evi dence that adequately traced his alleged separate contributions to the parties’ farm and residence. He also failed to present evidence tracing the alle ged marital contributions to the wife’s separate debt to any increase in equity in the wife ’s Tennessee property. For these reasons, we hold that the circuit court did not err by classifying the parties’ farm and residenc e as marital property and the wife’s Tennessee property as her separ ate property. Accordingly, we a ffirm the circuit court’s decision. Affirmed.