Case Name: HAROLD TERRENCE TRIVETT v. CONSTANCE BONITA RATLIFF TRIVETT
Court: Court of Appeals of Virginia
Jurisdiction: Virginia
Decision Date: 1988-09-06
Citations: 7 Va. App. 148
Docket Number: No. 0286-87-3
Parties: HAROLD TERRENCE TRIVETT v. CONSTANCE BONITA RATLIFF TRIVETT
Judges: 
Reporter: Virginia Court of Appeals Courts
Volume: 7
Pages: 148–160

Head Matter:
Salem
HAROLD TERRENCE TRIVETT v. CONSTANCE BONITA RATLIFF TRIVETT
No. 0286-87-3
Decided September 6, 1988
Counsel
George M. Warren, Jr. (Warren & Dickert, on brief), for appellant.
J. D. Bowie (Bowie, Robinson & Bates, on brief), for appellee.

Opinion:
Opinion
KOONTZ, C.J.
This case involves an appeal from an award of equitable distribution. The issue raised on appeal is whether the trial court erred in the amount of the monetary award granted to the wife.
The essential facts are not in dispute. Harold and Constance Trivett were married on March 30, 1973. They separated on May 13, 1985. By deed dated December 23, 1980, and properly recorded in the clerk's office of the Circuit Court of Buchanan County, Harold's maternal grandparents conveyed to Harold their one-half undivided interest in a commercial building in Grundy, Virginia. Harold's parents owned the remaining one-half undivided interest in this property. A family owned retail clothing store was operated in this building.
Harold testified that, in consideration for this conveyance, he executed and delivered a promissory note dated December 23, 1980, in the sum of $64,000 bearing six percent interest payable to his grandparents. This note was unsecured. Harold's grandfather testified that he twice credited the note for $5,000, although no such payments were actually made. He testified that at least on one occasion he had "torn up" one $5,000 check given to him by Harold.
After Constance filed for a divorce, Harold executed a deed of trust on the property in question, securing the payment of the original promissory note at the request of his grandfather. This deed of trust was properly recorded in the appropriate clerk's office on June 14, 1985. Harold's grandfather testified that this was done on the advice of his accountant "for tax purposes."
By decree entered on February 4, 1987, Constance was granted a final divorce on the ground of continuous and uninterrupted separation for a period in excess of one year. The parties have mutually accepted the trial court's rulings concerning their various real and personal property except for the aforementioned commercial property.
An expert witness testified that the value of Harold's one-half interest was $42,500. Harold testified that its value was $50,000. The trial court found that Harold's interest was marital property and granted Constance a monetary award of $25,000. For purposes of this decision we will assume that the trial court found the value of Harold's interest was $50,000.
On appeal, Harold contends that the trial court failed to consider the indebtedness on this property and thus erred in its valuation of this property for purposes of granting a monetary award to Constance. Specifically, he relies upon our decision in Hodges v. Hodges, 2 Va. App. 508, 347 S.E.2d 134 (1986). In Hodges, we held: "Where the marital property is encumbered with indebtedness which equals or exceeds its value, then for purposes of a monetary award [pursuant to Code § 20-107.3] it is essentially of no value. Without value, there is no basis for a monetary award." Id. at 515, 347 S.E.2d at 138. In reply, Constance correctly points out that we qualified our holding in Hodges. Where one party encumbers the marital property with indebtedness in anticipation of divorce and to deliberately frustrate the provisions of Code § 20-107.3 the trial court would not, and we think should not, be precluded from granting an award, notwithstanding the indebtedness secured by the encumbrance on the marital property. Id. at 515 n.2, 347 S.E.2d at 138 n.2.
Based on the contentions of the parties in this case, we take this opportunity to expand on and clarify our decision in Hodges. We note at the outset that Hodges concerned valuation of marital property, not classification of marital property. Once the property of the parties is properly classified as marital, the determination to grant a monetary award and the amount of the award is controlled by the equities and rights and interests of the parties in the marital property and not by legal title. However, to the extent that a valid indebtedness which is secured creates an encumbrance on the legal title, that indebtedness must be considered by the trial court in determining the value of the marital property for purposes of determining the amount of the monetary award. In most cases, indebtedness is incurred and encumbrances are created on property which is subsequently classified as marital property during the routine financial dealings of the parties during the marriage and not in anticipation of divorce. Thus in Hodges, where there was no allegation that the encumbrances on the property that was classified as marital property were created in anticipation of divorce or to deliberately reduce the resulting value of the marital property, we held that upon a determination that such property is encumbered with indebtedness which equals or exceeds its value, then for purposes of a monetary award it is essentially of no value. In short, without value in the marital property, the marriage partnership simply has accummulated no wealth to be distributed between the partners of the marriage.
Our qualification in Hodges was intended to address those cases in which, based on the evidence, the trial court determined that an encumbrance on the property classified as marital property was created in anticipation of divorce and deliberately to reduce or eliminate the value of such property for the purpose of reducing or eliminating a monetary award to a spouse and thus to frustrate the provisions of Code § 20-107.3. Upon such a determination, the trial court is permitted to include the unemcumbered value of the marital property within the pool of the marital wealth from which it determines the amount of the award. This determination must be based on evidence which establishes a deliberate attempt to defeat a monetary award and not merely the fact that a previously unsecured creditor is granted a security interest in the marital property.
In order to clarify our decision in Hodges, we stressed in that case a valid indebtedness was secured by a valid encumbrance on the property which was classified as marital property. No allegations that the indebtedness or the encumbrance which secured it were fraudulent, shams or an attempt to frustrate a monetary award were involved. Thus, a secured debt, unlike an unsecured debt, because it is an encumbrance on the property which is classified as marital property reduces the value of such property for purposes of determining the amount of a monetary award. However, nothing in Hodges was intended to imply that a valid unsecured debt was not to be considered by the trial court; Code § 20-107.3 mandates to the contrary. An unsecured debt is not an encumbrance on the property classified as marital property and therefore it simply does not affect the value of such property. Likewise, in qualifying Hodges, we intended to address only those cases in which the indebtedness is valid but that indebtedness is subsequently secured by creating an encumbrance on the property classified as marital property deliberately to reduce or eliminate a monetary award. Thus, the controlling factor is not that an encumbrance exists on the property classified as marital property but, rather, that the encumbrance was created deliberately to re duce the value of the marital property and consequently the amount of the monetary award and thus to frustrate the provisions of Code § 20-107.3. Again, under those circumstances the indebtedness must be considered by the trial court but the encumbrance which secures that indebtedness does not reduce the value of the marital property for purposes of determining the amount of the monetary award. Obviously, if the original indebtedness is not valid, is fraudulent, or a sham, or is created deliberately to frustrate the provisions of Code § 20-107.3, the principles of Hodges are not applicable.
Our difficulty with this case is with the trial court's application of these principles upon the facts in the record before us. That record is totally void of the trial court's basis for reaching its conclusion with regard to the equitable distribution award. We find nothing in the court's decree, the depositions, or the statement of facts, which indicates that the trial court determined whether the encumbrance on the property which secured Harold's indebtedness was deliberately created to frustrate the provisions of Code § 20-107.3. Moreover, we cannot determine from the record the basis for granting the monetary award, assuming that the encumbrance was not created for that purpose.
All of the provisions of Code § 20-107.3 must be followed in making an equitable distribution decision. See, e.g., Brinkley v. Brinkley, 5 Va. App. 132, 136, 361 S.E.2d 139, 140 (1987); Clayberg v. Clayberg, 4 Va. App. 218, 222, 355 S.E.2d 902, 904 (1987). We will not simply assume, in every instance, that the trial court has followed this settled law in granting a monetary award, particularly when it appears that one or more factors is difficult to reconcile with the award or the award is inexplicable based on the facts, when we are required to review on appeal an issue arising under this Code section. We must be able to determine from the record that the trial court has given substantive consideration to the evidence as it relates to the provisions of this Code section. Woolley v. Woolley, 3 Va. App. 337, 345, 349 S.E.2d 422, 426 (1986). In reviewing awards of spousal support and child support we have held: " 'This does not mean that the trial court is required to quantify or elaborate exactly what weight or consideration it has given to each of the statutory factors. It does mean, however, that the court's findings must have some foundation based on the evidence presented.' " Wagner v. Wagner, 4 Va. App. 397, 410, 358 S.E.2d 407, 414 (1987)(relating to the statutory factors enumerated in Code § 20-107.2); Woolley v. Woolley, 3 Va. App. 337, 345, 349 S.E.2d 422, 426 (1986)(relat-ing to the statutory factors enumerated in Code § 20-107.1). We believe this reasoning is equally applicable to monetary awards made pursuant to Code § 20-107.3. Accordingly, we hold that in determining to grant a monetary award or in determining the amount of the monetary award, if the court's findings are not supported by the evidence in the record, the court has abused its discretion, and the court's determination must be reversed.
In this case, the trial court's resolution of the issue of the indebtedness and the encumbrance which secured it on the property in question is inseparable from its decision to grant the monetary award and the amount of the award. In that regard, Constance argues on brief first that Harold does not owe a "bona fide debt" to his grandfather, and second, that the encumbrance was created deliberately to frustrate the provisions of Code § 20-107.3. This first argument is self-defeating because the property would have been classified necessarily as separate property if acquired by Harold as a gift from his grandparents. Code § 20-107.3(A)(l)(ii). Harold concedes that the debt is valid and the property was properly classified as marital. A finding that the property was marital necessarily negates a gift from the grandparents. Only marital property is subject to a monetary award. Code § 20-107.3(D). It is apparent, therefore, that the trial court determined that Harold owed a valid debt to his grandfather for the purchase of this property. Beyond the determination that the property was marital, however, the record is silent concerning the foundation for the monetary award. Code § 20-107.3(E)(7) requires the trial court, in determining the amount of the monetary award, to consider "the debts and liabilities of each spouse, the basis for such debts and liabilities, and the property which may serve as security for such debts and liabilities." (emphasis added). This provision requires that debts of each spouse must be considered, whether secured or unsecured. Where the debt is secured by an encumbrance on specific property which is classified as marital property, our decision in Hodges provides that the amount of the indebtedness should be deducted from the unencumbered value of such property; the trial courts can then determine the "value" of the "marital" property for purposes of a monetary award. Where the debt is not secured by an encumbrance on the marital property, the debt must nevertheless be considered by the court, but the debt does not reduce the value of the marital property.
Thus, in the present case, having determined the property to be marital, the trial court was further required to determine whether Harold's previously unsecured indebtedness was later converted to a secured indebtedness on the specific property deliberately to frustrate the provisions of Code § 20-107.3.
We recognize that the amount of the monetary award is within the sound discretion of the trial court. The wisdom, if not the practicality, of such a rule is self-evident. Appellate courts do not and cannot stand in the equivalent position of trial courts in weighing the evidence presented by the parties. We also recognize the difficult tasks faced by the trial courts in determining an equitable monetary award. However, where as here, a determination of the value of marital property is dispositive of the amount of a monetary award, that determination by the trial court must be reviewable and have a foundation in the evidence presented. In this case, if the indebtedness was secured by a valid encumbrance on the property, not created deliberately to frustrate a monetary award, there is no basis for the amount of the monetary award to Constance because the property has no value for purposes of a monetary award. The mere fact that the encumbrance was created after the divorce was filed is not dispositive of the issue, though it may create a suspicion of an attempt to dissipate a basis for a monetary award. This is particularly true where the original debt has been found to be otherwise valid. We did not mean to imply in Hodges that the mere, delay in recording an encumbrance for an otherwise valid debt amounts to a deliberate attempt to frustrate Code § 20-107.3. More importantly, in the present case the record does not reveal such a finding by the trial court or any additional facts upon which such a finding could have been made.
We are left to conclude that, on the record before us, without a foundation in the evidence or findings of facts and conclusions of law by the trial court to support the monetary award, that the trial court abused its discretion in granting the monetary award to Constance. We believe, however, that if the encumbrance on the property in question was created deliberately to frustrate the provisions of Code § 20-107.3, and consequently the debt is considered unsecured for purposes of that Code section, a basis may exist for granting a monetary award to Constance. This determination must be left to the trial court.
For these reasons, we reverse the trial court's award and remand this case for further proceedings consistent with this opinion.
Reversed and remanded.
Keenan, J., concurred.
The appropriateness of this procedure as it applies to the trial court's consideration of all of the provisions of Code § 20-107.3 is not raised in this appeal, and consequently we do not address it here.
In Hodges both parties agreed that the property in question was properly classified as marital. Thus, the issue there was whether the indebtedness created essentially a negative balance sheet with regard to the value of the property.
Appellant's brief refers to a written opinion by the trial court without reciting its contents and that opinion has not been made a part of the record before us. Counsel, however, does not contend that this opinion contains a basis or explanation for the trial court's conclusions.