Title: Gilliam v. McGrady
Citation: N/A
Docket Number: 090958
State: Virginia
Issuer: Virginia Supreme Court
Date: April 15, 2010

Present:  Hassell, C.J., Keenan,1 Koontz, Lemons, Goodwyn, and 
Millette, JJ., and Russell, S.J. 
 
LOUISE B. GILLIAM 
             OPINION BY 
SENIOR JUSTICE CHARLES S. RUSSELL 
v.  Record No. 090958  
           April 15, 2010 
 
ARTHUR L. MCGRADY 
 
FROM THE COURT OF APPEALS OF VIRGINIA 
 
 
This appeal from a decree in an equitable distribution 
proceeding presents a question concerning the presumptions and 
burden of proof applicable to the apportionment between 
husband and wife of debts incurred during marriage. 
Facts and Proceedings 
 
Louise B. Gilliam (wife) and Arthur L. McGrady (husband) 
were married in 1990 and separated in 2005.  Both were 
employed when they married, but the husband lost his job in 
1999 and, with his wife’s agreement, decided to open his own 
business as a painting contractor.  In 2000, he formed Premier 
Painting, LLC, which he operated until 2004.  The husband was 
solely responsible for the operation of the business and had 
the sole authority to sign checks.  He refused to discuss 
business affairs with his wife, telling her that she had no 
business sense.  
                     
1 Justice Keenan participated in the hearing and decision 
of this case prior to her retirement from the Court on 
March 12, 2010. 
 
In the first year of Premier Painting’s operation, the 
wife became aware that the husband owed the Internal Revenue 
Service unpaid payroll taxes.2  She told him repeatedly that he 
must pay the taxes, but he responded that he could not afford 
to pay them and that she had no business sense.  Although the 
wife raised this question with him at least monthly, the taxes 
remained unpaid.  
 
The husband decided to close Premier Painting in 2004.  
During the years of its operation, the business produced net 
revenue of approximately $214,000.  From this revenue, the 
husband transferred approximately $53,350 to the wife’s 
checking account to be used for household expenses.  The 
husband testified that he had also paid some household 
expenses directly from his business account. 
 
Both parties were aware that they were living beyond 
their means and each considered the primary cause of their 
financial problem to be unnecessary expenses incurred by the 
other party.  By October 2006, the husband owed the IRS 
$118,287.69 in unpaid trust fund taxes, penalties and 
interest.  He also owed $103,820 for his unpaid personal 
                     
2 Employers are required by federal law to withhold 
federal income taxes and social security taxes from employees’ 
wages as “a special fund in trust for the United States.”  
Such withholdings are called “trust fund taxes.”  Slodov v. 
United States, 436 U.S. 238, 243 (1978). 
 
 
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federal income taxes and $13,969.36 for his unpaid Virginia 
income taxes.3 
 
In October 2006, the wife filed a complaint for divorce 
and equitable distribution of the couple’s property in the 
Circuit Court of Albemarle County, based on a one-year 
separation.  At the trial, the principal issue was the wife’s 
liability, if any, for the unpaid trust fund taxes, including 
penalties and interest, incurred by Premier Painting during 
its years of operation.  The circuit court ruled that although 
there was no specific evidence of where the money saved from 
non-payment of the trust fund taxes went, the court found that 
both parties had benefited from the non-payment, and that the 
wife had the burden of showing how and why the debt was 
incurred and the “purpose of the expenditure [of the proceeds] 
of the debt.”  The court ruled that the trust fund taxes, 
including penalties and interest, were marital debt.4 
 
The wife appealed to the Court of Appeals presenting only 
the questions whether the circuit court had erred in holding 
that the trust fund taxes were marital debt and that the wife 
                     
3 The income taxes are not involved in this appeal.  The 
parties had been filing separate income tax returns since 
2001. 
4 Because the wife had made efforts to secure payment of 
the trust fund taxes as early as 2001, the court ordered the 
husband to pay 65% of the penalties and interest due; the wife 
to pay 35%.  The principal amount of the taxes due was to be 
divided equally between the parties. 
 
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had the burden of proving that they were not.  A panel of the 
Court of Appeals, in a unanimous published opinion, held that 
the circuit court did not err in placing the burden of proof 
on the wife, further ruling that debt should be treated like 
property, subject to a statutory presumption that it is 
marital unless one party carries the burden of proving that 
the debt is separate.  The Court’s opinion states:  
 
While the statute only creates a presumption 
for "all property" acquired during the marriage, we 
see no principled reason why the presumption should 
not apply to debt acquired during the marriage.  
Property and debt are both components of an 
equitable distribution award. 
 
Gilliam v. McGrady, 53 Va. App. 476, 483, 673 S.E.2d 474, 478 
(2009).  Although the Court of Appeals approved the circuit 
court’s ruling with respect to the burden of proof, its final 
order reversed the case in part, holding that the circuit 
court had erred in failing to properly consider the statutory 
factors required to classify the trust fund tax debt.  The 
Court remanded the case to the circuit court “to consider the 
purpose of the trust fund tax debt, as well as who benefited 
from it, in order to classify that debt as marital or separate 
. . . .”  Id. at 488, 673 S.E.2d at 480.  We awarded the wife 
an appeal. 
 
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Analysis 
 
The wife assigns no error to that part of the opinion of 
the Court of Appeals that reverses the circuit court’s 
judgment for failure to give proper consideration to the 
statutory factors required to classify the debt.  We agree 
with the reasoning of the Court of Appeals explaining that 
ruling and, for the reasons stated in the opinion of the Court 
of Appeals, we will affirm that part of its order remanding 
the case to the circuit court for proper consideration of 
those factors.  Accordingly, we will confine our consideration 
to the questions of presumptions and burden of proof.  Because 
these are pure questions of law concerning statutory 
interpretation, we review them de novo.  Antisdel v. Ashby, 
279 Va. 42, 47, 688 S.E.2d 163, ___ (2010). 
 
The equitable distribution statute, Code § 20-107.3, 
provides for the classification, in matrimonial causes, of 
assets and debts differently.  Code § 20-107.3(A) empowers the 
circuit courts to determine the legal title to property 
between spouses, to determine its ownership and value, and to 
classify property as marital or separate property in 
accordance with the detailed rules set forth in subsection 
(A)(3) of that statute.  Subsection (A)(2) of the statute 
expressly creates a presumption that all property acquired by 
either spouse during marriage is marital property and places 
 
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the burden of proving otherwise on the party claiming that it 
is separate property. 
 
There is a marked contrast between that treatment of 
assets and the legislative prescription, in the same statute, 
for the apportionment of debts in an equitable distribution 
proceeding.  Code § 20-107.3(C) provides in pertinent part: 
The court shall also have the authority to apportion 
and order the payment of the debts of the parties, 
or either of them, that are incurred prior to the 
dissolution of the marriage, based upon the factors 
listed in subsection E. 
 
Subsection (E) provides, in pertinent part: 
[T]he apportionment of marital debts, and the method 
of payment shall be determined by the court after 
consideration of the following factors: 
 
 
. . . . 
 
7. 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; 
 
. . . . 
 
11. Such other factors as the court deems necessary 
or appropriate to consider in order to arrive at a 
fair and equitable monetary award. 
 
The equitable distribution statute contains no provisions 
creating a presumption or allocating a burden of proof with 
regard to the apportionment of debts between spouses. 
 
Equitable distribution proceedings ancillary to divorce 
are entirely creatures of statute, first introduced into the 
 
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law of Virginia in 1982.  1982 Acts ch. 309; see also Rexrode 
v. Rexrode, 1 Va. App. 385, 394, 339 S.E.2d 544, 549, (1986).  
It is not the function of the courts to add to or amend clear 
statutory language.  BBF, Inc. v. Alston Power, Inc., 274 Va. 
326, 331, 645 S.E.2d 467, 469 (2007); see also Anderson v. 
Commonwealth, 182 Va. 560, 566, 29 S.E.2d 838, 841 (1944) 
("Courts are not permitted to rewrite statutes").  We will 
assume that the General Assembly chose its language with care 
and will apply it as written.  Barr v. Town & Country Props., 
Inc., 240 Va. 292, 295, 396 S.E.2d 672, 674 (1990). 
 
In framing Code § 20-107.3, the General Assembly clearly 
knew how to create a presumption and allocate the burden of 
proof, having explicitly done just that with respect to 
assets, in enacting subsection (A)(2).  For policy reasons 
that can be well imagined, the General Assembly chose to omit 
parallel provisions with respect to debts, giving to the 
courts only the general guidance contained in subsection 
(E)(7) and (11), quoted above.5 
                     
5 A presumption that all debts incurred during marriage 
are marital would have a negative effect on the stated 
legislative goal of "arriv[ing] at a fair and equitable 
monetary award."  Code § 20-107.3(E)(11).  That effect is 
clearly illustrated by the circumstances of the present case.  
The wife had no knowledge of the business affairs of Premier 
Painting and no means of controlling its non-payment of taxes.  
Far from condoning or encouraging the husband's failure to pay 
them, she insisted that they be paid as soon as she became 
aware of the situation and immediately began filing separate 
 
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We conclude that no presumption exists with respect to 
the classification of debts incurred by spouses during 
marriage, individually or jointly.  Instead, traditional rules 
concerning the allocation of the burden of proof apply.  Thus, 
the party proving that a debt was jointly incurred makes a 
prima facie showing that the debt is marital, shifting to the 
party contending otherwise the burden of persuading the court 
that the debt was separate.  Conversely, proof that a debt was 
incurred by a single spouse makes a prima facie showing that 
the debt is separate, shifting to the party contending 
otherwise the burden of persuading the court that it was 
marital.  In making its decision, the court will be guided by 
the factors set forth in Code § 20-107.3(E) “in order to 
arrive at a fair and equitable monetary award.” 
Conclusion 
 
Because the circuit court and the Court of Appeals erred 
by applying a presumption that the debt to the IRS 
individually incurred by the husband for unpaid trust fund 
taxes was a marital debt and in placing the burden on the wife 
to prove otherwise, we will reverse the judgment of the Court 
                                                                
income tax returns.  Because the husband kept his business 
affairs secret from her, she had no way of knowing the extent 
to which the husband's failure to pay taxes may have benefited 
the family's finances, if at all.  As the circuit court found, 
there was no specific evidence of where the money went that 
had been obtained from the husband's non-payment of taxes. 
 
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of Appeals to that extent.  We will affirm the judgment of the 
Court of Appeals insofar as it reversed the circuit court’s 
decision for its failure to properly consider the statutory 
factors for classifying and apportioning the debt.  We will 
remand the case to the Court of Appeals with direction to 
remand the same to the circuit court for further proceedings 
consistent with this opinion. 
Affirmed in part, 
                                          reversed in part, 
                                           
 and remanded. 
 
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