Court Opinion

ID: 9593534
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:22:58.194562+00
Date Added: 2024-06-11T08:54:31.454212
License: Public Domain

Coleman, J.,
concurring.
I concur with the result and disposition, but I disagree with how the majority treats debts, whether secured or unsecured, in determining a monetary award. Code § 20-107.3 does not provide that debts be considered except as a factor in arriving at the amount of a monetary award. Furthermore, I disagree with the ruling and directive to the trial court that on remand it can reconsider whether the indebtedness was a valid legal obligation. I would hold the debt to be a valid obligation as a matter of law. Additionally, the majority would have the trial court determine on remand whether the encumbrance was created to frustrate the purpose of Code § 20-107.3. For reasons that follow, I do not believe that the trial judge need be concerned with whether the encumbrance was a deliberate attempt to frustrate equitable distribution. Rather, the trial judge need be concerned only with the amount of the indebtedness, whether it is secured or unsecured, the circumstances surrounding the debt, and all other factors listed in Code § 20-107.3(E) in determining a monetary award, if any, and the amount thereof. In other words, under Code § 20-107.3 debt structure is not part of the valuation process, but rather is one factor to consider in determining whether to grant a monetary award and the amount of that award.
One of the primary considerations for trial courts in fashioning an equitable distribution award is the asset-debt structure in relation to the parties’ property. Whether the state’s procedure authorizes courts to divide and distribute assets and assign liabilities or to adjust the net marital wealth by making a monetary award, the *157relationship between assets and liabilities is always a critical consideration.
A panel of this court, of which I was a member, held in Hodges v. Hodges. “Where the marital property is encumbered with indebtedness which equals or exceeds its value, then for purposes of a monetary award it is essentially of no value. Without value, there is no basis for a monetary award.” 2 Va. App. 508, 515, 347 S.E.2d 134, 138 (1986). As the author of Hodges, Chief Judge Koontz undertakes in the majority opinion to “expand on and clarify” the Hodges decision by holding “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.” Thus, the Hodges panel and the majority here hold that a secured indebtedness is to be considered part of the valuation procedure for determining the value of marital property.
Despite my prior concurrence in Hodges, I no longer believe that the legislature intended indebtedness to be considered as part of the valuation process. “If there are . . . ways of gracefully and good naturedly surrendering [my] former views to a better considered position, I invoke them all.” McGrath v. Kristonsen, 340 U.S. 162, 178 (1950) (Jackson, Jr. concurring). I am comfortable with Chief Justice Taney’s prologue: “The matter does not appear to me now as it appears to have appeared to me then.” Id. (citation omitted). In my view, Code § 20-107.3 envisions that the court determine the gross value of marital property in the valuation process. Thereafter, the rights and equities of the parties shall be considered in deciding whether to grant a monetary award and the amount, if any. See Code § 20-107.3(D) and (E). The statute specifies that 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” are factors that must be considered in determining the amount of the award and the method of payment. Code § 20-107.3(E)(7) (emphasis added). The statute makes no distinction between secured and unsecured debts other than that the property which may serve as security will be taken into account.
I believe that Hodges and the majority opinion in this case, while perhaps effecting no inequitable result in the specific sitúa*158tions they address, will require trial courts to follow a procedure that is not provided by statute and has great potential for inequity. For example, an encumbrance upon marital property, whether jointly or severally owned, may well be pledged to secure debts of a third party. Numerous financial transactions occur in the marketplace in which property may be pledged as secondary security for debts, or to guarantee performance, or otherwise serve as collateral without diminishing the real value or equity which the parties have in the property. To rotely reduce the value of marital property under such circumstances, when neither the parties nor the secured property will be required to satisfy the indebtedness, does not accurately reflect the value of marital property for purposes of equitable distribution, nor does it take into account the rights and equities of the parties as mandated by Code § 20-107.3(D). To base the valuation of marital property upon such a conditional or contingent liability is misleading. To base a monetary award upon such an evaluation procedure, particularly where marital property is titled to one party, will unjustly deprive one spouse of his or her rights and equity in marital property and will unjustly enrich the other. Trial courts can not correct such an inequity by increasing the monetary award where the other marital assets are insufficient to warrant an award. In summary, I believe our statute provides that the gross value of marital property be used to determine the marital estate and that the debts of both parties, whether secured or unsecured, shall then be considered in determining the parties’ rights and equities, whether to grant to either a monetary award, and the amount of the award. I would direct the chancellor to follow this procedure on remand.
In my view the majority decision allowing the trial court on remand to reconsider the validity of the indebtedness is improper because the evidence is undisputed that the debt was for purchase money and was represented by a promissory note executed contemporaneously with the deed of conveyance. The transaction occurred in December 1980 and could not have been in anticipation of equitable distribution. While the grandfather may have intended for tax purposes to forgive the obligations as they become due, the debt is nonetheless valid. See Wagner v. Wagner, 4 Va. App. 397, 403-04, 358 S.E.2d 407, 410 (1987). In the event of the grandfather’s death his personal representative would be required to collect the obligation unless otherwise provided. Id. at 404, 358 S.E.2d at 410. Evidence that tax considerations may result in for*159giveness of the debt or that the installments have not been paid are circumstances which the trial court may take into account in fashioning any monetary award; however, I find no justification for the majority’s ruling that the trial court may consider on remand whether the debt is valid. Equitable distribution has not changed established legal principles to authorize trial courts to set aside or nullify written legal obligations except upon clear and convincing proof of fraud, duress or similar equitable doctrines.
Insofar as the majority directing the trial court on remand to consider whether the encumbrance was created to frustrate equitable distribution, it is unclear to me the reason for directing such inquiry. It is of little or no consequence whether the husband intended to frustrate equitable distribution provided the deed of trust secures a valid debt. Except in anticipation of bankruptcy, 11 U.S.C. § 547, a debtor may legally grant a preference to a previously unsecured creditor by pledging property for a prior debt. Code § 8.9-204 (security interest attaches when there is an agreement that the interest attach, value is given, and debtor has rights in collateral). Such practice is desirable and an established part of commercial transactions when unsecured creditors may require security to forbear or extend credit. Equitable distribution has not changed the law of secured transactions. Thus, I would hold that the deed of trust is a valid encumbrance upon the legal title, but I do not believe that the encumbrance affects the value of marital property. I now conclude contrary to Hodges and the majority that even if the intent of one spouse in granting an encumbrance to secure a prior debt was intended to frustrate Code § 20-107.3, the encumbrance, if otherwise valid, remains valid because equitable distribution does not affect legal title. See Code § 20-107.3(B).
I agree with the majority that the monetary award must be remanded for consideration because, in my view, the indebtedness 'is a significant factor which must be considered in arriving at a monetary award. The amount of the award is inexplicable under the facts of this case if the debt is valid and when considered in relation to all factors in Code § 20-107.3(E). The trial court either gave the indebtedness no consideration or gave other factors such weight as to totally nullify any consideration for the indebtedness. Thus, while the trial court is not required to “quantify or elaborate exactly what weight or consideration it has given to each of *160the statutory factors,” where as here the award cannot be explained based upon the record, I would require the trial court to reconsider its award.