Court Opinion

ID: 4389619
Source: CourtListenerOpinion
Date Created: 2019-04-23 13:45:34.977516+00
Date Added: 2024-06-11T13:31:37.601196
License: Public Domain

COURT OF APPEALS OF VIRGINIA

              Present: Judges Humphreys, Chafin and AtLee
UNPUBLISHED

              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 COURT OF LEE COUNTY
                                                                     Jeffrey Hamilton, Judge

                                           Timothy W. McAfee (Timothy W. McAfee, PLLC, on brief), for
                                           appellant.

                                           Thomas R. Scott, Jr. (Street Law Firm, LLP, on brief), for appellee.

                            Benny Joe Dixon (“the husband”) challenges an equitable distribution 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 parties. The husband contends that the circuit court erred by

              failing to (1) classify the farm and residence as hybrid property, (2) determine the value of the

              marital share of the farm and residence, and (3) conclude that he adequately traced separate

              funds that were contributed to the farm and residence. In an additional assignment of error, the

              husband argues that the circuit court erred by failing to “adjust the equitable distribution award”

              based on the payment of the separate debt of Scarlett Jean Loy Dixon (“the wife”) with marital

              funds. Upon review, we conclude that the husband failed to trace the alleged separate

              contributions to the parties’ farm and residence. We also conclude that the husband failed to

                                                                          
                            *
                                Pursuant to Code § 17.1-413, this opinion is not designated for publication.
prove that the alleged marital contributions to the wife’s separate debt created any marital equity

in her separate property. Accordingly, we affirm the circuit court’s decision.

                                                               I. BACKGROUND

              “When reviewing a [circuit] court’s decision on appeal, we view the evidence in the light

most favorable to the prevailing party, granting it the benefit of any reasonable inferences.”

Congdon v. Congdon, 40 Va. App. 255, 258 (2003). So viewed, the evidence is as follows.1

              The parties married on July 23, 2005. Both the husband and the wife owned separate

assets at the time of their marriage. The wife owned a commercial rental property in Tennessee,

and the husband owned a home in Kentucky. The husband also owned a significant amount of

stock in Arch Coal, Inc. Both the husband and the wife were gainfully employed at the time of

their marriage, and they each earned a substantial income.

              Around the time of their marriage, the parties decided to purchase a farm in Lee County

and build a house on the property. The parties planned to finance the purchase and construction

project using their separate funds and a loan secured by the husband’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 appraisal of the Lee County property

that was introduced into evidence indicated that the construction of the parties’ home was

completed in 2009.

              The husband sold a substantial amount of Arch Coal stock in the same year that the

parties purchased the Lee County farm. The record presented in this case established that the

husband sold 931 shares of stock on January 1, 2005, for $31,955.48; 1,907 shares of stock on

April 20, 2005, for $83,126.90; and 1,650 shares of stock on September 6, 2005, for

                                                            
              1
         The majority of our discussion of the evidence presented in this case comes from our
review of the record rather than our review of the appendix. See Rule 5A:25(h) (permitting this
Court to consider parts of the record that are not included in the appendix).
                                                -2-
$102,010.23. While numerous deposits were made into the husband’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 wrote a check from his BB&T account for $6,950.

On November 15, 2005, the husband wrote another check from the BB&T account for

$63,983.67. While the husband maintained that these checks were written for the purchase of the

Lee County farm, the bank statements pertaining to the BB&T account did not indicate to whom

the checks were written. A deed of trust document was admitted into evidence that confirmed

that the parties obtained a mortgage on the husband’s Kentucky home on October 14, 2005,

consistent with their initial plan to obtain a loan to partially finance the purchase of the Lee

County farm and the construction of their home.

              The bank statements from the husband’s BB&T account established that it was converted

into the joint checking account of the husband and the wife around 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 also made payments on a debt

that the wife owed on her separate property in Tennessee. Throughout their marriage, the parties

paid approximately $700 per month from the BB&T account to satisfy 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 argued that he contributed separate funds obtained from the sale

of his Arch Coal stock to purchase the Lee County farm and finance the construction of the

parties’ marital home. The husband maintained that he should be compensated for these separate

                                                            
              2
        Although the wife retired from her employment in 2009 due to a disability, she
continued to deposit approximately $80,000 into the BB&T account each year.
                                             -3-
contributions to the property. The husband also argued that the circuit court’s equitable

distribution award should reflect that the wife’s separate debt was paid using marital funds.

       In response, the wife maintained that both parties contributed separate funds for the

purchase of the Lee County farm and the construction of their marital residence. The wife also

emphasized that the parties obtained a loan to partially finance the purchase of the farm and the

construction project. While the wife conceded that marital funds were used to pay the debt she

owed on her Tennessee property, she noted that she deposited her personal income into the

BB&T account from which the payments were made.

       On July 12, 2018, the circuit court issued an opinion letter setting forth its equitable

distribution decision. Referencing the loan obtained by the parties, the circuit court classified the

Lee County farm and residence as marital property. The circuit court ultimately awarded the

vast majority of the parties’ real and personal property to the husband and granted the wife a

monetary award corresponding to half of the value of the parties’ marital property.  The circuit

court declined to award the husband any credit or setoff based on his alleged contributions of

separate property to the parties’ farm and residence or the payment of the wife’s separate debt

with marital funds.

       On August 23, 2018, the husband filed a motion requesting the circuit court to reconsider

its equitable distribution decision. In his motion, the husband argued that the Lee County farm

and the marital residence were hybrid property. The husband maintained that he contributed

separate funds obtained from the sale of his Arch Coal stock to purchase this property and that

the bank statements of the BB&T account traced these contributions. The husband also argued

that the circuit court failed to consider that the wife’s separate debt on her Tennessee property

was paid with marital funds throughout the parties’ marriage. The circuit court denied the

                                                -4-
husband’s motion to reconsider and entered a final decree of divorce incorporating its prior

opinion letter on September 25, 2018. This appeal followed.

                                                               II. ANALYSIS

              The husband’s four assignments of error address two primary arguments. The husband

contends that the circuit court erred by failing to conclude that he traced his separate monetary

contributions to the parties’ farm and residence to the extent necessary to allow those assets to be

classified as hybrid property. The husband also argues that the circuit court failed to adequately

consider that the wife’s separate debt was reduced using marital funds. We disagree with both of

the husband’s arguments.

              A. THE HUSBAND FAILED TO TRACE HIS SEPARATE CONTRIBUTIONS TO
                 THE PARTIES’ FARM AND RESIDENCE

              The husband maintains that the circuit court erred by classifying the parties’ farm and

residence as marital property. The husband maintains that he contributed $175,000 of his

separate funds to purchase the farm and construct the parties’ marital home.3 Furthermore, the

husband contends that he traced the contribution of his separate funds through the bank

statements of the parties’ BB&T account that he introduced into evidence. Thus, the husband

argues that the farm and residence should have been classified as hybrid property and that the

circuit court should have determined the value of the marital portion of the farm and residence.

              The circuit court’s classification of property is a finding of fact that “will not be reversed

on appeal unless it is plainly wrong or without evidence to support it.” Ranney v. Ranney, 45
Va. App. 17, 31-32 (2005). Pursuant to Code § 20-107.3, property may be classified as

                                                            
              3
          The husband’s brief states that “[t]he total amount of separate 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 case failed to trace the husband’s separate contributions to the
parties’ farm and residence, we note that the evidence also failed to establish how much of the
alleged $175,000 contribution was used to purchase farm equipment.
                                                 -5-
“separate,” “marital,” or “part marital . . . and part separate.” See Code § 20-107.3(A)(1)-(3).

Code § 20-107.3(1)(A)(i) defines “separate property” as “all property, real and personal,

acquired by either party before the marriage.” Separate property also includes “all property

acquired during the marriage in exchange for or from the proceeds of sale of separate property,

provided that such property acquired during the marriage is maintained as separate property.”

Code § 20-107.3(A)(1)(iii). In contrast, “marital property” includes “all property titled in the

names of both parties,” Code § 20-107.3(A)(2)(i), and “all other 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 presumptively 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 separate” property. This

property is commonly known as “hybrid” property. See, e.g., Ranney, 45 Va. App. at 33. Code

§ 20-107.3(A)(3)(e) applies when new property is acquired through 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 the
               contributing properties, the commingled property shall be deemed
               transmuted to marital property. However, to the extent the
               contributed property is retraceable by a preponderance of the
               evidence and was not a gift, the contributed property shall retain 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 contribution of the separate property of each party.

               When . . . the separate property of each party is commingled into
               newly acquired property, to the extent the contributed property is
               retraceable by a preponderance of the evidence and was not a gift,
               each party shall be reimbursed the value of the contributed
               property in any award made pursuant to this section.

Code § 20-107.3(A)(3)(g).

                                               -6-
          The party seeking to segregate the separate portion of hybrid property bears the burden of

tracing the separate component of the property. See Hamad v. Hamad, 61 Va. App. 593, 602

(2013).

                 In order to trace the separate portion of hybrid property, a party
                 must prove that the claimed separate portion is identifiably derived
                 from a separate asset. This process involves two steps: a party
                 must (1) establish the identity 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 separate interest in property acquired during the marriage fails to

provide sufficient tracing evidence, an asset purchased with both marital and separate funds

‘shall be deemed transmuted to marital property.’” Ranney, 45 Va. App. at 34-35 (quoting Code

§ 20-107.3(A)(3)(e)). When separate and marital property are commingled “to the point that

direct tracing is impossible, the claimed separate property loses 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 an asset is separate, if the court cannot determine the separate

amount, the unknown amount contributed from the separate source transmutes by commingling

and becomes marital property.” Ranney, 45 Va. App. at 35 (quoting Rahbaran, 26 Va. App. at

208-09).

          In the present case, the husband failed to trace his alleged contributions to the parties’

farm and residence to his separate property. Although the husband contends that he sold the

Arch Coal stock that he acquired before the parties’ marriage and contributed the proceeds to the

purchase of the parties’ farm and the construction of their home, the record in this case did not

establish that the proceeds from the sale of the Arch Coal stock were actually used for these

purposes.

                                                   -7-
        While the husband introduced an exhibit showing that he sold significant amounts of

Arch Coal stock in 2005, the husband did not provide any evidence to establish where he

deposited the proceeds of the sales. The bank statements of the BB&T account showed that

numerous deposits were made into the account throughout 2005. The bank statements, however,

did not indicate the source of most of these deposits. Moreover, none of the deposits that were

made into the BB&T account during 2005 matched the dollar amounts that the husband realized

when he sold the Arch Coal stock. Although the husband may have 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 these deposits were made or any

evidence to that effect at trial.

        Without evidence establishing that the separate funds the husband obtained through the

sale of his Arch Coal stock were deposited into the BB&T account (or deposited into another

account and subsequently transferred 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. As noted by the circuit court, the funds from the BB&T account

that were used to purchase the farm and build the parties’ house may have been acquired through

the loan the parties obtained during their marriage. Both parties 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 admitted 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 presented in this case suggested that some of the funds that the

parties used to purchase the Lee County farm and build their home came from marital income.

Even if the husband deposited the proceeds of the sale of his Arch Coal stock into the BB&T

                                               -8-
account, those funds would have been commingled with the parties’ marital income that was also

deposited into the account. “When a spouse commingles separate and marital funds in a single

account created during the marriage, the spouse claiming a separate share must shoulder the

burden of tracing. If he cannot do so, the account remains wholly marital.” McIlwain, 52
Va. App. at 658 (quoting Robbins v. Robbins, 48 Va. App. 466, 478-79 (2006)).

       Although the BB&T account was owned solely by the husband when the parties were

married on July 23, 2005, he continued to deposit his monthly income into the account following

the parties’ marriage. As the parties bought the Lee County farm on October 12, 2005, the

purchase of the farm may have been partially financed by the husband’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, any funds from the BB&T

account that were used to finance the construction of the parties’ home after this date may have

originated from the marital income of either party.

       For these reasons, we conclude that the evidence presented in this case failed to trace the

husband’s alleged separate contributions to the parties’ farm and residence. Because the husband

failed to establish where he deposited the proceeds of the sale of his Arch Coal stock, he failed to

prove that those funds were used to purchase the Lee County farm or build the parties’ house on

that property. The evidence presented in this case implied that loan proceeds and marital income

may have been used to purchase the farm and finance the construction of the marital residence.

As the husband failed to trace his separate contributions to the parties’ farm and residence, the

circuit court did not err by classifying them as marital property. See Hamad, 61 Va. App. at 602

(“If any link in the tracing chain cannot be proven . . . the asset is marital property.” (quoting 1

Brett R. Turner, Equitable Distribution of Property § 5:63, at 638 (3d ed. 2005))). In turn, the

                                                 -9-
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 CONTRIBUTIONS TO
                 THE WIFE’S SEPARATE DEBT TO AN INCREASE IN THE EQUITY OF THE
                 WIFE’S SEPARATE PROPERTY

              The husband also contends that the circuit court erred by failing to consider that the

parties used marital funds throughout their marriage to pay the debt that the wife owed on her

separate property. The husband argues that the undisputed evidence 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 Tennessee property. Thus, the husband contends that the wife’s

separate debt was reduced by $84,000 during the course of their ten-year marriage.

              We acknowledge that the circuit court’s equitable distribution decision did not expressly

reference the marital funds that were used to reduce the wife’s separate debt on her Tennessee

property.4 Nevertheless, we conclude that the husband failed to sufficiently trace the alleged

marital contributions to the wife’s Tennessee property. In essence, the husband argues that the

wife’s separate Tennessee property became hybrid property because the parties used marital

income to pay the debt owed on the property throughout their marriage. The husband maintains

that these payments created a marital component of the wife’s separate property.

                             When marital property and separate property are commingled by
                             contributing one category of property to another, resulting in the
                             loss of identity of the contributed property, the classification of the
                             contributed property shall be transmuted to the category of
                             property receiving the contribution. However, to the extent the
                             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 husband’s argument and rejected it.
                                                - 10 -
                evidence and was not a gift, such contributed property shall retain
                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 through the payment of her debt transmuted to separate property,

“the category of property receiving the contribution,” unless the contributed marital income was

“retraceable by a preponderance of the evidence.” Therefore, the husband was required to

present sufficient evidence tracing the marital contributions to the wife’s separate debt if he

wished for those contributions to retain their original marital classification and thereby 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 purchased before her marriage.  Moran,
29 Va. App. at 411. The party and her husband subsequently paid the debt using marital funds.

Id. On appeal, this Court concluded that the property at issue was correctly classified as hybrid

property rather than separate property because the husband presented “sufficient evidence to

establish that a portion of the equity in the . . . property could be traced to marital funds.” Id. at

414. While this Court acknowledged that the parties “commingled marital funds with separate

property, resulting in the presumption that the marital funds were transmuted to separate

property,” id. at 413, it concluded that the husband traced the marital funds to a corresponding

reduction in the principal of the debt owed on the property at issue. See id. (“[T]o the extent the

marital funds reduced the principal of the mortgage, that amount is traceable from the separately

acquired equity.”).

        In the present case, the evidence unequivocally demonstrated that 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 principal of the wife’s debt. Unlike the
                                                 - 11 -
husband in Moran, the husband in this case did not present adequate evidence to establish the

amount of equity the wife acquired in the Tennessee property as a result of the marital payments.

The husband failed to conclusively establish the principal balance that the wife owed on the debt

when the parties married or the principal balance that the wife owed on the debt when the parties

separated.

              Although the wife testified in her deposition5 that she owed “maybe $45,000” on the

Tennessee property when the parties married, this claim was merely an estimate that was not

supported by any additional documentary evidence. Notably, the wife also testified that “the

balance [of the debt] when we went into the marriage and the balance when we ended the

marriage was about the same, really.” Although the parties paid $700 per month on the wife’s

debt, the husband did not present any evidence to establish that the principal owed on the debt

was reduced by this amount with each monthly payment. Moreover, additional deposition

testimony implied that the parties may have obtained other loans 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 possibly calculate the “extent the

marital funds reduced the principal of the [debt].”  See id. Thus, the husband failed to trace the

marital contributions to a corresponding 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 contributions transmuted to separate property pursuant to Code

§ 20-107.3(A)(3)(d). Consequently, the circuit court did not err 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.
                                             - 12 -
                                       III. CONCLUSION

       In summary, we conclude that the husband failed to present evidence that adequately

traced his alleged separate contributions to the parties’ farm and residence. He also failed to

present evidence tracing the alleged 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 residence as marital property and the wife’s

Tennessee property as her separate property. Accordingly, we affirm the circuit court’s decision.

                                                                                         Affirmed.

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