Court Opinion

ID: 1061399
Source: CourtListenerOpinion
Date Created: 2013-10-09 19:05:09.566649+00
Date Added: 2024-06-11T13:16:30.586867
License: Public Domain

COURT OF APPEALS OF VIRGINIA

            Present: Judges Elder, Frank and Petty
PUBLISHED

            Argued at Salem, Virginia

            EARL F. LAYMAN
                                                                                       OPINION BY
            v.     Record No. 1891-12-3                                            JUDGE LARRY G. ELDER
                                                                                       JUNE 11, 2013
            DOROTHY J. LAYMAN

                             FROM THE CIRCUIT COURT OF ROCKINGHAM COUNTY
                                            James V. Lane, Judge

                           Danita S. Alt for appellant.

                           Sherwin John Jacobs for appellee.

                   Earl F. Layman (husband) appeals the equitable distribution ruling made by the trial

            court. Husband contends the trial court erred in classifying as marital property the one-half

            interest in real estate he inherited during his marriage to Dorothy J. Layman (wife).1 We hold,

            contrary to the trial court’s ruling, that using separate property to secure a loan which is to be

            used for marital purposes and is subsequently repaid in full using marital funds does not

            transmute the pledged property into marital property. Accordingly, we reverse the trial court’s

            equitable distribution award and remand for further proceedings consistent with this opinion.

                   1
                     Husband also assigns as error the trial court’s classifying as marital the remaining
            one-half interest in the real estate that husband purchased during the marriage. However,
            husband made no argument and cited no authority in support of this assignment of error. As
            husband concedes on brief, he “chose not to argue this point in [his] brief.” Thus, we do not
            consider the issue on appeal. See Rule 5A:20(e) (requiring a litigant’s opening brief to contain
            the “standard of review and the argument (including principles of law and authorities) relating to
            each assignment of error”); Buchanan v. Buchanan, 14 Va. App. 53, 56, 415 S.E.2d 237, 239
            (1992) (“Statements unsupported by argument, authority, or citations to the record do not merit
            appellate consideration.”).
                                                  I.

                                         BACKGROUND

        “We review the evidence in the light most favorable to . . . the party prevailing below and

grant all reasonable inferences fairly deducible therefrom.” Anderson v. Anderson, 29 Va. App.

673, 678, 514 S.E.2d 369, 372 (1999). So viewed, the evidence establishes that husband and wife

were married in 1952 and separated in 2010. The property that is the subject of this appeal

consists of various parcels of real estate that husband acquired from his parents, Jasper and

Bertha Layman (Mr. and Mrs. Layman). Mr. and Mrs. Layman purchased the real estate in 1922

and 1932, and they held it as tenants in common. When Mr. Layman died, his one-half interest

in the real estate passed to husband under his will (inherited property). In 1956, husband

purchased the remaining one-half interest in the real estate from Mrs. Layman (purchased

property). The parties do not dispute that the entire property remained titled solely in husband’s

name.

        During the course of the marriage, the parties executed the following five deeds of trust

in both their names, each of which was secured by all of the estate, both the inherited and

purchased portions:

        (1)    1959 deed in the amount of $7,300;

        (2)    1969 deed in the amount of $3,346.26;

        (3)    1972 deed in the amount of $24,500;

        (4)    1976 deed in the amount of $48,000; and

        (5)    1992 deed in the amount of $26,500.

        Husband testified that the 1959 loan was used to build the parties’ marital residence,

which the parties stipulated to be marital property. Husband confirmed that the note was paid off

using funds from the parties’ joint bank account in which husband and wife deposited income

                                                 -2-
earned during the marriage. The 1972 loan was used to build a chicken house, and that loan was

also paid off using marital funds. The 1976 loan was used to build another chicken house. The

parties operated these chicken houses for profit and used the income to pay off the notes. The

record does not disclose how the parties used the proceeds from the 1969 loan or the 1992 loan.

       In a letter opinion dated January 24, 2012, the trial court equitably distributed the parties’

marital assets. The only disputed property pertinent to this appeal was the real estate that

originally belonged to Mr. and Mrs. Layman, comprising the inherited property and the

purchased property. The trial court ruled that the parties paid for Mrs. Layman’s one-half

interest using marital funds and, therefore, that the purchased property was marital property.2

Second, the trial court recognized that the inherited property was initially husband’s separate

property, but it held that property transmuted to marital property when the parties used both the

inherited and purchased properties to secure loans that were subsequently repaid using marital

funds. The trial court memorialized this ruling in the final decree of divorce. This appeal

followed.

                                                  II.

                                             ANALYSIS

       On appeal, “decisions concerning equitable distribution rest within the sound discretion

of the trial court and will not be reversed unless plainly wrong or unsupported by the evidence.”

McDavid v. McDavid, 19 Va. App. 406, 407-08, 451 S.E.2d 713, 715 (1994). We will reverse

the trial court’s award of equitable distribution only upon a showing of abuse of discretion. von

Raab v. von Raab, 26 Va. App. 239, 246, 494 S.E.2d 156, 159 (1997). “It is well established that

the trier of fact ascertains a witness’ credibility, determines the weight to be given to their

       2
         Because husband waived his argument relating to the classification of the purchased
property, see supra note 1, we do not address that portion of the equitable distribution award.

                                                 -3-
testimony, and has discretion to accept or reject any of the witness’ testimony.” Street v. Street,

25 Va. App. 380, 387, 488 S.E.2d 665, 668 (1997) (en banc).

       Under Code § 20-107.3(A), the trial court must determine “the ownership and value of all

property, real or personal, tangible or intangible, of the parties and shall consider which of such

property is separate property, which is marital property, and which is part separate and part

marital property.” Code § 20-107.3(A)(1)(ii) defines “separate property” in pertinent part as “all

property acquired during the marriage by bequest, devise, descent, survivorship or gift from a

source other than the other party.” An increase in value in separate property may be classified as

marital property if the non-owning spouse proves “marital property or the personal efforts of

either party have contributed to such increases and then only to the extent of the increases in

value attributable to such contributions.” Code § 20-107.3(A)(1).

       The parties agree that the inherited property was presumptively husband’s separate

property. Further, the parties agree that the loan proceeds that increased the value of the

combined real estate—the marital residence and chicken houses—are marital property. Thus,

wife argues that the inherited property increased in value by virtue of pledging the property to

secure multiple loans, which were repaid using marital funds. Husband argues the trial court

erred in classifying the inherited property as marital property because neither the use of that

separate property to secure a loan nor the repayment of that loan using marital funds transmuted

the pledged property into marital property. Husband points out that he had already established

equity in the inherited property, which he acquired from Mr. Layman. In other words, husband

argues that paying off the loans did not increase the value of the inherited property.3

       3
         Wife does not contend the inherited property transmuted to marital property under Code
§ 20-107.3(A)(3)(d), (e) or (f). Therefore, we address only whether the inherited property
increased in value and, if so, whether that increase was marital property under Code
§ 20-107.3(A)(1).

                                                -4-
       The trial court based its classification of the inherited property on the principle that the

“discharge of a debt secured by an asset that results in an increase in equity in the asset

constitutes an ‘increase in value.’” Gilman v. Gilman, 32 Va. App. 104, 119, 526 S.E.2d 763,

770 (2000) (quoting Code § 20-107.3(A)(1)). Specifically, the trial court found that during the

marriage, the parties took out approximately $110,000 in mortgages and loans that were secured

by the parties’ interests in the purchased and inherited real estate. Because the “evidence before

the [c]ourt [wa]s that these mortgages were repaid using marital funds of the parties,” the trial

court held that “separate and marital portions of the land bec[a]me commingled to an extent that

the entirety of the land should be considered marital property.” The trial court clarified that it

viewed (i) the repayment of the five loans as increasing the value of the inherited property and

(ii) the use of marital funds to repay those loans as transmuting that separate property into

marital property. We conclude the trial court erred in so holding.

       In Gilman, the husband purchased shares of Overnite stock using the proceeds from the

sale of his separate property. 32 Va. App. at 109-10, 526 S.E.2d at 765-66. The husband also

pledged the Overnite stock as security for a loan to purchase several tracts of real estate that

eventually became the primary assets of Dow-Gil, a development company husband formed. In

the divorce proceeding, the wife claimed the Overnite stock and Dow-Gil were marital property.

We held because the evidence proved that the husband purchased the Overnite stock using the

proceeds from the sale of his separate property, the stock was the husband’s separate property.

Id. at 116, 526 S.E.2d at 769.

       In regard to Dow-Gil, we held that the company was presumptively the husband’s

separate property because it was acquired in exchange for other separate property: the Overnite

stock. Id. at 117, 526 S.E.2d at 769. We explained that a stock pledge “compromise[d] the

borrower’s full ownership rights in an asset in order to use that asset as security for a loan.” Id.

                                                -5-
at 118, 526 S.E.2d at 770. Thus, “a stock pledge is simply a method to use separate property to

acquire additional property,” id. at 118-19, 526 S.E.2d at 770, and therefore constituted an

“exchange” under Code § 20-107.3(A)(1)(iii). We further rejected the wife’s contention that the

husband’s interest in Dow-Gil transmuted to marital property through the repayment of the loan

used to acquire the company’s assets in real estate. Although we agreed that the “repayment of

the purchase-price loans increased the ‘value’ of the Dow-Gil land,” id. at 119, 526 S.E.2d at

770, we held that wife failed to meet her burden of proof when she “presented no evidence that

marital funds were used to pay any portion of the balloon note,” id. at 119, 526 S.E.2d at 771.

       Here, the trial court misinterpreted our holding in Gilman when it ruled that the inherited

property transmuted to marital property. To the contrary, the discharge of an encumbrance using

marital funds generates marital equity only in the encumbered property that was acquired using

the proceeds of the loan. In Gilman, the repayment of the purchase-price loan affected the

classification of Dow-Gil, the acquired property, not the Overnite stock, the pledged property.

See id. at 116-17, 526 S.E.2d at 769. The pledge of separate property to secure a loan is simply

“a method to use separate property to acquire additional property.” Id. at 118-19, 526 S.E.2d at

770. Thus, the classification of the pledged property affects only the initial classification of the

acquired property. See Code § 20-107.3(A)(1)(iii) (defining separate property as “all property

acquired during the marriage in exchange for or from the proceeds of sale of separate property”).

       In this case, the inherited property is analogous to the Overnite stock in Gilman, and the

proceeds from the five loans are analogous to Dow-Gil. The parties do not dispute that the loan

proceeds were used for marital purposes. Therefore, the principle that the “discharge of a debt

secured by an asset that results in an increase in equity in the asset constitutes an ‘increase in

value’” does not apply in this case. Gilman, 32 Va. App. at 119, 526 S.E.2d at 770 (quoting

Code § 20-107.3(A)(1)). The trial court’s error is manifest because nowhere in Gilman did we

                                                 -6-
discuss the effect of repaying the balloon note on the classification of the Overnite stock. Even

though the parties fully discharged the five loans using marital funds, husband did not gain

equity in his inherited property. See 8A Am Jur 2d Bailments § 1 (2d ed. 1993) (“Inherent in the

bailment relationship is the requirement that the property be returned to the bailor, or duly

accounted for by the bailee, when the purpose of the bailment is accomplished.”). Thus, any

value added relates to the property acquired using the proceeds from the loans.

       To conclude, we hold that using separate property to secure a loan which is used for

marital purposes and is subsequently repaid in full using marital funds does not transmute the

pledged property into marital property. The only property at issue in this case is the

classification of husband’s presumptively separate inherited property. Because the discharge of

the five loans did not increase the value of the inherited and purchased real estate or commingle

marital and separate assets, the trial court erred in finding that the inherited property transmuted

to marital property.

                                                 III.

                                          CONCLUSION

       For these reasons, we reverse the trial court’s final decree of divorce and remand for

further proceedings consistent with this opinion.

                                                                            Reversed and remanded.

                                                -7-