Classification of Property in Virginia Divorce Practice

Courts, in decreeing division (“equitable distribution”) of property in divorce cases, are required first to determine the legal title to all of the divorcing spouses’ property and the ownership and value of same, and then to determine (a) which of such property is separate property, (b) which is marital property, and (c) which is part marital and part separate property. Only when all properties are thus “classified” may the court proceed with the equitable distribution of those properties found to be marital, and of the marital portion of those properties found to be part marital and part separate. This presentation will provide references to the applicable Virginia statute and provide examples of properties which will be grouped within each of these three classifications.

Classification of property in Virginia divorce cases is governed by §20-107.3 of the Code of Virginia. Accordingly, all summaries as to classification as set forth below are based on that section.

Separate Property

• Property Acquired Before the Marriage. All property, real and personal, acquired by either party before the marriage is separate property.
• Property Acquired During Marriage by Inheritance, Survivorship or Gift. All property acquired during the marriage by bequest, devise, descent, survivorship or gift from a source other than the other party is separate property.
• Property Acquired During Marriage in Exchange for or from Sales Proceeds of Separate Property. All property acquired during the marriage in exchange for, or from the proceeds of sale, of separate property, is itself separate property, provided that such property acquired during the marriage is maintained as separate property.
• Income Received from Separate Property During the Marriage. Income received from separate property during the marriage is separate property if not attributable to the personal efforts of either party.

In the case of income received from separate property during the marriage, such income shall be classified as marital property only to the extent that it is attributable to the personal efforts of either party.

• Increase in Value of Separate Property During Marriage. The increase in value of separate property during marriage is separate property, unless 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.

In the case of the increase in value of separate property during the marriage, such increase in value is marital property only to the extent that marital property or the personal efforts of either party have contributed to such increases, provided that any such personal efforts (a) must be significant and (b) result in substantial appreciation of the separate property.

The non-owning spouse has the burden of proof that (i) contributions of marital property or personal effort were made and (ii) the separate property increased in value. Once this burden of proof is met, the owning spouse shall bear the burden of proving that the increase in value or some portion thereof was not caused by contributions of marital property or personal effort.

• “Personal Efforts” Discussed and Defined. The personal efforts of either party must be significant and result in substantial appreciation of the separate property if any increase in value attributable thereto is to be considered marital property.

“Personal effort” of a party shall be deemed to be labor, effort, inventiveness, physical or intellectual skill, creativity, managerial, promotional, or marketing activity.

Marital Property

• Property Titled in the Names of Both Parties. Marital property includes all property titled in the names of both parties, whether as joint tenants, tenants by the entirety, or otherwise.

When separate property is retitled in the joint names of the parties, the retitled property shall be deemed transmuted to marital property. However, to the extent the property is retraceable by a preponderance of the evidence, and was not a gift, the retitled property shall retain its original classification as separate property. No presumption of gift arises where existing property conveyed or retitled into joint ownership.

• All Other Property Acquired by Each Party During Marriage Which Is Not Separate Property. All property, including that portion of pensions, profit-sharing or deferred compensation or retirement plans of whatever nature, acquired by either spouse during the marriage, and before the last separation of the parties, if at such time or thereafter at least one of the parties intends that the separation be permanent, is presumed to be marital property in the absence of satisfactory evidence that it is separate property.
• Marital Property Is Presumed to be Jointly Owned. For purposes of §20-107.3, marital property is presumed to be jointly owned unless there is a deed, title, or other clear indicia that it is not jointly owned.

Property Classified as Part Marital and Part Separate

• Effect of Personal Efforts on Income Received from Separate Property. In the case of income received from separate property during the marriage, such income shall be classified as marital property only to the extent it is attributable to the personal efforts of either party. Accordingly, where certain income received from separate property is found to be attributable to the personal efforts of either party, but certain of the income received from such separate property is not attributable to the personal efforts of either party, then such income is part marital property and part separate property.
• Effects of Personal Efforts on Increase in Value of Separate Property. In the case of the increase in value of separate property during the marriage, such increase in value shall be marital property only to the extent that marital property or the personal efforts of either party have contributed to such increases, provided that any such personal efforts must be significant and result in substantial appreciation of the separate property. Accordingly, where separate property increases in value during the marriage, and part or all of such increase in value is found to be marital property because marital property or the personal efforts of either party have contributed to such increase, then the asset is part marital property and part separate property.
• Pension, Profit-Sharing, Deferred Compensation, and Retirement Benefits: Pre –Versus Post- Separation Contributions. The marital share of such assets means that portion of the total interest, the right to which was earned during the marriage and before the last separation of the parties, if at such time or thereafter at least one of the parties intended that the separation be permanent. Therefore, any portion of such an asset earned during the marriage and before the last separation of the parties is marital, but any portion of such asset earned after the last separation of the parties is separate property, thus resulting in property which is part marital and part separate (“hybrid”).

Related Issues

• Commingling of Marital Property and 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 is transmuted to the category of property receiving the contribution. However, to the extent the contributed property is retraceable by a preponderance of the evidence, and was not a gift, such contributed property retains its original classification. By way of example, if marital property is contributed to a separate property bank account, but is retraceable by a preponderance of the evidence, and was not a gift, then the bank account will be deemed to be part marital property and part separate property.
• Commingling of Marital Property and Separate Property into Newly Acquired 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 is 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 retains its original classification.
• Separate Property Retitled in the Parties’ Joint Names. When separate property is retitled in the joint names of the parties, the retitled property is deemed transmuted to marital property. However, to the extent the property is retraceable by a preponderance of the evidence, and was not a gift, the retitled property retains its original classification.
• Commingling of Both Spouses’ Separate Property. When the separate property of one party is commingled into the separate property of the other party, or 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 statute.
• No Presumption of Gift. No presumption of gift arises where (i) separate property is commingled with jointly owned property; (ii) newly acquired property is conveyed into joint ownership; or (iii) existing property is conveyed or retitled into joint ownership.

The Court, having characterized all of the divorcing parties’ properties as marital, separate, or part marital and part separate, will proceed then to distribute all marital properties, and the marital portion of all hybrid properties between the spouses, in an equitable manner based on consideration by the Court of the following factors:

• The contributions, monetary or nonmonetary, of each party to the well-being of the family
• The contributions, monetary and nonmonetary, of each party in the acquisition and care and maintenance of such marital property of the parties
• The duration of the marriage
• The ages and physical and mental condition of the parties
• The circumstances and factors which contributed to the dissolution of the marriage, specifically including any grounds for divorce
• How and when specific items of such marital property were acquired
• 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
• The liquid or non-liquid character of all marital property
• The tax consequences to each party
• The use or expenditure of marital property by either of the parties for a non-marital separate purpose or the dissipation of such funds, when such was done in anticipation of divorce or separation or after the last separation of the parties
• Such other factors as the court deems necessary or appropriate to consider in order to arrive at a fair and equitable monetary award

Contact the Northern Virginia divorce attorneys at ShounBach through our online contact form or call 703-222-3333 to get started