In a divorce case, the judge has the ability to divide the property and debts of the parties. This process is called equitable distribution, and it involves several steps. The first of those steps requires the judge to determine whether the property is “separate property,” “marital property,” or a hybrid of the two. Virginia Code § 20-107.3(A) defines marital, separate, and hybrid property. As a general overview, separate property is all property acquired (1) by either party before the marriage, (2) during the marriage by “bequest, devise, descent, survivorship or gift” from someone other than your spouse, and (3) during the marriage in exchange for or from the proceeds of sale of separate property, provided that the property is maintained as separate property. As a general overview, marital property is (1) all property titled in the names of both parties, and (2) any property acquired during the marriage by either party that is not separate property. Hybrid property is property that has both characteristics of marital and separate property as set forth in Virginia Code § 20-107.3 (A) (3).
As one can imagine, there are many instances in which property is not clearly separate or marital based on the above definitions. One such instance is when the value of separate property increases during the marriage. Virginia Code § 20-107.3(A)(3)(a) states that an increase in value of separate property during the marriage is marital property, but only if marital property or the significant personal efforts of either party have contributed to the increase in value of that separate property. The code further states that the significant personal efforts of a party must “result in substantial appreciation of the separate property.”
The Virginia Court of Appeals recently heard a case in which the Husband claimed as his separate property the increased value of the stock he acquired prior to the marriage. See McConnell v. McConnell, No. 0107-19-2, 2019 Va. App. LEXIS 182 (Ct. App. July 30, 2019). Between the date of marriage, and date of separation, the value of the stock increased by almost $660,000. The Husband was described as a “sophisticated investor,” and the Wife claimed that Husband’s efforts in managing the stock meant that it should be marital property.
In determining whether this increase in value was a result of the Husband’s personal efforts, the Court compared the increase in value to the S&P 500. The Court ultimately found that the Husband’s stock had not outperformed the S&P 500, which meant that the increase in value was merely “passive appreciation.” The Court essentially said that even if the Husband did manage the stock, his management did not result in substantial appreciation of the stock’s value. Therefore, the Court found that the entire stock was the Husband’s separate property.
Because each case involves unique circumstances, it is best to consult with an experienced family law attorney to explore your options. If you are facing a divorce and need assistance from someone with intimate knowledge of family law, please do not hesitate to contact us at 804-423-1382 or info@wmmlegal.com to schedule a one-on-one consultation with one of our experienced Virginia divorce attorneys.
