Increased Value of Husband’s Portfolio Not Marital

A divorce court did not err in classifying as marital debt on wife’s business credit cards in her name only, but the court did err in classifying appreciation in husband’s separate brokerage account as marital property, based on wife’s evidence of husband’s research prior to picking stocks for the account; the Court of Appeals affirms in part, but remands for reconsideration of the equitable distribution award.

Assuming without deciding that husband’s research and trading activity constitute labor, effort, inventiveness, etc., under Va. Code § 20-107.3(A)(3)(a), which defines “personal effort,” the evidence does not establish that these efforts resulted in substantial appreciation of the separate property. The non-owning spouse must prove that the personal efforts were the proximate cause of substantial appreciation in the value of the separate assets. The critical factor is whether value was generated or added by the expenditure of significant personal effort. By contrast, separate property that has appreciated in value due to forces other than either party’s efforts, such as passive appreciation or the personal efforts of others, remains separate property.

The evidence here does not show husband’s research and trading activity imparted intrinsic value to the brokerage account and materially changed the character thereof. The financial documents wife proffered show the increase in value of the brokerage account was due, in part, to market forces. By its very nature, the value of the brokerage account depended on the fluctuations of the stock market, and we have made clear that a non-owning spouse is not entitled to a marital interest in the appreciation in value due to passive factors.

Because it is apparent from the record that at least a portion of the appreciation in value of husband’s brokerage account was attributable to passive factors and because wife offered no evidence concerning the extent to which husband’s personal efforts resulted in a substantial increase in the value of his separate brokerage account, we hold wife failed to meet her burden of proof. The trial court accordingly erred in classifying the entire appreciation in value as marital property.

We must reverse the equitable distribution award and remand to the trial court for reclassification of the brokerage account consistent with this opinion.

Husband also argues the trial court erred in classifying the debt associated with the Citibank and Bank of America credit cards as marital debt. Assuming husband made a prima facie showing that the debts were separate, there is sufficient record evidence to support a finding that the debts were marital. Wife testified the credit cards were sued to pay for home maintenance, home repairs, groceries, health care, medical expenses and a jointly owned vehicle. Husband confirmed wife used her business cards to pay for groceries and family expenses, but could not recall the amount. Finally, wife introduced bank statements that document the expenditures she made for the family’s benefits, including the purchase of a 2004 Navigator using her credit cards to secure a loan. Although the parties conceded wife’s accounting firm was her separate property and a portion of the credit card debt was incurred for the benefit of that business, the income generated by wife’s business supported the family, especially during husband’s unemployment. The trial court did not err in holding the debts were marital.

Affirmed in part, reversed in part and remanded.

David v. David (Elder) No. 0653-12-2, Nov. 20, 2012; Hanover County Cir.Ct. (Harris) Charles E. Powers for appellant; Donald K. Butler for appellee. VLW 012-7-321(UP), 9 pp.