7.4 CLASSIFICATION OF PROPERTY
7.401 In General. Among its other duties under section 20-107.3, the trial court must consider all property of the parties whether real or personal, tangible or intangible, and determine which is separate property, which is marital property, and which is part separate and part marital property in accordance with subsection (A)(3). 14 Proper classification of all property is important, since the only property that is subject to equitable distribution is property that is marital and the portion that is part marital. The parties have rights and interests in their marital property even though the rights do not attach to the legal title of the property. 15 The court may grant a monetary award in recognition of the rights and interests of each party in the marital property. 16 In addition, the court may divide or transfer marital property that is jointly owned. Generally, transfer under section 20-107.3(C) is restricted to jointly owned property. However, where the court finds that the separate property of one party is in the possession or control of the other party, the court may order transfer of the separate property to the party to whom it belongs. 17 Additionally, section 20-107.3(D) permits the court to transfer separately titled property to satisfy a monetary award. 18
In addition to classifying the property of the parties, the court also must classify their debts. The court should determine "the nature of" all the debts of the parties and consider which of the debts is separate and which is marital debt, using classifications methods that are very similar to those used when classifying the parties' property. 19 "Separate debt" and "marital debt" are defined in the equitable distribution statute, as described below.
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7.402 Separate Property and Separate Debt. Subsection (A)(1) of section 20-107.3 defines separate property as (i) all property, real and personal, acquired by either party before the marriage; (ii) all property acquired during the marriage by bequest, devise, descent, survivorship, or gift from a source other than the other party; (iii) all property acquired during the marriage in exchange for or from the proceeds of sale of separate property; and (iv) that part of any property classified as separate pursuant to subsection (A)(3) of section 20-107.3. 20
Subsection (A)(4) of section 20-107.3 defines separate debt as (i) all debt incurred by either party before the marriage, (ii) all debt incurred by either party after date of the last separation of the parties, 21 and (iii) that part of any debt classified as separate under subsection (A)(5). However, to the extent that a party can show by a preponderance of the evidence that the debt was incurred for the benefit of the marriage or family, the court may designate the debt as marital.
7.403 Marital Property and Marital Debt. Subsection (A)(2) of section 20-107.3 defines marital property as (i) all property titled in the name of both parties, whether as joint tenants, tenants by the entirety, or otherwise, except as provided by subsection (A)(3) of section 20-107.3; (ii) that part of any property classified as marital pursuant to subsection (A)(3) of section 20-107.3; or (iii) all other property acquired by each party during the marriage that is not separate property. 22 All property 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. 23 This presumption applies to all forms of property including the portions of pensions or profit-sharing, deferred compensation, or retirement plans acquired by either spouse during the same time period. 24 Marital property is presumed to be
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"jointly owned" unless there is a deed, title, or other clear indicia that it is not jointly owned.
Subsection (A)(5) of section 20-107.3 defines marital debt as (i) all debt incurred in the joint names of the parties before the date of the last separation of the parties, whether incurred before or after the date of the marriage, and (ii) all debt incurred in either party's name after the date of the marriage and before the date of the last separation of the parties. However, to the extent that a party can show by a preponderance of the evidence that the debt was incurred, or the proceeds secured by incurring the debt were used, for a nonmarital purpose, the entire debt can be classified as separate debt. If only a portion of the debt or the proceeds was used for a nonmarital purpose, then a portion of the debt can be classified as separate and a portion as marital.
7.404 Hybrid Property.
A. In General. Before July 1, 1990, Virginia's equitable distribution system employed a "unitary" theory of property classification. Under this theory, each piece of property had to be classified as either separate or marital property. Classifying an asset as part marital and part separate was not allowed. 25 The General Assembly amended the equitable distribution statute to create a dual classification system. This system requires the court to classify some property as a "hybrid" form of property—part separate property and part marital property. 26 A hybrid classification recognizes both premarital and postmarital contributions to the property by either party. It also recognizes that the period of time during which an asset increases in value may cover the premarital, marital, and marital separation phases of the parties' relationship. Property cannot be classified as hybrid property initially. Instead, the initial classification of property is either separate or marital, using the definitions and various presumptions to select the initial classification. The concept of hybrid property is relevant only after the initial classification of the property as separate or marital. 27
B. Types of Hybrid Property.
1. Income from Separate Property. Income received from separate property during the marriage is separate property if the income has been produced "passively." This would be the case where the income has not
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been generated by the personal efforts of either party. To the extent that the income has been produced "actively" or generated by the personal efforts of either party, the income is classified as part marital property. 28 "Personal efforts" are defined to include "labor, effort, inventiveness, physical or intellectual skill, creativity, or managerial, promotional or marketing activity applied directly to the separate property of either party." 29 Personal efforts made by either party will transform the income into marital property, since the personal efforts of both parties to the marriage are considered an asset of the marital partnership.
2. Increased Value of Separate Property. Where separate property has increased in value during the marriage, the increase in value is considered separate property unless marital property or the personal efforts of either party have contributed to the increase. 30 Where these contributions have been made, the increase in value will be considered marital property to the extent that the increase is attributable to the contributions. Where the increased value is said to be the result of the personal efforts of either party, those efforts must be significant and must result in a substantial appreciation of the separate property. The nonowner-spouse bears the burden of proof to show that the...
