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Income from Separate Property
© 2004 National Legal Research Group, Inc.
VIRGINIA: Robinson v. Robinson, 45 Va. App. 682, 613 S.E.2d 484 (2005), reh'g en banc granted, 46 Va. App. 43, 614 S.E.2d 676 (2005)
The trial court erred by holding that passive income received from an inherited trust by a husband who did not work should be classified just like earned salary. Passive income from inherited property is separate property under the equitable distribution statute, and therefore is not to be treated as a salary substitute even if the husband did not work.
During a short marriage of just under three years, the parties lived off of the husband's inherited trust fund. Income from the trust was automatically deposited into the parties' joint checking account, and checks from the account were used to purchase a home and various other assets. Neither party was employed, so no marital salary was deposited into the joint checking account.
The trial court held that all of the parties' tangible assets were marital property:
[W]hile it's clear most of the assets of the marriage were purchased with moneys obtained solely from the husband's trust proceeds and I would concede could be traced as contemplated by statute, it's equally clear to me that Mrs. Robinson deserves a share in a portion of those assets based on the factors. To me, just because it came from a trust fund the parties considered it as their income. To me, it's just the same as if Mr. Robinson was actually earning that money on a monthly on a yearly basis.
45 Va. App. at 689, 613 S.E.2d at 488.
The Virginia Court of Appeals reversed. Under Virginia law, passive income from separate property remains separate. Despite the trial court's opinion, both parties agreed that the trust income was entirely passive, and that it was therefore the husband's separate property. The wife's primary argument on appeal was that property purchased with the trust income was a gift to the marriage. But that was not what the trial court held:
[T]he trial court did not base its decision on a finding that husband gifted wife with a portion of his trust income. In its initial ruling on the merits, the trial court held that, based on wife's non-monetary contributions, wife "deserves a share in a portion of [the parties'] assets." Similarly, in its denial of husband's motion to reconsider, the trial court reasoned that wife was entitled to a share of the bank accounts and the assets purchased with the trust income because she "contributed significantly to the 'maintenance' and 'preservation' of the [trust income]." Absent from the court's ruling is any mention of a "gift" or an express or implied finding that wife carried her burden of proving husband's donative intent by clear and convincing evidence. Accordingly, we agree with husband that the trial court did not make the requisite findings to support a conclusion that husband gifted wife with a portion of his trust income.
45 Va. App. at 697-98, 613 S.E.2d at 492.
The wife also argued that the trust income was a product of marital efforts, because the husband would have squandered it without the wife's insistence that he place it in a savings account. Appreciation in separate property is marital property when it is caused by marital contributions, but the mere preservation of separate property does not create marital value. The wife's efforts did not cause growth in the trust income:
Here, with the exception of any passive interest that may have been generated, placing the trust income into a savings account did not increase the "value" of the income. The decision to save a portion of husband's trust income merely prevented that income from being spent on another asset. "Preserving" and "maintaining" an asset is not necessarily equivalent to enhancing the value of that asset.
45 Va. App. at 699-700, 613 S.E.2d at 493. The case was remanded for further proceedings.
Editor's Comment: The trial court's reasoning in Robinson is clearly wrong. In states which treat passive income from separate property as separate, such income is never a salary substitute. Some states believe it should be a salary substitute; those states treat all income from separate property as marital property, regardless of cause. But the classification of income from separate property is an issue for the legislature. The trial court's reasoning in Robinson fundamentally violated the statutory rule that passive income from separate property remains separate.
While the trial court's reasoning was mistaken, the ultimate result may not be too different from the result which was reversed. There was reasonable evidence in the record suggesting that various items purchased with the husband's separate property income were treated as marital assets. That pattern of treatment constitutes at least some evidence of a gift to the marital estate, and the wife presented other evidence of donative intent as well. While other evidence supported the husband's argument that no gifts were made, the resolution of conflicting evidence is an issue for the trial court. The trial court could possibly have found the evidence sufficient to show that at least some assets had been given to the marital estate; indeed, a dissenting opinion on appeal argued that the evidence did support such a gift. The author reads the opinion to permit the trial court to find a gift upon remand, if the necessary supporting evidence is present.
The problem, however, is that the existing trial court opinion did not find a gift. Rather, it reasoned that unearned trust income is a salary substitute. Even though the trial court may well find substantial gifts to the marital estate upon remand, the trial court's existing reasoning was so fundamentally wrong that the reversal was justified. The statutory distinction between active salary and unearned trust income cannot be lightly ignored.
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