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Physical Removal of Separate Home to Jointly Titled Marital Lot
© 2005 National Legal Research Group, Inc.
VIRGINIA: Cirrito v. Cirrito, 44 Va. App. 287, 605 S.E.2d 268 (2004).
One million dollars paid to the husband as consideration for performing a covenant not to compete was marital property, where the noncompetition period occurred during the marriage, even though the contract was signed shortly before the marriage began. The trial court did not err by finding that a transfer of separate property into joint title for the purpose of protecting the property from creditors was not intended as a gift.
Following the entry of a final divorce decree, the wife appealed a number of the trial court's determinations regarding, inter alia, the classification and distribution of property held by the parties. The appellate court affirmed in part the trial court's ruling, reversed in part, and remanded the matter below.
The wife first challenged the trial court's finding that a $1 million payment made to the husband as part of a covenant not to compete by a corporation that purchased the husband's business was the husband's separate property. Prior to the marriage, the husband owned a telecommunications company. He sold his interest to another corporation in exchange for shares of stock and became the head of a division of that corporation at a substantial salary. In addition, he agreed to a noncompete provision wherein he would receive $1 million if he did not engage in any competing business for a period of one year following the termination of his employment with the purchasing corporation. Several weeks after entering this agreement, he married the wife. During the marriage, the husband fulfilled his obligation under the agreement, and he was paid the $1 million.
The wife argued that this money was marital property, and the husband asserted that it was his separate property. The trial court agreed with the husband. The appellate court reversed. It likened the funds paid to the husband under the noncompete agreement to a severance package. The court first noted that severance pay contemplates a substitute for future lost wages and that, much like severance pay, the $1 million replaced lost earnings during the period of time the husband was not working in competition with the corporation that had purchased his business. Relying upon previous Virginia case law involving severance pay and the rationale expressed therein, specifically Luczkovich v. Luczkovich, 26 Va. App. 702, 496 S.E.2d 157 (1998), the court declared that the question which must be asked in the present case is whether the $1 million payment for not competing was to compensate the husband for forbearance made prior to the marriage or to compensate him for efforts made during the marriage. The court recognized that severance pay is a mere expectancy and has no value until employment is terminated. It held that the same was true with regard to the payment for not competing. It noted that when the husband executed the noncompete agreement, the $1 million payment was a mere expectancy, and that it would only be earned for events that took place during the marriage.
The court concluded that the noncompete clause was intended to curtail the husband's ability to earn a livelihood for the year following the termination of his employment. Just as this livelihood, had it been earned, would clearly be marital property, so too would the $1 million payment. Although the agreement was negotiated prior to the marriage, the right to receive payment was contingent upon the husband not engaging in a particular competing business in the future. While married, the husband fulfilled this obligation, and he was paid the $1 million. The court rejected the husband's argument that no effort was required by him to collect the money and that he earned it as soon as he signed the contract. Consummation of this contract depended on the husband's conduct following the period of his employment. Any decision to breach or not breach the contract would have been made during that time and during the course of the marriage. It was clear, determined the court, that the payment for not competing was within the definition of marital property since the right to receive the money was acquired during the marriage, Va. Code Ann. 20-107.3(A)(2)(iii), and was not separate property as defined under Va. Code Ann. 20-107.3(A)(2)(i).
In addition, during the marriage, the husband titled four pieces of separate property in the names of both the husband and wife. He titled the property in joint names for the purpose of protecting the property from creditors. Virginia law expressly rejects the joint title gift presumption, providing instead that a conveyance into joint title is a gift only where a donative intent is affirmatively proven by clear and convincing evidence. Va. Code Ann. 20-107.3(A)(3)(g).
The wife argued that the husband's testimony that his intent was to protect the property from creditors was conclusive proof of his donative intent. The trial court disagreed and found that the husband did not intend to make a gift, and the appellate court affirmed. It summarily dismissed the wife's argument that policy prevented the husband from recovering property he placed in both names for the purpose of protecting it from creditors. The issue, the court stated, was simply whether the husband intended to make a gift to the wife. The husband testified that he did not, and the trial court had discretion to believe that testimony.
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