851 S.E.2d 749
Va. Ct. App.2020Background
- Parties married in 2003, divorced in 2015; their written property settlement agreement (incorporated into the divorce decree) allocated “all marital debts” to the husband and required written modification.
- At divorce, a joint Farm Credit loan secured by the wife’s separately owned real estate was marital debt and allocated to the husband.
- After divorce the parties refinanced the Farm Credit loan at First Bank; both cosigned and the wife’s same real estate remained collateral; proceeds paid off the Farm Credit loan with no additional funds withdrawn.
- The wife testified she signed the First Bank documents to prevent foreclosure on her separate property and believed the debt remained the husband’s obligation; the husband claimed she agreed to assume half the new loan.
- Payments were made sporadically (wife paid $3,000 once; husband made several payments then defaulted). The husband sued for a declaratory judgment that the First Bank loan was a new joint obligation (novation); the circuit court held the debt remained marital and allocated to the husband.
- On appeal the Court of Appeals affirmed: the refinance did not change the debt’s marital classification and the evidence did not show a novation relieving the husband.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the First Bank loan is marital debt | Price: Refinance created a new post‑marital joint loan, changing obligations | Peek: The First Bank loan is merely a continuation/transfer of the pre‑divorce marital Farm Credit debt | Held: Loan remained marital debt after refinance and thus allocated to husband under the PSA |
| Whether the refinance constituted a novation extinguishing husband’s sole obligation | Price: New loan was a novation that extinguished the prior obligation and created a joint liability | Peek: No clear mutual intent to extinguish prior debt; wife signed only to save her property | Held: No novation—novation is never presumed and record lacks clear intent by all parties to extinguish the original obligation |
Key Cases Cited
- Dillenberg v. Thott, 217 Va. 433 (Va. 1976) (novation requires clear, definite intent of all parties and is never presumed)
- Plunkett v. Plunkett, 271 Va. 162 (Va. 2006) (property settlement agreements incorporated into decree are construed as contracts)
- Jones v. Gates, 68 Va. App. 100 (Va. Ct. App. 2017) (property settlement agreements subject to ordinary contract interpretation rules)
- Kahn v. McNicholas, 67 Va. App. 215 (Va. Ct. App. 2017) (incorporated property settlement provisions are enforceable as terms of the decree)
- McElwain v. McElwain, 123 P.3d 558 (Wyo. 2005) (spouse remained liable on mortgage after other spouse refinanced)
- Forcht v. Forcht Bank, N.A., 533 S.W.3d 695 (Ky. Ct. App. 2017) (distinguishing mere refinance from novation; refinance alone does not extinguish obligation)