LOUISE B. GILLIAM v. ARTHUR L. MCGRADY
Record No. 090958
Supreme Court of Virginia
April 15, 2010
SENIOR JUSTICE CHARLES S. RUSSELL
Present: Hassell, C.J., Keenan, Koontz, Lemons, Goodwyn, and Millette, JJ., and Russell, S.J.
This appeal from a decree in an equitable distribution proceeding presents a question concerning the presumptions and burden of рroof applicable to the apportionment between husband and wife of debts incurred during marriage.
Facts and Proceedings
Louise B. Gilliam (wife) and Arthur L. McGrady (husband) were married in 1990 and separated in 2005. Both were employed when they married, but the husband lost his job in 1999 and, with his wife‘s agreement, decided to open his own business as a painting contractor. In 2000, he formed Premier Painting, LLC, which he operated until 2004. The husband was solely responsible for the operаtion of the business and had the sole authority to sign checks. He refused to discuss business affairs with his wife, telling her that she had no business sense.
In the first year of Premier Painting‘s operation, the
The husband decided to close Premier Painting in 2004. During the years of its operation, the business produced net revenue of approximately $214,000. From this revenue, the husband transferred approximately $53,350 to the wife‘s checking account to be used for household expenses. The husband testified that he had also paid some household expenses directly from his business account.
Both parties were аware that they were living beyond their means and each considered the primary cause of their financial problem to be unnecessary expenses incurred by the other party. By October 2006, the husband owed the IRS $118,287.69 in unpaid trust fund taxes, penalties and interest. He also owed $103,820 for his unpaid personal
In October 2006, the wife filed a complaint for divorce and equitable distribution of the couple‘s property in the Circuit Court of Albemarle County, based on a one-year separation. At the trial, the principal issue was the wife‘s liability, if any, for the unpaid trust fund taxes, including penalties and interest, incurred by Premier Painting during its years of operation. The circuit court ruled that although there was no specific evidence of where the money saved from non-payment of the trust fund taxes went, the court found that both parties had benefited from the non-payment, and that the wife had the burden of showing how and why the debt was incurred and the “purpose of the expenditure [of the proceeds] of thе debt.” The court ruled that the trust fund taxes, including penalties and interest, were marital debt.4
The wife appealed to the Court of Appeals presenting only the questions whether the circuit court had erred in holding thаt the trust fund taxes were marital debt and that the wife
While the statute only creates a presumption for “all property” acquired during the marriage, we see no principled reason why the presumption should not apply to debt acquired during the marriage. Property and debt are both components of an equitable distribution award.
Gilliam v. McGrady, 53 Va. App. 476, 483, 673 S.E.2d 474, 478 (2009). Although the Court of Appeals approved the circuit court‘s ruling with respect to the burden of proof, its final order rеversed the case in part, holding that the circuit court had erred in failing to properly consider the statutory factors required to classify the trust fund tax debt. The Court remanded the case to the circuit court “to consider the purpose of the trust fund tax debt, as well as who benefited from it, in order to classify that debt as marital or separate . . . .” Id. at 488, 673 S.E.2d at 480. We awarded the wife an appeal.
The wife assigns no error to that part of the opinion of the Court of Appeals that reverses the circuit court‘s judgment for failure to give proper consideration to the statutory factors required to classify the debt. We agree with the reasoning of the Court of Appeals еxplaining that ruling and, for the reasons stated in the opinion of the Court of Appeals, we will affirm that part of its order remanding the case to the circuit court for proper consideration of those factors. Accordingly, we will confine our consideration to the questions of presumptions and burden of proof. Because these are pure questions of law concerning statutory interpretation, we rеview them de novo. Antisdel v. Ashby, 279 Va. 42, 47, 688 S.E.2d 163, ___ (2010).
The equitable distribution statute,
There is a marked contrast between that treatment of assets and the legislative prescription, in the same statute, for the apportionment of debts in an equitable distribution рroceeding.
The court shall also have the authority to apportion and order the payment of the debts of the parties, or either of them, that are incurred prior to the dissolution of the marriage, based upon the factors listed in subsection E.
Subsection (E) provides, in pertinent part:
[T]he apportionment of marital debts, and the method of payment shall be determined by the court after consideration of the following factors:
. . . .
7. The debts and liаbilities of each spouse, the basis for such debts and liabilities, and the property which may serve as security for such debts and liabilities;
. . . .
11. Such other factors as the court deems necessary or appropriate to consider in order to arrive at a fair and equitable monetary award.
The equitable distribution statute contains no provisions creating a presumption or allocating a burden of proof with rеgard to the apportionment of debts between spouses.
Equitable distribution proceedings ancillary to divorce are entirely creatures of statute, first introduced into the
In framing
Conclusion
Because the circuit court and the Court of Appeals erred by applying a presumption that the debt to the IRS individually incurred by the husband for unpaid trust fund taxes was a marital debt and in placing the burden on the wife to prove otherwise, we will reverse the judgment of the Court
Affirmed in part,
reversed in part,
and remanded.