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Divorce: Are Assets with No Value Subject to Equitable Distribution? - November 2015

November 11, 2015

by Patrick L. Maurer

In Virginia, courts divide marital assets between parties (Code Ann. § 20–107.3, Michie, 2012) after analyzing evidence to determine whether the property is separate, marital or a hybrid of the two. In most cases, this is easily determinable.

The court then ascertains the value of the assets, which in many cases can be stipulated by the parties. If not, they are offered into evidence, often resulting in disagreements between the representatives of each party who are both trying to reach figures most beneficial to their clients. The courts are well aware of this and typically determine a value between the opposing experts’ figures.

What happens when the court finds no value in a piece of property at all? Imagine a parcel of real property so encumbered by debt that its sale would yield nothing. Or, imagine a business encumbered by third party agreements that any attempt to divide it would remand the business to a third party owner leaving no value. The Virginia Court of Appeals ruled in Hodges v. Hodges, 2 Va. App. 508, 347 S.E.2d 134 (Va. App., 1986) that the marital property had no equity due to the level of debt carried on the property. The court held that “where the marital property is encumbered with indebtedness which equals or exceeds its value, then for purposes of a monetary award it is essentially of no value. Without value, there is no basis for a monetary award.”

In Fox v. Fox, 61 Va. App. 185, 734 S.E.2d 662 (Va. App., 2012) the Court of Appeals relied on the principle that without value, no monetary award is appropriate when considering jointly held property. “Although Hodges involved a monetary award and not a division of jointly held property, it instructs us that an asset with no value, or negative value, is not subject to equitable distribution.” The court reasoned that Virginia Code Ann. § 20–107.3(C) “addressing division of jointly held property, is permissive. It provides the court may divide or transfer jointly owned marital property. The word ‘may’ is not mandatory but permissive and leaves the matter to the discretion of the trial court.” Thus, if the court finds that the property has no value, it is not required to divvy it up. The Court of Appeals in Fox upheld the trial court’s ruling that the parties retained ownership of the real property in question as tenants in common, subject to foreclosure or sale.

So, in a divorce case involving assets with no value, a trial court may refuse to carve up the asset and leave it be. Therefore, it is crucial that the parties understand just where the value is in their property, if any.

Pender & Coward attorney Patrick Maurer focuses his practice in the area of family law, representing clients in divorce, property settlement agreements, custody matters, pre-marital agreements and other domestic cases. He can be reached at (757) 490-6255 or pmaurer@pendercoward.com.