3.8 Personal Property

• Library: Negotiating and Drafting Marital Agreements (Virginia CLE) (2019 Ed.)

3.8 PERSONAL PROPERTY

3.801 In General. Counsel should remember the general rule that delivery as well as donative intent is required for a gift to be valid. An attempted division of property to one other than the purchaser is void as to

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creditors if the parties continue to reside together or the property remains at the residence of the previous owner. ³⁴¹

3.802 Division of Property. ³⁴² Although there is general consensus among practitioners that used furniture is not worth arguing over from a financial standpoint, in many cases the division of the household furnishings is the most emotionally charged area between litigants and may result in negotiations costing more than the furniture itself.

Parties dividing their personal property may want to list in the agreement what personalty each is to retain. If the spouses are living separately at the time an agreement is drafted, they may have already divided their personalty. If this is the case, and they are satisfied with the division, drafting is simple, as it can tie ownership to actual or constructive possession of a party as of a certain date, listing specific exclusions or additions, if any. If such a provision is used, it is critical to include some acknowledgment by the parties that they believe the division made "in kind" is fair to both so that one of them may not later claim, in a more litigious moment, that the other got a disproportionate share of the tangible personal property, justifying a greater monetary award in return.

Division of tangible personal property may give rise to both classification and valuation problems. If the division and the proportionate value of the property are to be addressed in the agreement, the agreement should be detailed as to both the classification of the items distributed and the value of each party's share of the marital assets in the distribution.

In complicated cases, tangible personal property division may be referred to mediation or arbitration to save the parties time and money. Even if negotiations fail, it is helpful to have at least addressed valuation by objective appraisal before submitting tangible personal property issues to a court.

3.803 Specific Personal Property. Specific items of personal property may be treated differently in the agreement and warrant separate paragraphs pertaining to each category. Among these are motor vehicles; various kinds of deferred compensation; interests in partnerships, corporations, collectible notes evidencing loans made to others, or other accounts receivable; farm equipment, livestock and pets, and property held in trust.

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3.804 Motor Vehicles. ³⁴³

A. Title. Since motor vehicles are transferred by certificates of title in Virginia, ³⁴⁴ a resolution of property rights in motor vehicles should include provisions regarding any necessary transfer of certificates of title and disposition of any security interests shown. ³⁴⁵ If a creditor is holding a vehicle title, a Virginia Department of Motor Vehicles (DMV) limited power of attorney form may be used to effectuate a title transfer.

B. Transfer with Debt. A customary provision is to have the debt go with the vehicle. The lender holding a security interest may refuse to allow a transfer subject to its lien, or for other reasons it may be impossible or impractical to transfer title promptly. In that case, the DMV has limited power of attorney forms empowering one spouse to sign the other's name to the title when the lien is paid.

C. Transfer Without Debt. One party may give the other a debt-free vehicle by agreeing that the other is entitled to the vehicle (although transfer of the title may have to be delayed if the title is with the lender) and further agreeing to make the installment payments on the loan until it is paid off. Payments on the vehicle of another may have tax ramifications as indirect alimony unless specifically designated as property transfers under I.R.C. § 1041, so some caution is advised.

D. Insurance. The client, whether he or she is to become the owner of the vehicle after the loan is paid or whether he or she is still liable to the lender on the loan, should be protected by collision and comprehensive insurance from a loss of the security because of an accident or calamity. The agreement should specifically indicate which party is responsible for carrying the insurance and, if applicable, provide for each party to obtain a separate policy on the vehicle(s) that will become his or her separate property by a specified date.

E. Destruction of Property. The agreement should provide whether a party obligated to make payments on a loan must continue to make payments if the vehicle is destroyed and what will happen to the insurance proceeds if the vehicle is damaged or destroyed. Will the insurance proceeds go toward a prepayment of the loan and result in a reduced balance of a loan for a vehicle no longer in existence, or will the proceeds be used to

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purchase another vehicle or otherwise be dispensed as the agreed owner of the vehicle desires, leaving the party who agreed to pay the loan still liable? If a commercial lender is involved, the proceeds will generally be diverted to that lienholder by the terms of the insurance contract. In most cases, the lender will still be entitled to collect any deficiency, and the parties' agreement will not defeat the creditor's right to look to all makers and guarantors on the note for payment. Therefore, indemnification provisions should be included to protect either party and any other person who should be held harmless on the note.

F. Case Law. In Marshall v. Marshall, ³⁴⁶ the Alabama Court of Civil Appeals held that the destruction of a car awarded to a woman in her divorce and the resulting payment of the indebtedness on the car with the insurance proceeds did not relieve the woman's ex-husband of his obligation under the parties' decree-incorporated settlement agreement to pay off that indebtedness. The court affirmed the trial court's judgment requiring the ex-husband to pay his former wife the sum that he would have had to pay to the lender had the car not been destroyed. The trial court had determined that the parties' intent in their property settlement was that the wife would become the owner of the car free of any indebtedness and that she would receive that marital asset at its fair market value at the time of the divorce. The husband assumed full liability under the parties' agreement for the marital debt with regard to the car. The trial court decided that it could not interpret the agreement as intending that if an accident destroyed the car and a third party paid the indebtedness in full, then the husband would be relieved of his debt and the wife would lose virtually the entire value of the asset she received under their agreement. Accordingly, the trial court concluded that to enforce the decree-incorporated agreement in a manner equitable to both parties, it should require the husband to pay to the wife the amount formerly owed to the lender.

3.805 Deferred Compensation (Pension, Profit-Sharing, and Retirement Benefits). ³⁴⁷

A. In General. Accumulated deferred compensation plans, including but not limited to employee stock ownership plans, defined contribution plans, and defined benefit plans, are often the single biggest asset accumulated by one or both of the parties during the marriage and are afforded special treatment in equitable distribution. Although Virginia has a statute providing for the revocation of death benefits by divorce or annulment, ³⁴⁸

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the United States Supreme Court ruled in 2001 that the Employee Retirement Income Security Act (ERISA) preempted a similar state statute and held that the ex-wife remained the ex-husband's beneficiary for his retirement because he had never changed the designation after the divorce. ³⁴⁹ The Court's 2013 ruling in Maretta v. Hillman, ³⁵⁰ a Virginia case appealed by the new spouse, reinforces the strict federal preemption for benefits controlled by federal law.

Every divorce decree must include a bold-faced notice as to the limitations imposed upon the revocations set forth in section 20-111.1 due to various federal preemptions. This is an extraordinary notice provision, which essentially puts divorced parties on notice that their state law divorce, including any incorporated agreements, may or may not be effective in automatically revoking death benefits. ³⁵¹ It is essential that each party complete any forms that are required by that individual's plan to effect the changes, if any, to the beneficiary designation that is required by their agreement or by the divorce decree.

The only part of such an asset subject to division in divorce is the part accumulated or accrued by the plan participant between the date of the marriage and the date of...