Analysis: McIlwain v. McIlwain

Facts: Husband was a slug: He earned next to nothing; filed the parties’ joint tax returns but secretly failed to pay taxes; and surreptitiously transferred large sums from the marital account to his pre-marital corporations.

Issue:

1. Is money that traveled from Husband’s separate home sale to the marital bank account to a separate business considered marital money or separate money?
2. When if at all can a spouse received equitable distribution of the fair rental value of a marital asset?
3. How do you distribute marital funds used after separation to pay marital taxes?

Ruling:

1. Separate money becomes marital unless it is traced in and traced out of the marital account. Husband failed to trace out, so the money is marital.
2. Equitable distribution of fair market rent is appropriate here. Husband was a substantial negative monetary contribution to the marriage. He used the marital home as his separate residence, changed the locks, and failed to assist with back taxes that were his fault.
3. Marital money is equitably divided.

Comment:

1. The decision is a reminder: If any part of the tracing process is incomplete, the proponent of the tracing loses the argument.
2. Equitable distribution of fair rental value is alive and well. It applies to assets owned free and clear that can easily be rented, like homes (and maybe boats and planes). Between the date of separation and the date of divorce, refer to VA Code § 20-107.3; and between date of divorce and date of partition, rely upon § 8.01-31 – just as you would in cases involving mortgaged property.

The McIlwain opinion does caution that fair rental value may not always be appropriate. Husband’s conduct in this case was pretty egregious; costing the wife significant money in a variety of ways, and commandeering the marital home in a such a hostile manner.