Stacy v. Stacy, Record No. 0863-07-3 (Va. App. 12/9/2008), ("Stacy"), is an unfortunate 10-paged en banc opinion by Virginia Court of Appeals Judge Elizabeth A. McClanahan, overturning a decision her colleague, Judge William G. Petty, rendered on April 22, 2008.

            The issue was whether payments from husband to wife were spousal support according to a settlement agreement. Judge Perry ruled they were. The dual misfortune is that at least six other judges on the Court of Appeals formed a majority to reverse him; and that husband and wife’s attorneys had been so confoundedly imprecise in drafting the settlement agreement in the first place.

            The facts are undisputed:  In an agreement requiring husband to pay the mortgage, Paragraph 8 contained a mutual waiver of spousal support; and Paragraph 9 said “notwithstanding the provision set forth in Paragraph 8” husband’s payments are “in the nature of support”. Husband paid off the mortgage and substituted a promissory note. Subsequently, Wife cohabited in a relationship like marriage for more than a year; causing Husband to seek termination of his payments pursuant to 20 Va. Code §109.

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            The en banc majority relied upon White v. White, 257 Va. 139 (1999) and Owney v. Owney, 8 Va. App. 255 (1989); but both opinions are inapposite. 

            In White, the agreement said husband would pay the mortgage. Wife sold the house (resulting in payoff of the mortgage), and the Supreme Court held husband’s obligation had ended.

            Owney dealt with husband paying a mortgage and with a mutual alimony waiver pursuant to written agreement. Husband defaulted on the mortgage, so wife retired it. The Court of Appeals in Owney declared that since the mortgage was paid off and there never was any support obligation by the terms of the parties’ own agreement, husband no longer owed anything to wife. 

            The reason White and Owney are so clearly distinguishable from Stacy is that neither involved agreement language characterizing mortgage payments as being in the nature of support.

            It is surprising that in the 20 years since the Owney decision, and despite the reminder in White, attorneys like those in Stacy are still assigning mortgage payments in property settlement agreements without addressing the more-than-remote possibility of no-more-mortgage. 

            Here is what an agreement in White, Owney and Stacy should have said: “Husband shall pay wife “X” Dollars in spousal support, either by making the current mortgage payments in a timely manner; or by paying Wife an equivalent monthly amount during such time as there is no mortgage, and until the full amount of “X” is paid.” Clarifying the nature of the payment stream is really that simple. (Although this solution carries tax consquences, rendering the payment stream taxable would probably have been better than having it disappear unexpectedly.)

            We will now examine how – due to the absence of adequate explanatory language from the parties themselves – I believe the Virginia Court of Appeals ended up misconstruing the agreement in Stacy.

            1.         The Court of Appeals erred when it implied the existence of additional words in Paragraph 9 of the Stacy settlement agreement that the parties themselves had not included, but could have included if they had wanted. By its ruling, the Court construed “in the nature of support” to mean “in the nature of support for bankruptcy purposes only,” despite their being two separate and distinct ways that Paragraph 9 could have benefitted parties to the agreement.

            One way was by rendering the payments non-dischargeable in bankruptcy, which the Court acknowledges was a mutual intent.

            The other way was to allow husband to terminate payments if wife cohabited in violation of Code § 20-109. That benefit flowed just as naturally from payments “in the nature of support” as did the application of the U.S. Bankruptcy Code.

            In other words, if the parties – while intending to preclude husband from ceasing support-related payments through a Chapter 7 discharge; also intended to foreclose a support-related statutory consequence of wife’s sexual conduct, they would have said so. But they did not.

            It is apparent to me that – given the absence of more restrictive language from the parties — the gloss Paragraph 9 placed on husband’s payments represented either a sword or a shield – and that gloss should have been available to either party on an equal basis.

            2.         The en banc majority in Stacy failed to harmonize the spousal support waiver in Paragraph 8 with Paragraph 9’s specific exception to that waiver, namely “payments … made to benefit the [wife]”.

            There is no ambiguity arising from this juxtaposition. Instead, the situation is the same as a class followed by a differential. It is no different than declaring in one paragraph “No dogs allowed,” and in the next, “Patrons may utilize seeing-eye dogs.” Who, in reading those phrases would conclude that the drafters intended an absolute prohibition against dogs?

            Furthermore, if we were to assume the existence of an ambiguity, basic rules of contract construction provide that later provisions take precedence over earlier ones; and that when reasonable meaning results from clauses read in harmony, the clauses should be construed in harmony.

            3.         The Virginia Court of Appeals missed the big picture when it handed down the Stacy decision. If the agreement of the parties had provided: “Husband owes wife $X;” everyone would have concurred that it was making an equitable distribution.  But when payments are dribbled out on a monthly basis and continue after the original mortgage is refinanced; and an entire contract paragraph is devoted to their possible cessation; then the transfers bear more than a passing resemblance to support.         

            Is there any doubt that if this couple had been asked at the time of their negotiation: “Isn’t [Paragraph 9] about outfitting a payment obligation with characteristics of spousal support to protect both of you, even though the payments are connected to a mortgage?” they both would have agreed?

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            In my professional opinion, Stacy was incorrectly decided by the Virginia Court of Appeals. But it is the attorneys who so clumsily drafted the parties’ property settlement agreement that are primarily to blame.

You can find the official opinion and additional commentary on our website.

[1] Section 20-109 only terminates spousal support. Therefore, if husband’s payments were not support at all but instead a form of equitable distribution, they would not be terminable pursuant to this statute.