Opinion
Record No. 0272-93-3
February 1, 1994
FROM THE CIRCUIT COURT OF AUGUSTA COUNTY THOMAS H. WOOD, JUDGE.
John H. Taggart (Patricia D. McGraw; Tremblay Smith, on briefs), for appellant.
Betty A. Thompson for appellee.
Present: Chief Judge Moon, Judges Coleman and Willis.
Argued at Salem, Virginia.
Pursuant to Code § 17-116.010 this opinion is not designated for publication.
In this domestic relations appeal, we decide whether the trial court erred in finding a property settlement agreement between divorcing spouses was unconscionable and was procured by the husband's fraud. We affirm the trial court's finding that the husband procured the agreement by fraud; thus, we need not address whether the agreement was unconscionable. We also uphold the trial court's equitable distribution award.
I. BACKGROUND
In this appeal, we review the evidence in the light most favorable to Eleanor Adams, the party prevailing in the trial court. Drewry v. Drewry, 8 Va. App. 460, 463, 383 S.E.2d 12, 12-13 (1989).
After marrying in 1967, Dr. Donald E. Adams established an orthodontic practice in Harrisonburg, while his wife, Eleanor P. Adams, performed bookkeeping services for his practice and later stayed at home to rear the couple's two children.
Prolonged marital difficulties led Donald Adams to ask his wife for a divorce in October, 1988. According to Eleanor, this request left her "stunned" and numb with shock and surprise. Dr. Adams suggested that she find another house to live in, separate from the family farm. He purchased house for her in Harrisonburg. Soon after they separated in December, 1988 Eleanor Adams consulted a psychologist, Dr. Richard Wettstone, who found her "very emotionally needy" and "in a deep state of depression."
Prior to their separation, Donald and Eleanor Adams had "substantially negotiated" the "basic framework" of a property settlement agreement without the assistance of attorneys because, according to Donald Adams, "[the lawyers would] be fighting and [the couple] wouldn't have any control." Donald Adams assured his wife that "he wouldn't let anything happen to [her]; he would be there for [her]." Donald Adams did not disclose to her, however, that he had retained legal counsel in October, 1988; that he had collected a library of "how-to" divorce books; or that he was involved in an extra-marital affair. During the time that they were attempting to negotiate the terms of a property settlement, the parties continued to engage in sexual intercourse and to live together as a couple.
After Eleanor Adams moved to her new home, Dr. Adams met several times with Bill Troyer, the Adamses' accountant for many years. Dr. Adams provided Troyer with information for Troyer to prepare a financial statement preparatory to a divorce. The Adamses met with Troyer to review his financial statement. When presented with the financial statement, Eleanor Adams expressed concern about the accuracy of the property values, but Donald Adams and Troyer assured her "that's the way you do it." Based on their assurance, Eleanor Adams "agreed" to the values, even though it was later determined that many of the values were substantially inaccurate, particularly:
(1) the pension and profit sharing valuation, which was arrived at by deducting an overstated tax liability and an unwarranted early withdrawal penalty;
(2) the value of Dr. Adams' professional corporation, which used a straight book method of valuation that showed zero value for depreciated property and no value for revenue from a very successful specialty dental practice;
(3) the professional corporation was valued at $104,000, contrasted to a $500,000 value used by the same accountant and Dr. Adams for a business plan;
(4) the value of a farm, which Dr. Adams retained under the separation agreement was $374,000, compared to a bank's valuation of $612,925.
The trial court found that the accountant's financial statement "grossly distort[ed]" the value of the assets with the knowledge of both Dr. Adams and the accountant that the values were incorrect. The trial court found that "negotiations thereafter involved the use of outright falsehoods" by Dr. Adams and Mr. Troyer. Dr. Adams and Troyer admitted at trial that they knew the values on the financial statement were inaccurate. Mr. Troyer was described as "a person [that] Mrs. Adams would believe, certainly as much as she would believe Dr. Adams if he were under oath."
After Eleanor Adams had received the first draft of the separation agreement prepared by Dr. Adams' attorney, she met with three attorneys, all of whom expressed reservations about the draft agreement and advised her that it was "unfair." Eleanor Adams did not employ any of the attorneys. She did insist on several changes to the agreement, including:
(1) that the residence that Dr. Adams had purchased be titled in her name, rather than to Dr. Adams;
(2) that the time for paying spousal support be extended and be subject to a cost of living escalation clause;
(3) that the property values included in the financial statement be shown as "agreed" values, rather than "correct" values.
The court found that Dr. Adams had pressured Eleanor Adams to sign the agreement and that the relationship between them became "war-like" and contentious. Eleanor Adams testified that "Don said if we got this signed and behind us, then we'd be okay with each other. . . . I just couldn't stand it anymore. . . . I didn't want him to get angry with me." In March, 1989, Eleanor Adams signed the separation agreement. The trial court found by clear and convincing evidence that the agreement was procured by fraud and was unconscionable.
After setting aside the property settlement agreement, the trial court equitably distributed the marital property pursuant to Code § 20-107.3 and held, in effect, that Eleanor Adams was entitled to one-half of the net value of all marital assets, with the exception of the goodwill of Dr. Adams' dental practice. The court made a monetary award to Eleanor Adams of $600,532. Against the equitable distribution judgment, the court granted Dr. Adams two credits, one for $100,000 for payments he had made on the mortgage on the residence he had purchased for Mrs. Adams, and $93,000 for the cost of renovations that he had made to the residence. The court refused, however, to reduce the value of the pension and profit sharing plans by the outstanding balance on two loans secured to make improvements to the family farm. The court also refused to credit Dr. Adams for payments on joint marital indebtedness that he made during the pendency of the divorce.
The net values found by the court of the couple's assets were:
Ott Street residence: $116,000 Marital residence (farm): 500,000 Office buildings: 418,000 Dr. Adams' practice: 270,000 Pension and profit sharing plans: 638,971 Personal property: 156,854
II. FRAUD
Eleanor Adams "had the burden at trial to prove by clear and convincing evidence the grounds alleged to void or rescind the agreement," Drewry, 8 Va. App. at 463, 383 S.E.2d at 12, because "marital property settlements entered into by competent parties upon valid consideration for lawful purposes are favored in the law and such will be enforced unless their illegality is clear and certain." Cooley v. Cooley, 220 Va. 749, 752, 263 S.E.2d 49, 52 (1980). We determine whether either ground relied upon by the trial court for voiding the property settlement agreement was proven. Drewry, 8 Va. App. at 463, 383 S.E.2d at 12.
Actual fraud consists of a false representation of a present or past material fact knowingly made by a party with the intent to mislead and cause the other party to rely upon the misrepresentation to his or her detriment. Winn v. Aleda Construction Co., 227 Va. 304, 308, 315 S.E.2d 193, 195 (1984). Donald Adams testified that he knew the property values that were included in the financial statement prepared by the accountant for use in reaching a property settlement were inaccurate. He contends, however, that Eleanor Adams did not rely upon those values; thus, the requisite element of detrimental reliance was not present for fraud to have occurred. He contends that she knew the true values of the assets because she helped renovate the family farm and, because she kept the books of the professional corporation, she knew its value. Thus, he asserts that she cannot claim that she relied upon the false values provided by him and the accountant when she insisted on changing the draft agreement to reflect that the inaccurate values were "agreed upon" by the parties and were not the "correct" values.
We disagree. We hold that the evidence supports the trial court's finding that Eleanor Adams relied upon, to her detriment, Donald Adams' misrepresentation of the value of various properties when entering into the property agreement.
"To rescind a contract on the ground of fraud, a party must show by clear and convincing evidence there was a material misrepresentation made that was reasonably believed and detrimentally relied upon by that party." Wells v. Wells, 12 Va. App. 31, 33, 401 S.E.2d 891, 892 (1991). During the negotiations, the value of the property was presented to Eleanor Adams through a financial statement prepared and presented by a trusted family accountant. "[A] person has a right to rely on a representation . . . [made by] the maker, and need make no further inquiry." Id. at 35, 401 S.E.2d at 893. This principle applies to arms-length negotiations between divorcing parties; the fact that an adversarial relationship exists between divorcing spouses is no defense to actual fraud.Id. at 34, 401 S.E.2d at 893.
The fact that Eleanor Adams insisted on changing the contract to state that the values in the financial statement were "agreed to" rather than the "correct" ones supports the finding that she relied upon those values, rather than that she did not do so. In effect, Eleanor Adams was saying that she did not know the correct values and that while she believed the values not to be correct, she made clear that, for purposes of the contract, she was accepting the figures provided by her husband and the accountant. Thus, for purposes of the agreement, she relied on the property values furnished to her by her husband and by the accountant.
Accordingly, the trial court did not err in finding by clear and convincing evidence that Donald Adams had procured the agreement by knowingly misrepresenting to his wife the value of their marital property. We need not and do not address whether the terms of the property settlement agreement were unconscionable.
III. EQUITABLE DISTRIBUTION AWARD
Donald Adams assigns cross-error to the equitable distribution award.
In reviewing an equitable distribution award on appeal, we have recognized that the trial court's job is a difficult one, and we rely heavily on the discretion of the trial judge in weighing the many considerations and circumstances that are presented in each case. Unless it appears from the record that the chancellor has abused his discretion . . . his determination will not be reversed on appeal.
Klein v. Klein, 11 Va. App. 155, 161, 396 S.E.2d 866, 870 (1990) (citations omitted).
The trial court did not err in declining to credit Donald Adams for a debt owed to his pension and profit sharing accounts. The borrowed funds were invested in the family farm, an asset that Dr. Adams was permitted to retain. For the court to have considered the debt owed to the pension plan by reducing its value would have resulted, in effect, in a double credit to Dr. Adams' benefit.
The trial court did not err by crediting Donald Adams for principal payments made on marital indebtedness. The court determined that Donald Adams was entitled to two credits for payments that he had made on the mortgage for the residence that he had purchased for Eleanor Adams and for the cost of renovations to the residence. Donald Adams was not, however, entitled to a credit for payments that he had made on his own properties during the post-separation period which increased the equity in his property. He has received full credit for his payments that enhanced the equity his wife received in her residence by reason of his post-separation contributions. Accordingly, we find no abuse of discretion on the part of the trial judge.
Affirmed.