Generally, assets acquired by either spouse during a marriage are considered marital property in Virginia. In a divorce, they are divided fairly, though not necessarily equally, through a process called equitable distribution. Excluded from the process is separate property: that which is acquired by one spouse before marriage or received through gift or inheritance by one spouse at any time.

However, there is a third category known as hybrid property which features both marital and separate characteristics. As defined by Virginia Code § 20-107.3, hybrid property may be created in several ways, such as these:

• Active appreciation — A spouse owns real estate prior to the marriage, but both spouses make improvements or pay down the mortgage during the marriage, causing a rise in value.

• Commingling — Separate property funds are deposited in accounts with marital funds, making it difficult to trace the origin of the assets.

• Retirement accounts — Contributions to a retirement account both before and during the marriage must be parsed to distinguish separate from marital interests.

During equitable distribution, a court may use one of these methods to allocate hybrid property:

• The Brandenburg formula — Often used for real estate, this method allocates the appreciation of hybrid property by calculating the increase in value attributable to both marital and separate contributions. It is often expressed as: (Separate Investment ÷ Total Investment) × Passive Appreciation = Separate Appreciation (Marital Investment ÷ Total Investment) × Passive Appreciation = Marital Appreciation

• The Keeling formula — This method focuses on the equity value at different stages and excludes purely market-driven appreciation (passive appreciation). It divides the property based on the ratio of contributions toward the principal reduction of a loan (often a mortgage) made from marital or separate funds, emphasizing marital investment’s impact on increased equity.

• The reasonable rate of return method — In cases where marital contributions enhance the value of a separate asset (such as an investment account or business ownership), this method allocates a portion of appreciation to marital property based on an estimated return that would have been produced by the marital contributions alone, disregarding market fluctuations.

Dividing hybrid property can be complex, requiring detailed analysis, documentation and sometimes expert testimony. An experienced Virginia divorce lawyer can be of assistance by accurately tracing separate and marital contributions and appreciation, making proper legal arguments for the preferred method of allocation and working with appraisers or forensic accountants as needed. An attorney can help you maximize your share of marital assets and protect your separate property interests.

Harding, Harding & Harding Attorneys at Law, PLC advises Virginia clients regarding the division of marital property during a divorce. We are located in Virginia Beach, Chesapeake and Norfolk. For a free consultation, call 757-499-2600 or contact us online.