Copyright 1998 - N.C. Administrative Office of the Courts

RICHARD J. O'BRIEN, Plaintiff, v. MABEL D. O'BRIEN, Defendant

No. COA97-1484

(Filed 1 December 1998)

1.    Divorce--equitable distribution--commingling of marital and separate property--no transmutation into marital property

    The mere commingling of marital funds with the wife's separate funds in an investment account did not automatically transmute the separate property into marital property.

2.    Divorce--equitable distribution--investment account--tracing of separate property

    Defendant wife met her burden of "tracing out" her separate property in an investment account where the initial deposit into the account consisted of her inheritance from her father's estate; marital funds of $4,550 were later deposited into the account; the sum of $38,658 was thereafter withdrawn from the account for marital purposes; the $4,550 deposit of marital funds was entirely consumed by the subsequent withdrawal; and the only funds remaining in the account were the wife's separate funds.

3.    Divorce--equitable distribution--investment account--active or passive appreciation--factors

    If either or both of the spouses perform substantial services during the marriage which result in an increase in the value of an investment account, that increase is to be characterized as an active increase and classified as a marital asset. In making the determination of whether the services of a spouse are substantial, the trial court should consider, among other relevant facts and circumstances of the particular case, the following factors: (1) the nature of the investment; (2) the extent to which the investment decisions are made only by the party or parties, made by the party or parties in consultation with their investment broker, or solely made by the investment broker; (3) the frequency of contact between the investment broker and the parties; (4) whether the parties routinely made investment decisions in accordance with the broker's recommendation, and the frequency with which the spouses made investment decisions contrary to the broker's advice; (5) whether the spouses conducted their own research and regularly monitored the investments in their accounts, or whether they primarily relied on information supplied by the investment broker; and (6) whether the decisions or other activities, if any, made solely by the parties directly contributed to the increased value of the investment account.

4.    Divorce--equitable distribution--investment account--passive increase

    An increase in the value of an investment account established with the wife's separate funds was a passive increase and thus the wife's separate property where the evidence showed that the spouses jointly met with the wife's broker and routinely chose between investment alternatives based on the broker's recommendations.

5.    Evidence--corroboration--gifts--donor's intent

    In an equitable distribution proceeding in which letters from defendant wife's aunt stating that two $10,000 checks she sent to plaintiff husband were "part of the inheritance that I am leaving to [the wife]" and testimony about those letters were admitted without objection, testimony by the wife's cousin about conversations she had with the aunt concerning her intention in sending those checks to the husband was not inadmissible hearsay but was admissible to corroborate the previous evidence of the aunt's intent.

6.    Divorce--equitable distribution--checks to husband--gifts to wife--wife's separate property

    The evidence in an equitable distribution proceeding supported a finding by the trial court that two $10,000 checks sent by defendant wife's aunt to plaintiff husband in consecutive years were in fact gifts to the wife and were her separate property where the aunt also gave two $10,000 checks to the wife, and letters sent with the checks and other testimony tended to show that the aunt intended to make a gift of $40,000 to the wife by taking advantage of the gift tax exclusion.

7.    Divorce--equitable distribution--classification of interest in mother's trust--harmless error

    Plaintiff husband was not prejudiced by any error in the trial court's classification of the interest in his mother's trust as irrevocable rather than revocable where the trial court did not classify, value or distribute an interest in the trust or consider the trust as a distributional factor.

8.    Divorce--equitable distribution--equal division--supported by findings

    The trial court did not err by failing to award plaintiff husband a greater share of the marital property and a lesser share of the marital debt and by awarding an equal share of marital property to both parties where the trial court found that plaintiff husband has a larger income, a vested retirement benefit, and a substantial employee savings plan benefit while defendant wife has a large separate property estate; the wife does not have a retirement benefit or expectation of one through her employment; the wife worked and provided homemaking services as a spouse to assist the husband in obtaining his engineering degree and in maintaining his employment as an engineer, and the husband worked and provided homemaking services as a spouse to assist the wife in obtaining her accounting degree and licensing as a CPA; and the increase in value of the wife's separate property investments was due to passive appreciation.

    Appeal by plaintiff from judgment entered 2 April 1997 and order entered 16 April 1997 by Judge Michael A. Paul in Beaufort County District Court. Heard in the Court of Appeals 27 August 1998.

    Manning, Fulton & Skinner, P.A., by Michael S. Harrell and Cary E. Close, for plaintiff appellant.

    Jeffrey L. Miller for defendant appellee.

    HORTON, Judge.

    Plaintiff-husband and defendant-wife were married on 24 May 1975, separated on 7 August 1995, and divorced on 24 September 1996. No children were born of the marriage. Following their separation, plaintiff instituted this equitable distribution action on 28 December 1995 in which he requested the trial court award him more than an equal share of the marital property and less than an equal share of the marital debt. Defendant answered and counterclaimed, requesting the trial court award an equitable distribution of the martial property and marital debt and determine the parties' separate property. Following a non-jury trial, the trial court entered an Order and Judgment of Equitable Distribution on 2 April 1997 in which it awarded an equal distribution of the marital property and designated certain items to be separate property not subject to distribution. Plaintiff filed a motion on 11 April 1997 to amend the findings, make additional findings and amend the judgment pursuant to N.C. Gen. Stat. § 1A-1, Rule 52(b), which was denied by the trial court on 16 April 1997. Plaintiff filed notice of appeal from both the 2 April 1997 order and the 16 April 1997 order. Thereafter, pursuant to the Order and Judgment of Equitable Distribution, a Qualified Domestic Relations Order was entered on 22 October 1997, but is not a subject of appeal in this case.

    The evidence before the trial court tends to show that in 1986, after receiving an inheritance from her father of approximately $163,000.00, defendant opened an investment account with Wheat First Securities. She deposited about $158,000.00 of her inheritance, as well as a $10,000.00 gift from her Aunt Mabel Dozier Stone (Aunt Mabel), into this investment account. On the advice of her broker, defendant had the investment account listed in the joint names of the parties, with a right of survivorship. From November 1986 until July 1989, the parties deposited a total of $4,550.00 of marital funds into this investment account, and withdrew $38,658.00 from the investment account for marital purposes. This investment account remained with Wheat First Securities until July 1989, at which time it was transferred to Interstate Johnson Lane when the parties' investment broker changed firms. At the time of the transfer, the investment account was valued at $138,161.00, or nearly $30,000.00 less than the amount of the initial deposit.

    The investment account remained at Interstate Johnson Lane until January 1991, when it again followed the investment broker to his new position at Shearson Lehman. At the time of the transfer to Shearson Lehman, the investment account had depreciated as a result of market forces, and was valued at $119,714.00. Also, during this time Aunt Mabel was in poor health and was attempting to deplete her estate by distributing portions to her intended beneficiaries in order to avoid estate tax consequences. Therefore, Aunt Mabel made gifts to plaintiff and defendant in December 1992 and January 1993 for $10,000.00 each, for a total of $40,000.00. Along with each gift Aunt Mabel included a note describing the purpose of her gifts. The 28 December 1992 note to plaintiff read, in pertinent part, as follows:

        Dear Dick:

            I have enclosed a check for $10,000 which is part of the inheritance I am leaving Mabel. Since the law allows only $10,000 per family member, I am sending this gift for her in your name to remove assets from my estate that would otherwise be taxed at a very high rate if left in the estate. Please deposit upon receipt.


            . . . . 

                        Mabel D. Stone

Aunt Mabel's 15 January 1993 note contained similar language, stating that she had "enclosed a check for $10,000 which is part of the inheritance that I am leaving to Mabel." Of this $40,000.00 in gifts from Aunt Mabel, $24,990.00 was deposited into the investment account at Shearson Lehman, and $9,970.00 was used to purchase a 1993 Volvo 850 automobile for defendant.

    In addition to the $24,990.00 in gift money invested in the investment account, the investment account increased in value by approximately $44,000.00 due to dividends, share reinvestment gains and market value gains. Further, approximately $6,500.00 in management fees were charged against the investment account, and $1,035.00 was withdrawn from the investment account. In May 1994, the Shearson Lehman investment account was valued at $181,452.00.

The investment account remained at Shearson Lehman until May 1994, when it was transferred to Scott & Stringfellow. While the investment account was at Scott & Stringfellow, defendant received an inheritance from Aunt Mabel's estate totaling $62,841.00, of which she deposited $56,851.00 into the investment account. The investment account remained there until the parties' separation in August 1995.

    After hearing all of the evidence, the trial court found that the $40,000.00 in gifts from Aunt Mabel were intended to be gifts to defendant in the total amount of $40,000.00, and not gifts to plaintiff. Further, the trial court determined that other than $4,550.00 of marital funds deposited in the investment account when it was with Wheat First Security, all of which was withdrawn and spent for marital purposes, no other marital property or earnings of the parties was ever deposited to or invested in the investment account. Consequently, the trial court determined the investment account to be the separate property of defendant and not subject to distribution. In sum, the trial court found $308,465.12 of the total estate to be the separate property of defendant and $277,578.57 to be marital property. After determining that an equal division of the marital property would be equitable, the trial court awarded plaintiff $158,677.28 of the marital estate, and awarded defendant $118,901.29 of the marital estate. In addition, the trial court ordered plaintiff to pay defendant a distributive award of $19,888.00 in order to equalize the distribution.

    On appeal, plaintiff contends the trial court erred by (1) classifying the investment account and the gifts from Aunt Mabel as defendant's separate property rather than the marital property of the couple; (2) admitting hearsay testimony from Aunt Mabel's relatives about her intent in regard to the four gifts of $10,000.00 each to plaintiff and defendant in December 1992 and January 1993; (3) finding that plaintiff was an irrevocable one- third beneficiary of his mother's trust when the express terms of the trust dictate plaintiff's interest was revocable; and (4) failing to award plaintiff an unequal distribution of the marital property and debt.


    At the outset, we note that the distribution of marital property is within the sound discretion of the trial court and will not be overturned absent an abuse of discretion. Beightol v. Beightol, 90 N.C. App. 58, 60, 367 S.E.2d 347, 348, disc. review denied, 323 N.C. 171, 373 S.E.2d 104 (1988) (citation omitted). In order to show an abuse of discretion, a party must show "that the decision was unsupported by reason and could not have been the result of a competent inquiry." Id. As such, the findings of fact are conclusive on appeal if supported by any competent evidence. Id.

    In an equitable distribution case filed before 1 October 1997, the trial court must undergo a three-step analysis: (1) identify what is marital property and what is separate property; (2) calculate the net value of the marital property; and (3) distribute the marital property in an equitable manner. Id. at 63, 367 S.E.2d at 350. In this case, we are concerned with the first step, the classification of the investment account as either marital property or separate property.

    The main contention raised by plaintiff's appeal is that the trial court improperly classified the investment account as defendant's separate property. According to plaintiff, although the money used to begin the investment account was part of defendant's inheritance, the investment account should nevertheless be classified as marital property for the following reasons: (1) marital funds were commingled with the inherited funds, thus "transmuting" the investment account from separate property to marital property; (2) defendant has failed to "trace out" the $4,550.00 in marital funds which were deposited into the investment account; and (3) plaintiff actively participated with defendant in managing the investment account by making certain decisions which ultimately led to the increased value of the investment account. For purposes of clarity, we will address each of these points separately.

    Before addressing plaintiff's contentions, we note that in order to determine the nature of certain property, it is helpful to consult the definitions of marital property and separate property provided in N.C. Gen. Stat. § 50-20(b), which defines the terms as follows:

        . of the trust corpus remaining, if any remains, at the time of his mother's death." However, the trial court also found that "[p]laintiff has no present ownership or property interest of value in [his mother's trust]." The trial court did not classify, value or distribute an interest in the trust to the prejudice of plaintiff. Further, it did not consider the trust as a distributional factor. Therefore, whether the trust was revocable or irrevocable is of no consequence to the trial court's order in this case. Any error by the trial court was harmless, and this assignment of error is overruled.


    [8]Finally, plaintiff contends the trial court erred by failing to award him a greater share of the marital property and a lesser share of the marital debt. In equitable distribution cases, N.C. Gen. Stat. § 50-20(c) provides, in pertinent part:

        (c) There shall be an equal division [of the marital property] unless the court determines that an equal division is not equitable. . . . Factors the court shall consider under this subsection are as follows: