Plaintiff and Defendant were married 4 November 1967. On 14
November 1997, the parties were granted an absolute divorce.
During their thirty-year marriage, Plaintiff and Defendant incurred
numerous debts, both individually and as a couple. These included
two promissory notes from Plaintiff to his mother, a promissory
note from Plaintiff and Defendant to Plaintiff's parents, and credit
card debt. Plaintiff and Defendant also accumulated assets,
including a closely held corporation, Alley Enterprises, Inc.
(AEI), which existed primarily to operate The Mailbox Plus
(“Mailbox”), a postal and shipping service center. The parties
also owned a 1993 Ford Explorer, Defendant's Individual Retirement
Account, and a promissory note from the business to Plaintiff.
First, Plaintiff argues that the trial court erred in making
its equitable distribution judgment without taking into
consideration the interim allocation order that classified a note
from Plaintiff to his mother as marital debt and distributed it
entirely to him. We agree that this was error.
In connection with this issue, Plaintiff challenges the
following paragraphs from the interim allocation order:
3. At the outset, both parties through their
attorneys, stipulated in open Court and for
the record that this Court's determination as
to a certain note of the classification and
distribution of it would be complete and
binding as to Equitable Distribution and would
be “taken out” of the later complete
determination of all Equitable Distribution
issues.
***
1. That the note of November 21, 1996, is
hereby classified as martial [sic] propertyand is marital debt.
2. That this note is distributed to the
Plaintiff in its entirety with no offsets to
be considered in the final Equitable
Distribution determination. This
classification and distribution is final as to
the Note and is binding on any final Equitable
Distribution determination.
The court found as fact that the note “had a balance of $162,649.83
at time of the date of separation,” and that the creditor
(Plaintiff's mother) was eighty-eight years old at the time of the
hearing, but did not place a value on the note.
Plaintiff argues that paragraph two of the decretal portion is
inconsistent with mandatory language contained in G.S. . 50-20(i1),
which reads as follows:
(i1) Unless good cause is shown that there
should not be an interim distribution, the
court may, at any time after an action for
equitable distribution has been filed and
prior to the final judgment of equitable
distribution, enter orders declaring what is
separate property and may also enter orders
dividing part of the marital property,
divisible property or debt, or marital debt
between the parties. The partial distribution
may provide for a distributive award and may
also provide for a distribution of marital
property, marital debt, divisible property, or
divisible debt. Any such orders entered
shall
be taken into consideration at trial and
proper credit given.
G.S. . 50-20(i1) (1999) (emphasis added).
We uphold the trial court's findings of fact as long as they
are supported by competent evidence.
Gum v. Gum, 107 N.C. App.
734, 738, 421 S.E.2d 788, 791 (1992). Generally, we give deference
to a trial court's conclusions in equitable distribution cases when
supported by appropriate findings, and upset them only if they areso arbitrary that they could not have been the result of a reasoned
decision.
Lawing v. Lawing, 81 N.C. App. 159, 162, 344 S.E.2d 100,
104 (1986). However, we must reverse the trial court's equitable
distribution order if it fails to comply with the requirements of
the statute.
Wieneck-Adams v. Adams, 104 N.C. App. 621, 623, 410
S.E.2d 525, 526 (1991),
affirmed, 331 N.C. 688, 417 S.E.2d 449
(1992).
Defendant argues, without citing authority, that we should not
require the trial court to take the note into account in the final
equitable distribution order because such a holding would be
“slavish to literal interpretation of [statutory] language.” We
conclude, however, that the trial court's interim allocation order
and the final distribution violate the statutory requirement that
any interim order shall be taken into consideration, and proper
credit given. We note that, at the relevant time, G.S. . 50-
20(b)(4) provided the following with respect to the treatment of
post-separation payment of marital debt:
(4) “Divisible property” means all real and
personal property as set forth below:
(a) All appreciation and diminution in value
of marital property and divisible property of
the parties occurring after the date of
separation and prior to the date of
distribution, except that appreciation or
diminution in value which is the result of
postseparation actions or activities of a
spouse shall not be treated as divisible
property.
***
(d) Increases in marital debt and financing
charges and interest related to marital debt.
G.S. . 50-20(b)(4)(d) (1999)
(See footnote 1)
. In
Hay v. Hay, 148 N.C. App. 649,
559 S.E.2d 268 (2002), this Court held that post-separation debt
payments were not divisible property, and stated the following:
It is not clear from the plain language of
N.C. Gen. Stat. . 50-20(b)(4) how the
legislature intends for trial courts to treat
property falling within the subsection (a)
“actions or activities of a spouse” exception.
. . .What is clear, however, is that the law
affords trial courts wide discretion in
determining how to treat post-separation
mortgage payments by one spouse. As discussed
above, a trial court may treat such payments
as a distributional factor. A trial court may
also give the payor a dollar for dollar credit
in the division of the property, or require
that the non-payor spouse reimburse the payor
for an appropriate amount.
Id. at 655, 559 S.E.2d at 272-73 (internal citations omitted).
Here, the court made no findings or conclusions indicating whether
any such payments were made, or whether there were any increases in
the debt or related interest or finance charges, as a result of
which we are unable to review whether it properly exercised its
discretion in its treatment of this marital debt in the final
distribution order. Therefore, we vacate finding of fact 3 and
decretal paragraph 2 of the interim allocation order, as well as
the final equitable distribution order. We remand for the trial
court to take into consideration the interim allocation of the
note, to determine whether it is properly treated as divisible
property or otherwise, pursuant to
Hay, to assign it a value, and
to give proper credit in the final distribution, as required byG.S. . 50-20(i1).
Although we must vacate and remand the final distribution
order for the failure to comply with G.S. . 50-20(i1), we also
address plaintiff's other issues that are likely to arise on
remand. Plaintiff argues that the trial court's valuation of the
Mailbox business is erroneous because its finding of fact merely
lists two factors, earnings capacity and earnings history, as the
basis for its valuation. We agree that this was error.
For equitable distribution purposes, a business is valued
based on net value, which is defined as the fair market value minus
any debts or liens that diminish the business' value.
Talent v.
Talent, 76 N.C. App. 545, 556, 334 S.E.2d 256, 263 (1985). When
the trial court values a closely held corporation for equitable
distribution purposes, it must make specific findings of fact.
Patton v. Patton, 318 N.C. 404, 406, 348 S.E.2d 593, 595 (1986).
“The purpose for the requirement of specific findings of fact that
support the court's conclusion of law is to permit the appellate
court on review to determine from the record whether the judgment -
and the legal conclusions that underlie it - represent a correct
application of the law.”
Id. (quotation marks and citations
omitted). Further, “[a] mere recitation of the factors the trial
court considered in its valuation of the corporation is not
sufficient; the trial court must also indicate the value it
attaches to each of the enumerated factors.”
Locklear v. Locklear,
92 N.C. App. 299, 302, 374 S.E.2d 406, 407-08 (1988).
Here, the trial court made only one finding of fact regardingthe Mailbox's valuation:
7. The Court specifically finds that the business
known, generally, as The Mailbox Plus, had and has zero
value. The opinion of the expert witness offered by the
Plaintiff was not persuasive and the Court could not find
any value to assess to this enterprise from his testimony
and, thus, assigns it a zero value. In addition, the
documents introduced by Defendant clearly reveal that
this business would have little or no value based upon
it's (sic) earning capacity or earnings history.
The trial court did not err in rejecting the testimony of
Plaintiff's expert since assessing the credibility of witnesses is
within the sound discretion of the trial court.
Grasty v. Grasty,
125 N.C. App. 736, 739, 482 S.E.2d 752, 754,
disc. review denied,
346 N.C. 278, 487 S.E.2d 545 (1997). However, this finding
indicates that Defendant's documents regarding earning capacity and
earnings history were the basis for its valuation, but does not
specify the value of those enumerated factors. Furthermore, we are
unable to determine what valuation method, if any, the trial court
used to arrive at a zero “value” for the Mailbox. For these
reasons, we conclude that the trial court's finding of fact
regarding its valuation of the Mailbox is insufficiently specific
for effective appellate review. Therefore, on remand the court, in
entering a new equitable distribution judgment, must make specific
findings of fact regarding (1) the valuation method used by the
court, (2) the factors, and their values, used to determine the
fair market value and (3) the value of any debts or liens which
reduce the fair market value of the corporation.
Next, Plaintiff contends that the trial court erred in its
treatment of marital and separate debts. We agree in part. A marital debt is one incurred, during the marriage and before
the date of separation, by either or both spouses for the joint
benefit of the parties.
Huguelet v. Huguelet, 113 N.C. App. 533,
536, 439 S.E.2d 208, 210,
disc. review denied, 336 N.C. 605, 447
S.E.2d 392 (1994). The party who claims that any debt is marital
bears the burden of proof on that issue and must show both the
value of the debt on the date of separation and that it was
incurred during the marriage for the joint benefit of the husband
and wife.
Riggs v. Riggs, 124 N.C. App. 647, 652, 478 S.E.2d 211,
214 (1996),
disc. review denied, 345 N.C. 755, 485 S.E.2d 297
(1997). The trial court must then classify debt as either marital
or separate and then, following classification, value debts of both
types.
Byrd v. Owens, 86 N.C. App. 418, 424, 358 S.E.2d 102, 106
(1987). As discussed above, if the debt is marital, the court must
make findings sufficient to determine whether it is properly
treated as divisible property or as a distributional factor,
pursuant to G.S. . 50-20(b)(4) and
Hay. Once the parties' debts
are classified and valued, the separate debt cannot be distributed
as part of the marital estate.
Fox v. Fox, 114 N.C. App. 125, 134,
441 S.E.2d 613, 619 (2001). However, the trial court should
consider such debt as a factor when dividing the marital property.
Id.;
see also N.C. Gen. Stat. . 50-20(c)(1).
Plaintiff first takes issue with the trial court's failure to
classify his credit card debt incurred during the marriage as
marital. The pertinent finding reads as follows:
13. The Court further finds that there will be
no credit for any “debt” payments made ascontended by the Plaintiff and the Court does
not characterize or classify such as marital
debt nor is any current individual debt of
Defendant's classified as marital debt.
We conclude that the court did not err in this classification.
As indicated above, Plaintiff had the burden of proving that
the debt was incurred for the joint benefit of the parties. Based
on our review of the evidence and record, we conclude that the
trial court did not err by declining to classify Plaintiff's credit
card debt as marital, where the evidence showed that Plaintiff
listed the debt as separate on his affidavit and where, among the
documents in evidence is a memorandum indicating that the debt was
incurred by Plaintiff alone.
Plaintiff next contends that a debt owed by him to his mother
to buy a 1993 Ford Explorer should have been classified as marital,
and should have been entered into the calculation of the value of
1993 Ford Explorer. He argues that the trial court erred when it
used the fair market value rather then the net value of 1993 Ford
Explorer in its equitable distribution determination. We disagree.
For equitable distribution purposes, net value is the appropriate
valuation technique. “[T]he net value for marital property is
ascertained by calculating the fair market value of each asset, and
subtracting the value of any debt or encumbrance on the property.”
Crowder v. Crowder, 147 N.C. App. 677, 681, 556 S.E.2d 639, 642
(2001). Plaintiff bore the burden of proving that the note in
question was used to buy the 1993 Ford Explorer, and by
implication, the trial court determined that he failed to carry
that burden. Based on our review of the transcript, evidence, andrecord, we conclude the trial court did not err by finding no
marital debt attached to the 1993 Ford Explorer. Thus, the net
value of the vehicle is equal to its fair market value, and the
value assigned to the vehicle was proper.
Plaintiff next argues that a $6,000 promissory note from both
parties to Plaintiff's parents, the proceeds of which were used to
start up the Mailbox business, should have been classified as
marital debt. We agree. Plaintiff's equitable distribution
affidavit classified the debt as marital and assigned it a value.
His testimony at both the interim allocation hearing and equitable
distribution trial reiterated the contents of his affidavit. A
copy of the handwritten note, with both Plaintiff's and Defendant's
signatures, was submitted into evidence. Defendant did not list
the note on her affidavit, but at the interim allocation hearing,
she admitted to signing the note. We see no evidence to the
contrary. Based on the evidence and testimony at trial, the trial
court erred when it failed to classify this note as marital debt of
the parties, and assign it a value. For this reason, on remand the
court must classify this note and, if marital, determine whether
the debt and related interest or finance charges have increased
since separation resulting in divisible property under G.S. . 50-
20(b)(4)(d), or whether payments have been made that are controlled
by
Hay, assign a value based on the evidence, and then incorporate
its findings and conclusions into the final distribution, in its
discretion.
Next, Plaintiff argues that the trial court erred when itfailed to classify, value, and distribute Defendant's IRA as
marital property. However, Defendant's IRA is not listed in either
of the parties' equitable distribution affidavit nor was it the
object of argument at either the interim allocation hearing or
equitable distribution trial. For these reasons, this argument is
not properly before us and we decline to address it. N.C. R. App.
P. 10(b)(1) (2003);
Crist v. Crist, 145 N.C. App. 418, 423, 550
S.E.2d 260, 264 (2001) (declining to address an argument not
asserted before trial court).
And finally, Plaintiff argues that the trial court erred when
it failed to classify, value, and distribute the debt owed by the
Mailbox to Plaintiff as marital property. We agree. In their
equitable distribution affidavits, both parties listed the debt as
a marital asset, represented by a memorandum, owed by the Mailbox
business. However, the trial court did not classify or value this
asset. On remand, the trial court should classify, value, and
distribute this asset.
For the reasons set forth above, we vacate finding of fact 3
and decretal paragraph 2 of the interim allocation order, and the
entire equitable distribution judgment. We remand for new findings
and conclusions, and entry of an equitable distribution judgment
consistent with this opinion.
Affirmed in part, Reversed in part, and Remanded.
Judges McGEE and STEELMAN concur.
Report per Rule 30(e).
Footnote: 1