ANITA LOUISE DRAPER,
Plaintiff-Appellant,
v
.
Buncombe County
No. 99 CVD 3572
JAMES K. DRAPER,
Defendant-Appellee.
Mary Elizabeth Arrowood for plaintiff-appellant.
James K. Draper, pro se.
McGEE, Judge.
Anita Louise Draper (plaintiff) filed a complaint against
James K. Draper (defendant) on 5 August 1999 that included claims
for an unequal division of marital property and interim
distribution of defendant's retirement benefits. Defendant filed
an answer and counterclaim for equitable distribution dated 14
September 1999. An equitable distribution hearing was held on 1
October 2001 and the trial court entered a judgment of equitable
distribution on 27 November 2001. Plaintiff appeals.
The evidence in the transcript and record tended to show the
parties were married on 11 August 1973, separated on 30 October
1998, and divorced by entry of a judgment of divorce on 23 March
2000. Defendant was a member of the United States Air Force fromOctober 1977 until his retirement on 1 November 1997. Defendant
was receiving military retirement and disability benefits in the
amount of $1,194.00 per month as of the date of separation.
Defendant and plaintiff testified that forty percent of defendant's
monthly benefits were military disability benefits. Defendant also
stated that after taxes and excluding his disability benefits, he
received approximately $550 a month net retirement benefits. The
trial court found that plaintiff offered no evidence of the date of
separation value or the present value of defendant's benefits and
therefore declined to distribute the retirement plan as part of
equitable distribution.
Plaintiff testified that she lived in the marital home for
approximately three months immediately following separation and
moved out in January 1999. Plaintiff's check for the mortgage
payment in January 1999 was returned for insufficient funds and
plaintiff took no action to cover the check. Defendant testified
that he took possession of the house in February 1999. Defendant
stated that he made the delinquent mortgage payment for January
1999 and continued making mortgage payments of $1,080 until the
house was sold on 28 February 2000. Defendant also testified that
the parties did not receive any proceeds from the sale of the house
but were required to pay closing costs of $5,908.55. This amount
consisted of a $5,303.11 debt for a heat pump air conditioning unit
that had been installed in July 1998 and additional standard
closing costs. Defendant stated that he paid this amount without
contribution from plaintiff after obtaining a loan through the VACredit Union. The trial court found a negative value in the home
of $5,909 due to the closing costs. Defendant also testified that
he paid $993.63 in outstanding expenses for telephone, power, and
cable bills incurred by plaintiff for her own personal benefit
during her post-separation possession of the home. The trial court
found that the parties did not have an agreement that defendant
would make the January 1999 mortgage payment or utility bills on
behalf of plaintiff. The trial court classified these payments as
an advancement in the amount of $934.40 against plaintiff's share
of the marital estate.
Plaintiff testified that the parties had a debt at the
Pentagon Federal Credit Union on the date of separation of $9,000.
Plaintiff also testified that there was approximately $1,100 owed
on a Pentagon Federal Credit Union Mastercard as of the date of
separation. Defendant testified that he paid $920 in 1999 for the
parties' 1998 federal income tax liability. The trial court found
marital debts consisting of: $9,006 owed to Pentagon Federal Credit
Union; $1,105 owed to Pentagon Federal Credit Union; and a $720
1998 federal income tax liability.
Our standard of review is limited to whether the trial court's
judgment is supported by the findings of fact and conclusions of
law. Knight v. Knight, 76 N.C. App. 395, 396, 333 S.E.2d 331, 332
(1985).
In appellate review of a bench equitable
distribution trial, the findings of fact
regarding value are conclusive if there is
evidence to support them, even if there is
also evidence supporting a finding otherwise.
The trial court has discretion in distributingmarital property, and "the exercise of that
discretion will not be disturbed in the
absence of clear abuse."
Crutchfield v. Crutchfield, 132 N.C. App. 193, 197, 511 S.E.2d 31,
34 (1999) (citations omitted). The decision of the trial court
will not be disturbed unless the decision "'was so arbitrary that
it could not have been the result of a reasoned decision.'"
Edwards v. Edwards, 152 N.C. App. 185, 187, 566 S.E.2d 847, 849
(quoting White v. White, 312 N.C. 770, 777, 324 S.E.2d 829, 833
(1985)), cert. denied, 356 N.C. 611, 574 S.E.2d 679 (2002). The
trial court, as the finder of fact in an equitable distribution
trial, is the sole judge of the credibility of the evidence.
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).
I.
Plaintiff first argues the trial court erred in failing to
value and equitably distribute defendant's retirement benefits.
Plaintiff contends that evidence of a present valuation of
defendant's retirement benefits was unnecessary and that the trial
court should have utilized the fixed percentage valuation method to
award her a portion of defendant's retirement benefits. Defendant
concedes in his brief, and we agree, that plaintiff is entitled to
receive a portion of defendant's retirement benefits because the
parties were married throughout his twenty-year military career and
the benefits that accrued before separation are marital property.
In the Uniformed Services Former Spouses' Protection Act, the
United States Congress authorized the states to classify militaryretirement pay as marital or separate. Armstrong v. Armstrong, 322
N.C. 396, 401, 368 S.E.2d 595, 597-98 (1988). Our General Assembly
subsequently enacted N.C. Gen. Stat. § 50-20(b)(1) (2001), which
states that marital property includes "vested and nonvested
military pensions eligible under the federal Uniformed Services
Former Spouses' Protection Act." See George v. George, 115 N.C.
App. 387, 388-89, 444 S.E.2d 449, 450 (1994), cert. denied, 342
N.C. 192, 463 S.E.2d 236 (1995); Morris v. Morris, 79 N.C. App.
386, 386-87, 339 S.E.2d 424, 425, disc. review denied, 316 N.C.
733, 345 S.E.2d 390 (1986). The vesting of United States Air Force
retirement benefits occurs after an enlisted member completes
twenty years of military service. 10 U.S.C.A. § 8914 (1998); cf.
George, 115 N.C. App. at 389, 444 S.E.2d at 450.
However, military disability payments "cannot be classified as
marital property subject to distribution under state equitable
distribution laws." Bishop v. Bishop, 113 N.C. App. 725, 733, 440
S.E.2d 591, 597 (1994) (citations omitted); see Mansell v. Mansell,
490 U.S. 581, 588, 594-95, 104 L. Ed. 2d 675, 685, 689 (1989).
Military disability payments "must be classified as the retiree's
separate property and, as such, treated as a distributional
factor." Bishop, 113 N.C. App. at 734, 440 S.E.2d at 597. Where
a party receives a combination of military retirement and military
disability benefits, the trial court should make a determination of
the amount of benefits that are subject to equitable distribution
as marital property. While military disability payments may not be
distributed as marital property, the trial court must consider thereceipt of such payments by a party as a distributional factor when
making an equitable distribution between the parties.
Our Courts have employed two methods for dividing retirement
benefits in equitable distribution: present value method (immediate
offset method) and the fixed percentage method (deferred
distribution method). Bishop, 113 N.C. App. at 731-32, 440 S.E.2d
at 597. The trial court has the discretion to employ either
method, but a valuation of the retirement benefits must be made as
of the date of separation. Id. at 732, 440 S.E.2d at 597. Under
the fixed percentage method of valuation,
the nonemployee spouse is awarded a percentage
of each pension check based on the total
portion of benefits attributable to the
marriage. The portion of benefits
attributable to the marriage is calculated by
multiplying the net pension benefits by a
fraction, the numerator of which is the period
of the employee spouse's participation in the
plan during the marriage . . . and the
denominator of which is the total period of
participation in the plan.
Seifert v. Seifert, 319 N.C. 367, 370, 354 S.E.2d 506, 509, reh'g
denied, 319 N.C. 678, 356 S.E.2d 790 (1987). The fixed percentage
method can result in a deferral of payments of benefits without
unfairly reducing the value of the award. Id. at 370, 354 S.E.2d
at 509.
The present value of the pension or retirement
benefits is not considered in determining the
percentage to which the nonemployee spouse is
entitled. Moreover, because the nonemployee
spouse receives a percentage of the benefits
actually paid to the employee spouse, the
nonemployee spouse shares in any growth in the
benefits. Yet, the formula gives the
nonemployee spouse a percentage only of those
benefits attributable to the period of themarriage, and that spouse does not share in
benefits based on contributions made after the
date of separation.
Id. at 370-71, 354 S.E.2d at 509 (citation omitted).
[S]o long as the trial court properly
ascertains the net value of the pension and
retirement benefits to determine what division
of the property will be equitable, application
of the fixed percentage method does not . . .
violate the mandate that the court must
identify the marital property, ascertain its
net value, and then equitably distribute it.
Id. at 371, 354 S.E.2d at 509.
After reviewing the record and transcript, we find that the
trial court did not properly exercise its discretion in refusing to
award plaintiff a portion of defendant's retirement benefits.
Although the trial court found there was insufficient evidence to
make an award under the present valuation method, the trial court
erred by not considering an award under the fixed percentage
method. It is undisputed that the parties were married throughout
defendant's entire twenty-year military career and that defendant's
retirement and disability benefits had vested and were being paid
at the rate of $1,149.00 per month as of the date of separation.
Both plaintiff and defendant testified that forty percent of
defendant's monthly benefits was disability benefits. This
testimony provided sufficient evidence of valuation of defendant's
retirement benefits to permit the trial court to make a deferred
distribution award to plaintiff.
Plaintiff and defendant were married during defendant's entire
twenty-year participation in the plan. Thus, one hundred percent
of the retirement benefits earned by defendant are attributable tothe marriage under the fixed percentage method of valuation. While
defendant receives benefits of $1,149.00 per month, only sixty
percent of this amount constitutes defendant's retirement benefits
and is classifiable as marital property. Accordingly, $689.40 of
defendant's monthly benefits are retirement benefits and subject to
equitable distribution.
The evidence in the transcript and record were sufficient to
allow the trial court to value defendant's monthly retirement
benefits and make a deferred distribution award of those monthly
benefits to plaintiff. We hold that the trial court abused its
discretion in failing to value and distribute defendant's military
retirement benefits as part of an equitable distribution. We
reverse the equitable distribution order of the trial court on this
issue and remand with instructions to value defendant's military
retirement benefits under the fixed percentage method and
distribute the military retirement benefits as part of equitable
distribution.
II.
Plaintiff next argues the trial court erred in finding and
concluding that the $5,909.00 in closing costs for the sale of the
former marital residence that were paid by defendant constituted a
negative value in the residence. Plaintiff also argues the trial
court should have valued the marital residence as of the date of
separation.
A marital debt is "one incurred during the marriage and before
the date of separation by either spouse or both spouses for thejoint 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 claiming that a debt is marital
bears the burden of showing the amount of the debt on the date of
separation and that the debt 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). "[A]ny debt incurred
by one or both of the spouses after the date of separation to pay
off a marital debt existing on the date of separation is properly
classified as a marital debt." Huguelet, 113 N.C. App. at 536, 439
S.E.2d at 210. Payments made to reduce debt owed on the marital
residence after separation constitute separate property and must be
credited to the payor. See Hendricks v. Hendricks, 96 N.C. App.
462, 467, 386 S.E.2d 84, 87 (1989), cert. denied, 326 N.C. 264, 389
S.E.2d 113 (1990); McLean v. McLean, 88 N.C. App. 285, 292-93, 363
S.E.2d 95, 100 (1987); Hunt v. Hunt, 85 N.C. App. 484, 491, 355
S.E.2d 519, 523 (1987).
The evidence in the transcript and record show that the
parties sold the marital residence on 28 February 2000. Not only
were there no proceeds from the sale of the residence, and
therefore no asset subject to distribution after the sale, but the
sales transaction resulted in an obligation of the parties of
$5,908.55 at closing. The amount of $5,303.11 of these expenses
was debt remaining on the heat pump installed before the date of
separation for the benefit of both parties and therefore was amarital debt. Defendant paid the remaining balance on the heat
pump after separation to eliminate the remaining debt on the
residence and complete the sale of the marital residence. The debt
incurred by defendant to pay off the debt for the heat pump upon
sale of the residence was a marital debt. See Huguelet, 113 N.C.
App. at 536, 439 S.E.2d at 210. Defendant was therefore entitled
to a credit for payment of that marital debt. See Hendricks, 96
N.C. App. at 467, 386 S.E.2d at 87. The trial court did not abuse
its discretion by giving defendant credit for payment of the
outstanding debt on the heat pump against plaintiff's share of the
marital estate.
The trial court also did not abuse its discretion by crediting
defendant's payment of the standard closing costs on the sale of
the former marital home against plaintiff's share of the marital
estate. There was sufficient evidence in the transcript and record
to support the decision of the trial court to credit these costs to
defendant.
While it was error for the trial court not to value the
marital residence as of the date of separation, see N.C. Gen. Stat.
§ 50-21(b) (2001); Mishler v. Mishler, 90 N.C. App. 72, 77, 367
S.E.2d 385, 388, disc. review denied, 323 N.C. 174, 373 S.E.2d 111
(1988), plaintiff has failed to demonstrate that she was prejudiced
as a result. The trial court found that defendant used his post-
separation income to pay $5,303 of the marital debt remaining on
the heat pump at the time the residence was sold. It also found
that "[t]he $5,909 closing costs paid by Defendant at closing onthe sale of the former marital home constitutes a negative value in
the home." Whether or not the negative valuation was a value as of
the date of separation, failure to place a specific monetary value
on the asset was not prejudicial to either party because the asset
had already been sold by the parties prior to distribution of the
marital property. The trial court correctly considered defendant's
payments of the closing costs in distributing the marital property
and plaintiff has failed to demonstrate that she was prejudiced as
a result. This assignment of error is overruled.
III.
Plaintiff next argues the trial court erred in concluding that
there were marital debts of (1) $9,006.00 owed to Pentagon Credit
Union, (2) $1,105.00 owed on a Pentagon Credit Union Mastercard,
and (3) $720 owed to the Internal Revenue Service (IRS). Since
there is insufficient evidence in the transcript and record to
support the trial court's findings of fact, we agree that the trial
court erred in concluding that the $9,006.00 owed to Pentagon
Credit Union and the $1,105.00 owed on a Pentagon Credit Union
Mastercard were marital debts. The transcript and record show that
plaintiff testified to the amount of the debt owed to the Pentagon
Credit Union and on the credit card as of the date of separation.
While defendant included this amount in his equitable distribution
affidavit and stated in his brief that he entered the credit card
receipts into evidence for consideration by the trial court, the
transcript and record fail to show any evidence regarding the type
of purchases charged to the credit card and whom they benefitted. The record also contains an exhibit showing that the outstanding
balance owed to the Pentagon Credit Union was $9,006.20 as of the
date of separation.
While there is evidence in the transcript and record
supporting the amounts owed to Pentagon Credit Union and on a
Pentagon Credit Union Mastercard, there is no evidence supporting
the finding that these debts were incurred for the joint benefit of
the parties during the marriage. Riggs, 124 N.C. App. at 652, 478
S.E.2d at 214. Accordingly, the trial court erred in concluding
that these were marital debts and we reverse the determination of
the trial court as to these debts. We note that under N.C.G.S. §
50-20(c)(1), the trial court "shall consider . . . [t]he . . .
liabilities of each party at the time the division of property is
to become effective." "If the debt is separate, it is a factor to
be considered under G.S. § 50-20(c)(1)." Edwards v. Edwards, 110
N.C. App. 1, 13, 428 S.E.2d 834, 839, cert. denied, 335 N.C. 172,
436 S.E.2d 374 (1993). On remand, the trial court shall, pursuant
to N.C.G.S. § 50-20(c)(1), consider these separate debts as a
distributional factor.
We hold that the trial court did not err in finding that the
amount owed to the IRS was marital debt. Defendant offered
testimony regarding the parties' debt for joint 1998 tax liability
to the IRS and the record contains a copy of the parties' 1998
joint income tax return showing a tax liability of $920. The
transcript and record show there was sufficient evidence to support
the trial court's findings and plaintiff has failed to demonstratethat the trial court abused its discretion in classifying the $720
tax liability as marital debt. This assignment of error is
overruled.
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