Appeal by plaintiff from judgment entered 9 August 2004 and an
order entered 10 December 2004 by Judge Bruce B. Briggs in Avery
County District Court. Heard in the Court of Appeals 7 December
2005.
Kathryn G. Hemphill for plaintiff-appellant.
Hall & Hall Attorneys at Law, P.C., by Douglas L. Hall, for
defendant-appellee.
HUNTER, Judge.
Edward H. Perez (“plaintiff”) appeals from an equitable
distribution judgment entered 9 August 2004 and an order denying an
amended judgment entered 10 December 2004. For the reasons stated
herein, we reverse the trial court's order.
Plaintiff and Janine H. Perez (“defendant”) were married on 15
August 1997 and separated on 22 April 2000. A judgment of absolute
divorce was entered 27 August 2001. Plaintiff moved for equitable
distribution.
The parties entered into a pre-trial equitable distribution
order by consent on 27 March 2003. The order was revised and againentered by consent on 18 November 2003. Remaining disputed issues
of equitable distribution proceeded to trial in November 2003. An
equitable distribution judgment was entered by the trial court on
9 August 2004.
The trial court made numerous findings as to marital property
and debt related to residential and business property owned by the
parties unrelated to this appeal. As relates to the matters
pertinent to this appeal, the trial court made the following
findings.
The trial court first found that three loans were made by
plaintiff's mother, Lydia Perez, and deceased father, J.E. Perez.
The trial court determined that the first two loans made by Lydia
Perez, in the amounts of $50,000.00 and $26,000.00, respectively,
were to plaintiff personally and were not marital obligations. The
trial court also found that the third loan made by J.E. Perez in
the amount of $30,000.00 was to plaintiff personally and was not a
marital obligation.
The trial court next found that a loan dated 11 April 2000,
eleven days prior to the parties' separation, from First Union
National Bank in the amount of $50,000.00, which was used to pay
federal income tax obligations, was not a marital debt subject to
distribution.
The trial court considered a Merrill Lynch SEP account in the
name of plaintiff, which was valued at the date of separation in
the amount of $15,176.00, and determined that it was a marital
asset. The account had a distributive value of $16,483.00, but wasdistributed at the date of separation value of $15,176.00 to
defendant.
Finally, the trial court considered a 1996 Mariah 240Z boat
with motor and trailer, purchased for $28,065.13, titled in
plaintiff's name only. The trial court determined the boat to be
a marital asset and valued it in the amount of $17,040.00.
The judgment stated that an equal division of property was
equitable and, as an in-kind distribution was not possible, ordered
plaintiff to pay a distributive award of $64,364.60 within thirty
days of entry of the judgment. Plaintiff appeals from this order.
I.
Plaintiff first contends that the trial court erred in failing
to classify a bank loan made 11 April 2000 and three loans made to
plaintiff by family members as marital debt. We agree.
“In equitable distribution actions 'the trial court is
required to classify, value and distribute, if marital, the debts
of the parties to the marriage.'”
Pott v. Pott, 126 N.C. App. 285,
288, 484 S.E.2d 822, 825 (1997) (citation omitted). “G.S.
50-20(c)(1) requires the court to consider all debts of the
parties, whether a debt is one for which the parties are legally,
jointly liable or one for which only one party is legally,
individually liable.”
Geer v. Geer, 84 N.C. App. 471, 475, 353
S.E.2d 427, 429 (1987). “Regardless of who is legally obligated
for the debt, for the purpose of an equitable distribution, a
marital debt is defined as a debt incurred during the marriage for
the joint benefit of the parties.”
Id. “The party claiming thedebt to be marital has the burden of proving 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.'”
Miller
v. Miller, 97 N.C. App. 77, 79, 387 S.E.2d 181, 183 (1990)
(citation omitted).
A. First Union Loan
Plaintiff contends that the trial court erred in classifying
a $50,000.00 loan made on 11 April 2000 to defendant and plaintiff
as non-marital property.
“A marital debt . . . is one incurred during the marriage and
before the date of separation by either spouse 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 (1994) (emphasis added). This
Court has held that a trial court's “[c]lassification of property
must be supported by the evidence and by appropriate findings of
fact.”
McIver v. McIver, 92 N.C. App. 116, 127, 374 S.E.2d 144,
151 (1988).
The trial court found that the loan was executed eleven days
prior to the parties' separation, that the note appeared to be
signed by someone other than plaintiff and defendant, and that
defendant denied knowledge of the note. The trial court further
found that shortly after the funds from the loan were deposited
into plaintiff's account, a check in the amount of $50,000.00 was
drawn on the account and made payable to the Internal Revenue
Service. The trial court found that “[t]he $50,000.00 loan was
used to pay against the tax liability for the year 1999. Theparties were married during the year 1999 and the tax due to the
IRS was a joint liability[.]” The unchallenged findings of fact
show that the debt was incurred prior to the date of the parties'
separation and that the loan was incurred to pay off a marital
obligation, the joint tax liability for the year 1999. The trial
court, therefore, erred in finding that the First Union loan was
not a marital debt subject to distribution.
B. Family Loans
Plaintiff contends the trial court erred in classifying three
family loans as non-marital property.
This Court has stated that “[i]n particular, 'loans from close
family members must be closely scrutinized for legitimacy.' It is
incumbent upon the court distributing a debt to ensure that it was
a marital debt, that is, incurred during the marriage for the joint
benefit of the parties during the marriage.”
Geer, 84 N.C. App. at
475, 353 S.E.2d at 430 (citation omitted). However, regardless of
whether a spouse is legally liable, a debt which is used for the
benefit of both parties is properly classified as a marital debt.
Id. at 475, 353 S.E.2d at 429. Concerns as to which party is the
signatory of a marital debt may be treated as distributional
factors, but do not change the marital nature of the debt incurred
during the marriage and used for the benefit of both parties.
Mrozek v. Mrozek, 129 N.C. App. 43, 47, 496 S.E.2d 836, 839 (1998).
Here, the trial court found that promissory notes were
respectively executed by plaintiff for loans from his mother in the
amount of $50,000.00 in 1998 and $26,000.00 in 1999, and a loanfrom his father in the amount of $30,000.00 in 1999. The trial
court further found that the loans were intended to assist
plaintiff in his medical practice. The trial court also found that
defendant did not sign the promissory notes.
However, with regards to all of the loans, the trial court
made uncontested findings that the proceeds of the loans were
deposited into accounts to which both parties had access, and that
the “funds were spent for marital debts and purchases[.]” The
trial court, therefore, erred in finding that the loans, even if
intended for other purposes, were not a marital obligation, as they
were used for the joint benefit of the parties.
See McIver, 92
N.C. App. at 127, 374 S.E.2d at 151.
II.
Plaintiff next contends the trial court erred in its failure
to distribute the increase in a Merrill-Lynch SEP account as
divisible property. We agree.
N.C. Gen. Stat. § 50-20(b)(4)(a) (2005) includes as divisible
property “[a]ll 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[.]”
Id.
Divisible property must be equitably distributed between the
parties in accordance with the provisions of N.C. Gen. Stat. § 50-
20(a).
Here, the trial court made the following finding regarding the
Merrill Lynch SEP account:
87. The Merrill Lynch SEP account in the
name of Dr. Edward H. Perez, FBO (for thebenefit of) Ms. Janine Perez, is a marital
asset and its value as of the date of
separation was $15,176.00. Due to the
economy, this account has increased in value
since the date of separation and as of May 31,
2002, the value was $16,483.00, however,
distribution is to the Defendant at the value
of $15,176.00.
The final total of the marital assets of the parties did not
include the $1,307.00 in divisible property recognized by the trial
court in its uncontested Finding of Fact No. 87.
N.C. Gen. Stat. § 50-20(a) specifies that the trial court must
determine what is marital property, defined by section 50-20(b)(1)
as “all real and personal property” falling within the scope of the
statute.
Id. As “the Act mandates a complete listing of marital
property, . . . an order that fails to do so is fatally defective.”
Little v. Little, 74 N.C. App. 12, 17, 327 S.E.2d 283, 288 (1985)
(citing the requirements of N.C. Gen. Stat. § 50-20(a)-(b)(1)).
The trial court, therefore, erred in failing to include the
divisible property in its distributional order.
III.
Plaintiff next contends the trial court erred in classifying
a 1996 Mariah 240Z boat as marital rather than separate property.
We agree.
Separate property is defined by N.C. Gen. Stat. § 50-20(b)(2)
as:
“Separate property” means all real and
personal property acquired by a spouse before
marriage or acquired by a spouse by bequest,
devise, descent, or gift during the course of
the marriage. . . . Property acquired in
exchange for separate property shall remain
separate property regardless of whether thetitle is in the name of the husband or wife or
both and shall not be considered to be marital
property unless a contrary intention is
expressly stated in the conveyance.
Id. “The burden of showing the property to be marital is on the
party seeking to classify the asset as marital and the burden of
showing the property to be separate is on the party seeking to
classify the asset as separate.”
Atkins v. Atkins, 102 N.C. App.
199, 206, 401 S.E.2d 784, 787 (1991).
This Court has held that in matters of personal property, the
spouse claiming a marital property classification “must demonstrate
by a preponderance of the evidence that the exchange of separate
property was accompanied by: (1) an
intention that the [personal
property] be marital property; and (2) that such intention was
expressly stated in the conveyance.”
Friend-Novorska v. Novorska,
131 N.C. App. 508, 511, 507 S.E.2d 900, 902 (1998).
Here, the trial court found that the 1996 Mariah 240Z boat
with motor and trailer was titled in plaintiff's name only. The
trial court also found that the boat was purchased on 22 August
1997, approximately one week after the parties' marriage, with
funds from plaintiff's personal account which were deposited prior
to marriage. Plaintiff's separate property was exchanged for the
boat, and the trial court's findings do not indicate that it was
plaintiff's intention that the boat be marital property, as the
boat was titled solely in plaintiff's name. The trial court's
findings, therefore, do not support the classification of the 1996
Mariah 240Z boat as marital property.
IV.
Plaintiff finally contends the trial court erred in ordering
plaintiff to pay a distributive award without finding plaintiff had
sufficient liquid assets with which to pay the award. We agree.
In
Robertson v. Robertson, 167 N.C. App. 567, 605 S.E.2d 667
(2004), after awarding an equal division of property, the trial
court ordered the defendant to make a distributive award to the
plaintiff within ninety days, as an in-kind distribution was not
equitable.
Id. at 569, 605 S.E.2d at 669. On appeal, the
defendant contended that the trial court erred in ordering him to
pay a distributive award without finding that he had sufficient
liquid assets with which to pay the award, and this Court agreed.
Id. at 570, 605 S.E.2d at 669.
Robertson held that under N.C. Gen.
Stat. § 50-20(c), “the trial court must consider certain factors
and 'must make findings as to each factor for which evidence was
presented.'”
Id. (citation omitted). Specifically,
Robertson
noted that the statute required findings as to “(1) [t]he income,
property, and liabilities of each party at the time the division of
property is to become effective. . . . (9) The liquid or nonliquid
character of all marital property and divisible property[] . . .
[and] (11) [t]he tax consequences to each party.”
Id. When a
party is required “to pay the distributive award from a non-liquid
asset or by obtaining a loan, the equitable distribution award must
be recalculated to take into account any adverse financial
ramifications such as adverse tax consequences.”
Embler v. Embler,
159 N.C. App. 186, 188-89, 582 S.E.2d 628, 630 (2003). Here, the trial court found that the total marital estate was
valued at $454,841.21, and that an equal division of $227.420.60
per party was equitable. The parties stipulated to in-kind
distribution of certain real property assets to plaintiff, but did
not stipulate to a distributive award, as both parties requested an
unequal distribution of assets from the trial court. Due to the
parties' stipulations, plaintiff was awarded property totaling in
excess of $291,785.21, composed primarily of real property and
pension plans. As this amount exceeded plaintiff's equitable
award, the trial court ordered plaintiff to make a distributive
award to defendant in the amount of $64,364.60 within thirty days.
However the trial court made no findings as to the liquid character
of the assets or the potential tax consequences of such a
distributive award on the value of the marital assets. As there
are no findings as to defendant's liquid assets and ability to pay
the award, or as to the potential adverse financial consequences of
using the non-liquid assets to pay the distributive award, the
trial court failed to make sufficient findings as to the
distributive award.
As we find the trial court erred in failing to classify
certain loans as marital debt, in classifying a boat purchased with
separate funds as marital property, in failing to include
distributive property in the marital assets, and in failing to make
sufficient findings as to the distributive award, the trial court's
order is reversed and remanded for entry of a new distributional
order. Reversed and remanded.
Judges McCULLOUGH and GEER concur.
Report as per Rule 30(e).
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