Domestic Relations – Equitable Distribution – Divisible Property – Marital Debt Payments – Marital Resources

Shope v. Pennington (Lawyers Weekly No. 14-07-0051, 11 pp.) (Robert C. Hunter, J.) Appealed from Lee County District Court (Jacquelyn L. Lee, J.) N.C. App.

Holding: It appears that, after the parties separated, defendant used marital assets to pay down a marital debt; however, the trial court gave defendant full credit for the debt payments. If defendant did use marital assets to pay the marital debt, plaintiff would be entitled to some consideration.

We reverse the equitable distribution order and remand for further proceedings.

Pennington Farms is marital property. On Nov. 3, 2011, the parties stipulated that, after their May 28, 2009 separation, defendant paid $511,522.69 toward marital debt associated with Pennington Farms from funds “generated by Pennington Farms.” However, defendant only earns $1,977 to $1,275 per month from the operation of the farm.

According to Bodie v. Bodie, 727 S.E.2d 11 (2012), if a spouse uses marital property to pay down marital debt, the other spouse is entitled to some consideration for that use. Therefore, defendant would not be entitled to full credit for his payments toward marital debt if those payments were made using marital funds. Thus, in order for us to determine whether the trial court properly distributed those payments to defendant, the source of funds for defendant’s payments must be identified. The trial court’s order is ambiguous on this point.

Given the average monthly gross income defendant earned from the operation of the farm, it seems unlikely that he was able to generate over half a million dollars in debt payments solely in income that he earned from his work on the farm. Consequently, the trial court erred in not making clear findings as to the source of these funds and, if the source included defendant’s use of the marital property to generate income, in not giving plaintiff any consideration for that use. Therefore, we remand this matter back to the trial court to make additional findings of fact which identify the source of the funds used to pay down the marital debt associated with Pennington Farms and redistribute those payments if necessary.

Given that defendant may not be entitled to a full credit for these payments, it may be necessary for the trial court to reconsider the statutory factor in G.S. § 50-20(c)(11a) (“Acts of either party to maintain, preserve, develop, or expand; or to waste, neglect, devalue or convert the marital property or divisible property, or both, during the period after separation of the parties and before the time of distribution”) and determine whether an unequal division in favor of defendant is still justified.

Reversed and remanded.