Domestic Relations – Equitable Distribution – Classification – Subchapter S Earnings – Distributive Factors – Marital Losses

Hill v. Sanderson (Hill) (Lawyers Weekly No. 15-07-1085, 35 pp.) (Linda McGee, C.J.) Appealed from Buncombe County District Court (Julie Kepple, J.) N.C. App.

Holding: Where the defendant-wife owns 100 percent of the stock of the Subchapter S corporation Speaking Of, Inc., and where the corporation retained its ordinary business income earnings for the years 2011-2013, the trial court did not err by failing to classify and distribute the $115,136 earned by the corporation, since those earnings are still held by the corporation and so are not marital property.

The trial court’s equitable distribution order is affirmed in part and vacated and remanded in part.

Although the parties opened a joint equity line in 2003, the husband’s separate equity line had been paid off in 2000. Since there was no indication that there was any agreement between the parties that the husband was to repay that satisfaction amount to the marital estate, if the husband’s then-satisfied equity line debt of $25,000 was to be considered by the trial court at all, it could only have been properly considered as a distributional factor within the context of G.S. § 50-20(c)(12). We vacate the portion of the trial court’s judgment pertaining to the equity line debt, and we remand this matter for the trial court to reconsider its findings in light of the evidence presented and to classify, value, and distribute the equity line debt in accordance with its findings.

A property owner is generally competent to testify as to the value of her property unless it affirmatively appears that the owner does not know the market value of her property. Furthermore, the list price has no bearing upon the fair market value of property. When asked about the date-of-separation value of the parties’ property on Fairway Drive in Weaverville, the wife cited the property’s list price of $45,000 but also said, “I really don’t have knowledge of that kind of stuff.” Her testimony was insufficient to support the trial court’s valuation of the property at $45,000 as of the date of separation.

The trial court ruled that the loss from the parties’ interest in two properties on Water Rock Terrace in Asheville were distributed to the husband “at the fair market value of $40,000.” However, in its equitable distribution judgment, the trial court indicated that the value of the Water Rock properties was “$36,000.00 (net 0),” but did not distribute the passive loss in accordance with its earlier findings. We vacate and remand for further consideration.

The trial court failed to properly distribute the proceeds from the sale of real property on Gaston Mountain Road in Asheville. Only half of the Gaston Mountain property was acquired during the parties’ marriage. The other half was acquired after the date of separation. Thus, if the later-acquired, one-half interest in the Gaston Mountain property was not marital property and the only portion of the proceeds subject to distribution was the portion derived from the sale of the marital interest in the property as of the date of separation, the trial court erred by distributing the entire $6,782.11 proceeds from the sale of the Gaston Mountain property to the wife. However, since funds received after the separation may appropriately be considered as marital property when the right to receive those funds was acquired during the marriage and before the separation, we remand this matter to the trial court to classify and distribute the one-half interest in the Gaston Mountain property acquired by the parties after the date of separation.

Even though the parties stipulated to 20 percent tax penalties in the valuation of their retirement accounts, the wife argued that it was unlikely that the penalties would be incurred. Despite an opportunity to respond to this argument, the husband failed to do so. Thus, the trial court had the authority to consider the likelihood of whether tax consequences would result upon the court’s distribution of the retirement accounts.

We disagree with the husband’s assertion that the wife received a double credit when the trial court both (1) distributed the Sunnybrook Drive, Asheville, property to her for a net market value reflecting the mortgage reduction amount that resulted in an increase in the valuation of the home and (2) credited the wife for her post-separation mortgage payments on the property as a distributional factor. By giving the wife credit for her mortgage payments on the Sunnybrook property as a distributive factor, the court reimbursed the wife in full for her expenditure towards that debt and restored her to the position she would have been in, monetarily, had she not made any payments towards that debt, thereby putting the parties on equal footing with respect to that debt and asset.  However, the trial court took the increase in the value of the Sunnybrook property into consideration in determining equitable distribution because the amount of the wife’s mortgage payments, which increased the net value of the marital home, were included in the total of the post-separation appreciation of the property. Accordingly, the trial court did not award the wife a double credit for her payments on the mortgage debt of the Sunnybrook property by accounting for those payments among the wife’s distributive factors and reflecting the increase in net value of the marital home, which was distributed to the wife.

Affirmed in part; vacated and remanded in part.