Domestic Relations – Equitable Distribution – Distributive Award – Separate Property – Plaintiff’s Corporation & Son

Crowell v. Crowell (Lawyers Weekly No. 011-001-18, 34 pp.) (Wanda Bryant, J.) (Hunter Murphy, J., concurring in part & dissenting in part) Appealed from Mecklenburg County District Court (Christy Mann, J.) N.C. App.

Holding: In this equitable distribution action, the trial court could require plaintiff to sell her separate property in order to pay a distributive award, and the court was not required to join as parties (1) plaintiff’s wholly owned corporation, which may have owned one of the properties or (2) plaintiff’s son, to whom she had transferred another of the properties post-separation and for no consideration.

We affirm the equitable distribution order, except to the extent it purports to order plaintiff’s son – as an alternative to selling the gifted property – to pay part of the distributive award.

When a third party holds legal title to property which is claimed to be marital property, that third party is a necessary party to the equitable distribution proceeding. However, the property which the trial court ordered sold in this case was plaintiff’s separate property.

Even if it is true that there is evidence that, as of the date of separation, CKE Properties, Inc., was the legal owner of the 14212 Stewart’s Bend Land property, the trial court’s classification of this property as plaintiff’s separate property does not constitute reversible error where the trial court was not distributing the property as part of the marital estate. Rather, the trial court was considering plaintiff’s separate property in contemplation of her ability to pay a distributive award.

As plaintiff was the sole owner of CKE, the trial court was allowed to consider CKE’s assets, including 14212 Stewart’s Bend Lane, in ordering plaintiff to sell the property in order to pay the distributive award.

Fraudulent Transfer

Without expressly stating that it was analyzing plaintiff’s transfer to her son under the Uniform Fraudulent Transfer Act, the trial court made findings as to the relevant statutory factors: the transfer was to an insider, plaintiff’s son; the transfer was concealed from defendant; the property was gifted to plaintiff’s son after plaintiff had filed her complaint and defendant had filed his answer and counterclaim; and plaintiff made the transfer without receiving anything in exchange.

Accordingly, the trial court correctly concluded that the transfer from plaintiff to her son “constitute[d] a fraudulent transfer to defraud creditors, [and] that [the son] was not a good faith purchaser for value . . . .” Thus, the trial court also had jurisdiction to order that the transfer of the deed from plaintiff to her son be avoided.

However, with regard to the trial court’s alternative order that the son “pay to Defendant/Husband $90,000 which represents the majority of equity he gained during the fraudulent ‘gift/transfer’ to him of this property,” we agree with plaintiff that the trial court lacked jurisdiction to enter such an order against her son, a non-party to this action.

Marital Debt

Contrary to plaintiff’s argument, competent evidence in the record shows that the trial court properly classified and distributed marital debt: the trial court found that defendant took advantage of his position as a stockholder in various companies to borrow money which was used for the purpose of funding his and plaintiff’s extravagant lifestyle. Indeed, most of the loan proceeds can be traced to deposits made directly into the parties’ personal bank accounts. Accordingly, the trial court had authority to distribute to the parties the debts owed to the companies as marital debt.

Distribution in Kind Rebuttal

The trial court concluded, “In order to accomplish the equitable distribution Plaintiff/Wife is required to pay a distributive award of Eight Hundred Twenty Four Thousand Two Hundred Ninety Four Dollars and no/100 ($824,294).” This conclusion was preceded by extensive findings of fact regarding distributional factors required to be considered per G.S. § 50-20(c), which indicate and detail the reasoning behind the trial court’s conclusion – albeit an implied one – that an in-kind distribution would be impractical.

While the trial court did not specifically make a finding which stated that an equitable distribution of the marital property in-kind would be impractical, the trial court’s many findings of fact, especially those regarding the non-liquid character of the parties’ assets, are sufficient to permit appropriate appellate review of this issue. The trial court did not abuse its discretion in ordering plaintiff to pay a distributive award.

Separate Property Liquidation

In ordering the liquidation of plaintiff’s separate property, the trial court was not distributing that property, but rather “considering” it in making its other distributions, particularly the distribution of the majority of the marital debt to defendant and ordering plaintiff to pay a distributive award. Accordingly, where the trial court was properly considering – not distributing – plaintiff’s separate property in distributing the marital estate, specifically considering plaintiff’s ability to pay a distributive award to defendant, the trial court did not abuse its discretion in ordering plaintiff to liquidate separate property in order to pay the distributive award.

Affirmed in part; vacated in part.

Dissent

(Murphy, J.) The trial court’s equitable distribution order affects the rights and interests of parties not joined in the action. By requiring non-parties to act and effectively rescind prior transfers, the trial court has permanently barred CKE and plaintiff’s son from raising any defenses or protections they may have under G.S. § 39-23.8 or § 39-23.9(3). More troubling is the fact that, if CKE or plaintiff’s son had been properly joined, they could have exercised their constitutional rights to a jury trial.

I would vacate and remand for further proceedings that do not require the actions of or affect the rights of non-parties, or for joinder of the necessary parties.