Please ensure Javascript is enabled for purposes of website accessibility
Home / Opinion Digests / Domestic Relations / Domestic Relations – Equitable Distribution – Valuation – Post-Separation Diminution – Fraudulent Mortgage

Domestic Relations – Equitable Distribution – Valuation – Post-Separation Diminution – Fraudulent Mortgage

Where the trial court found that one of the parties’ real properties, valued at $80,000, was unencumbered on the date of separation, but that the defendant-husband later mortgaged the property to his brother in the amount of $72,000, the trial court did not err when, in distributing the property to the plaintiff-wife, it deducted $20,000 from the value of the property because of the cloud on its title. However, we must remand for further consideration on the issue of the trial court’s declaration of the deed of trust fraudulent and its order requiring defendant to cancel the deed of trust when defendant was not the beneficiary of the deed and the beneficiary was not a party to the action.

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

Passive Diminution

Defendant contends that the trial court failed to classify the post-separation passive diminution in value of real property as divisible property. Defendant made blanket assertions that four of the parties’ six real properties had been foreclosed upon after the parties’ separation. However, defendant failed to support his assertions with any documentation.

The trial court distributed these four properties to defendant. The order does not indicate that the trial court failed to consider defendant’s evidence of diminution of property value; the trial court simply did not believe defendant’s testimony.

We discern no error in the trial court’s failure to attribute the asserted foreclosure of the four real properties as passive diminution in value.

Household Property

Where all the household items were distributed to the wife, the trial court did not need to individually classify and value each item.

Debt Classification & Valuation

There was evidence presented regarding several marital debts. The trial court’s order mentions only one: a hospital bill.

The trial court found, “Defendant presented testimony of rental debt and other debts but no evidence of collection and therefore the Court finds no evidence as [to the] value of these items at the date of separation and [thus, they are] not subject to distribution by the Court.”

We find no authority to support the proposition that evidence of collection is required before a court can classify and distribute debt as marital property. Accordingly, we remand the matter to the trial court to classify and distribute the debts in accordance with G.S. § 50-20, based on evidence already made part of the court record.

Furthermore, the trial court’s findings are insufficient to support its valuation of the parties’ business, Party World of North Carolina, Inc. The wife testified that, on the date of separation, Party World was worth $250,000; the husband said it was worth $0. The trial court concluded that Party World was worth $100,000.

There is no finding regarding Party World’s income stream or evidence indicating that Party World’s valuation through the date of separation was approximately $100,000. Accordingly, we remand this matter to the trial court for further findings of fact.

Fraudulent Mortgage

The wife presented evidence that the parties’ Homestead Road property was unencumbered on the date of separation, but, after the parties separated, the husband executed a deed of trust to his brother in the amount of $72,000.

It appears that because defendant mortgaged the Homestead Road property following the date of separation – encumbering the marital property – the trial court acknowledged a property value of $80,000 and then reduced that value by $20,000 for equitable distribution purposes based on a cloud on the property title.

Defendant has failed to illustrate how the trial court’s ruling was an abuse of discretion.

Defendant contended that he had borrowed the money before the parties separated in order to keep Party World running and had secured the debt by mortgaging the property after the date of separation.

The trial court’s findings indicate that the court did not believe defendant’s testimony that he incurred debts to his brother amounting to $72,000 during the course of the marriage and before the date of separation. Moreover, the court did not believe that the mortgage of the Homestead Road property secured a valid debt.

Therefore, the evidence supports the trial court’s finding that the debt was not incurred during the marriage and before the date of separation. The trial court’s finding and distribution of the debt as defendant’s separate property is not manifestly without reason.

However, we must remand for further consideration on the issue of the trial court’s declaration that the deed of trust was fraudulent and its order requiring defendant to cancel a deed of trust when defendant was not the beneficiary of the deed and the beneficiary was not a party to the action.

We note that the obligation was to defendant’s brother, an “insider,” the obligation was for a substantial portion of Homestead Road’s property value, and the obligation was incurred following the date of separation in anticipation of an equitable distribution proceeding; however, the record does not disclose when plaintiff was made aware of the mortgage on the Homestead Road property. We remand for the trial court to consider the nature of the transfer in accordance with the considerations and criteria set forth under the Uniform Fraudulent Transfer Act, G.S. §§ 39-23.1 et seq., and in effect at the time defendant mortgaged Homestead Place to his brother.

Distributive Award

Defendant argues that the trial court erred by ordering a distributive award without finding that the presumption that an in-kind distribution would be equitable had been rebutted or that defendant had the ability to pay a distributive award. We disagree.

Defendant provides no authority that the provision stated in § 50-20(e) compels in-kind distributions as a mandatory rule rather than a permissive one, and we find none. Moreover, the trial court’s order awarding plaintiff monthly payments for a period of 72 months is not manifestly without reason and, thus, is not an abuse of discretion.

Affirmed in part; reversed and remanded in part.

Abdeljabar v. Khalil (Lawyers Weekly No. 012-057-18, 30 pp.) (Wanda Bryant, J.) Appealed from Nash County District Court (William Farris, J.) I. Joe Ivey and Albert Thomas Jr. for plaintiff; W. Michael  Spivey for defendant. N.C. App. Unpub.

 


Leave a Reply

Your email address will not be published. Required fields are marked *

*