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Home / Opinion Digests / Domestic Relations / Domestic Relations – Equitable Distribution – Classification – Marital Home – Valuation – Home & 401k – ‘Liquid’ Assets

Domestic Relations – Equitable Distribution – Classification – Marital Home – Valuation – Home & 401k – ‘Liquid’ Assets

Where the trial court made classification and valuation errors as to the parties’ marital home (which they bought before their marriage) and failed to value the plaintiff-husband’s 401k plan, the trial court could not make the unequal property division it held the wife was entitled to.

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

Because the parties bought their home before they were married, the trial court classified the home as separate property held by a joint tenancy of the parties. However, the court then found that “there is considerable equity in the marital residence which is marital property.”

If the home is separate property, it is not subject to equitable distribution, yet the trial court distributed it to the defendant-wife. The trial court erred by distributing the home; on remand, the trial court should follow the process set forth in Turner v. Turner, 64 N.C. App. 342, 307 S.E.2d 407 (1983), to classify and value the home and any marital or separate interests in the home and to distribute any marital interest.

In the final pretrial order, both parties alleged that their 1995 Cadillac El Dorado was worth $1,880, yet the trial court valued the car at $10,000. The only evidence of the sum of $10,000 was the husband’s testimony that he had paid off a $10,000 balance of the loan on the vehicle with a portion of the proceeds from a home equity line of credit (HELOC), which he received in 2005, four years prior to the date of separation.

But a loan payoff on a vehicle years prior to separation is not evidence of the fair market value of the vehicle on the date of separation. On remand, the court should value the car based upon the evidence of fair market value as of the date of separation, and it appears that $1,880 is the only evidence of value as of the date of separation.

The husband took out a HELOC secured by the marital home during the marriage, but the trial court found that the HELOC is the husband’s separate debt based upon its findings regarding the husband’s sole control over the HELOC and his use of the funds. The trial court was unable to value the outstanding debt as of the date of separation because there was not sufficient evidence of this value. But since the HELOC was classified as a separate debt, it need not be valued and cannot be distributed.

The trial court also found insufficient evidence to value the husband’s 401k and then used the 401k as a factor justifying an unequal property division. It is true that the trial court need not value items used as distributional factors. However, the trial court also found that the (unvalued) 401k was marital property.

If the 401K is not marital property, the trial court could have used it as a distributional factor without valuing it; but if it is marital property, it must first be valued as part of the marital estate. There is no way to know if the distribution of the marital estate is equal or unequal if there is no finding on the net value of the entire marital estate.

A letter from the husband’s 401k administrator set out the vested balance of the 401k as of the month of the parties’ stipulated separation date in October 2009. However, the trial court found that the parties separated in October 2007. Given the trial court’s finding as to a lack of evidence of the 401k’s date-of-separation value, we cannot say that the October 2007 finding was a clerical error. On remand, the trial court should clarify its findings regarding the valuation of the 401k as of the date of separation or its inability to value the plan.

We note that the trial court referred to the 401k and the equity in the marital home as “liquid” assets.  A 401k plan is not liquid since it is not readily accessible and any withdrawals prior to retirement incur substantial taxes and penalties. Equity in a home is not liquid because the home must be sold to get access to the equity.

Since the court based an “unequal” distribution on marital assets that were not valued and on a misunderstanding of “liquid” assets, we hold that the trial court abused its discretion in ordering an unequal distribution.

Vacated and remanded.

Watson v. Watson (Lawyers Weekly No. 011-261-18, 18 pp.) (Donna Stroud, J.) Appealed from Wake County District Court (Michael Denning, J.) Stephanie Brown for plaintiff; Tiffanie Meyers for defendant. N.C. App.


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