Court of Appeals tweaks equitable distribution judgment

A trial court erred when it classified a husband’s business as a marital asset and failed to credit the wife for her mortgage and tax payments as part of an equitable distribution judgment, the North Carolina Court of Appeals has ruled.

Jason Kerslake and Vickii Kerslake were married July 30, 2016, and separated Jan. 21, 2020. They had no children together.

Following their separation, Vickii remained in their marital home until February 2021. She paid the ad valorem property taxes on the property for 2019 and 2020, while Jason paid the mortgage payments until December 2020. Vickii paid the mortgage for December 2020 and January 2021, when Jason resumed payment.

The couple acquired an undeveloped lot in December 2017. Vickii obtained a loan to acquire the property, and Jason acquired a loan against their boat to pay other costs associated with the acquisition.

An equitable distribution trial was held, and judgment was entered.

Vickii appealed several issues, arguing that the trial court erred by classifying a post-separation loan to Jason as a divisible debt; including Jason’s separate property as part of the value of the marital estate; distributing Jason’s separate foreclosure debt to Vickii as a marital debt; finding that a judgment against Jason’s business was a marital debt that existed on the date of separation, crediting him for paying off the debt, then using this judgment as a factor to award an unequal distribution to him; distributing marital property to children from former relationships; charging Vickii rent for remaining in the martial residence post-date of separation then distributing Jason the residence; ordering an additional distributive award after awarding Jason in excess of 81% of the marital estate; and ordering an unequal distribution of the marital estate without basis for the award.

In an opinion authored by Judge John Tyson, the court issued a mixed decision, affirming and reversing.

First, the court found that a post-separation support loan to Jason was a divisible debt when he used the loan proceeds to improve the marital residence that was distributed to him.

The evidence supported the trial court’s finding of fact that the detached garage was causing water damage to the house, an undisputed marital asset. Jason acquired the debt to remedy water damage and prevent further damage to the house — where Vickii had been staying post-separation.

In terms of the foreclosure debt, it was incurred during the marriage, so it was correctly classified as marital debt, the court said, affirming the trial court.

Vickii challenged the distribution of marital property to children, but the court affirmed the trial court.

“[A]ll three children, who were adults at the time the parties separated, presently possessed and used the vehicles in different states,” the court wrote. “[Jason’s] testimony regarding the use of marital funds used in purchasing vehicles for both [Jason] and [Vickii’s] respective children, together with the delivery of the vehicles to the children, provides competent evidence of donative intent to not disturb the trial court’s decision and judgment.”

The trial court classified $7,800 worth of scaffolding as a marital asset. Vickii argued that it was acquired by Jason before the marriage. As she made no investment in the scaffolding and it was Jason’s separate property, it was not subject to equitable distribution, the court said, reversing the trial court.

The court also reversed the classification of a judgment against Jason’s business as a marital debt.

Jason’s business was his separate property and not a marital asset, and the judgment against the business was entered on the date of separation.

“The judgment does not constitute a marital debt,” the court said. “Despite [Jason’s] assertion that [Vickii] made herself ‘part and parcel’ of his business, the debt was not incurred before the date of separation. The debt was unrelated to any existing marital debt, excluding it from being classified as marital debt. The debt was improperly denominated as marital debt in the judgment for equitable distribution and is properly classified as [Jason’s] separate debt on remand.”

Vickii argued that she should not have been charged rent for remaining in the residence after the date of separation, paying the ad valorem taxes and then distributing the residence to Jason with a reduced mortgage principal following her payments.

The court disagreed.

“[Jason] was distributed the marital home and paid the mortgage for ten months while [Vickii] solely occupied it post-separation,” the court wrote. “[Jason] is entitled to credit for [her] post-separation use of the property. [Jason] used income earned after the date of the separation to make the payments. It was within the trial court’s discretion to award [Jason] credit for the mortgage payments. [Vickii] has not shown it was arbitrary or unreasonable for the trial court to credit [Jason] with a reduced mortgage principal for the ten months he made payments while [she] solely occupied the marital residence post-separation.”

However, Vickii asserted that she made payments on the mortgage and property taxes for part of her occupancy. Because the mortgage debt was not distributed to her, she was entitled to credit for those payments if they were made with separate funds, the court said.

“There is no indication the trial court gave any consideration to [Vickii’s] purported payments,” the court noted. “If on remand the trial court determines [Vickii’s] payments were made using her separate funds, it should credit [her] the equivalent amount either through direct reimbursement or through an increase in her share of the marital estate.”

The court also affirmed the trial court’s additional distributive award to Jason, rejecting Vickii’s argument that it was unsupported.

“[T]he trial court made considerable and detailed findings regarding the distributional factors set forth in N.C. Gen. Stat. § 50-20(c),” the court said. “[Vickii] has failed to carry or meet the substantial burden of demonstrating the trial court abused its discretion.”

Finally, the court vacated the trial court’s equitable distribution award given its holdings to vacate in part the judgment and remand for further proceedings.

Michelle D. Connell of Connell & Gelb in Raleigh, who represented Vickii, said the decision provides an important reminder for equitable distribution cases.

“In cases like this, it is imperative to have all of the financial details in documents to support your client,” she said. “These are complicated cases, and you need to be able to back up your client’s claims in financial documents.”

Candler attorney Emily S. Dezio, who represented Jason, declined to comment on the decision.

The case is Kerslake v. Kerslake, No. COA23-995.