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Monetary Award Effect of Liquidating Property to Pay the Award
© 2005 National Legal Research Group, Inc.
NORTH CAROLINA: Robertson v. Robertson, ___ N.C. App. ___, 605 S.E.2d 667 (2004).
Where the trial court made a monetary award which appeared to be in excess of the payor's liquid assets, the trial court erred by failing to consider as a division factor the adverse financial consequences of liquidating property to pay the award. The trial court did not err by using a time-based coverture fraction to divide a defined contribution plan. The trial court erred by not considering the effect of a $7,000 decrease in the value of the marital home after separation, where the decrease was due to lack of maintenance attributable to both parties.
The husband appealed various portions of an equitable distribution order that provided for the equal division of the marital property and required the husband to pay a distributive award of approximately $52,000.
The husband first alleged that the lower court had erred when it required that he pay a distributive award to the wife without finding that he had sufficient liquid assets with which to pay the award. The marital estate was valued at $158,630, which included a vested pension plan with a value of $95,763 (after applying a coverture fraction of six/thirteenths) and stock valued at $37,336. Taking into account the equity in the marital home and other personal assets, the net assets to be distributed to the husband were valued at $138,390, and the net assets to be distributed to the wife were valued at $20,240. However, the court determined that an equal division of marital assets was equitable. It also found that an in-kind distribution was not equitable because the largest assets of the estate were the pension plan and the stock. Therefore, it ordered the husband to pay to the wife the sum of $52,100 from his $138,390, which equalized the distribution at $79,315.
Under N.C. Gen. Stat. 50-20(c), a court seeking to make an equitable distribution of property must consider, inter alia, the "income, property, and liabilities of each party," as well as "the liquid or nonliquid character of all marital property and divisible property." Id. 50-20(c)(1), (9). Where a party is required to pay a distributive award from a nonliquid asset or by obtaining a loan, the equitable distribution award must be recalculated to take into account any adverse financial ramifications such as adverse tax consequences. Although the court below found that the husband was paid an annual salary of $93,000, that he was being awarded numerous assets, including stock, two bank accounts, an unencumbered real estate lot, and assorted personal property and bank accounts, and could therefore afford to pay the $52,100 distributive award to the wife, the only truly liquid assets were the bank accounts, which had a value of only $5,929. The trial court failed to make specific findings concerning the difficulty and possible financial tax consequences of borrowing money or liquidating the stock or other assets to pay the distributive award. Accordingly, held the court on appeal, while the defendant may in fact be able to pay the distributive award, he sufficiently set forth evidence to raise the question of whether adjusting the award is necessary to offset any adverse financial consequences of using the nonliquid assets, as required by N.C. Gen. Stat. 50-20(c)(9). Moreover, the trial court's finding that the husband had a salary of $93,000 was insufficient under N.C. Gen. Stat. 50-20(c)(1) to justify the distributive award absent consideration of evidence of the husband's liabilities.
The husband next challenged the application by the trial court of the coverture fraction to calculate the value of the marital property portion of his vested pension plan. He first argued that the court had erred in applying any coverture fraction. He noted that the only appellate decisions in North Carolina that discuss the use of a coverture fraction involve defined pension benefit plans, which are more complicated to value than the type of plan he held, a deferred contribution pension plan. He argued that valuation of a deferred pension plan was easier and that a coverture fraction was not appropriate. The appeals court disagreed. Under the governing statute, the award of a pension, retirement, or other deferred compensation benefit shall be determined using the proportion of time the marriage existed up until the time of separation simultaneously with the employment which earned the vested and nonvested pension, retirement, or deferred benefit (the numerator), to the total amount of time of employment (the denominator). N.C. Gen. Stat. 50-20.1. The court found that nothing in this statute indicated that the coverture fraction is to be applied only to defined pension benefit plans. Rather, its plain language requires application of this fraction to determine the marital portion of all vested and nonvested pension, retirement, or deferred compensation benefits. There was no error by the trial court in applying the coverture fraction.
The husband then argued that competent evidence did not support the finding that he had participated in the pension plan for 13 years, as was determined by the court below. He alleged, rather, that he had participated in the plan for only nine years. The appeals court found that competent evidence was presented to the trial court to support its findings. The husband's own testimony, as well as that of his father, who started the firm where the husband was employed, was imprecise and somewhat inconsistent but, at the least, it indicated that the husband had been employed for nine years before the marriage and that this was enough to justify a finding that the denominator of the coverture fraction of 13 years was proper.
Finally, the husband argued that the trial court had erred in concluding that a $7,000 postseparation diminution in the value of the marital home was not divisible property. The appellate court agreed. Under the language of the controlling statute, N.C. Gen. Stat. 50-20(b)(4), all appreciation and diminution in the value of marital property occurring after the date of separation and prior to the date of distribution, except that which results from the activities of one spouse, is to be treated as divisible property. The trial court found that the diminution in value herein was due to lack of maintenance, which was due to the actions and inactions of both parties. It concluded, however, that, as a result, such decrease in value was not assigned any value. While competent evidence supported the lower court's finding that both parties had contributed to the diminution in value, this finding did not support the conclusion that the decrease in value was not divisible property. The exception for diminution in value caused by the actions of one party, as provided under the statute, did not apply, and the trial court had committed error in concluding that the decrease in value was not divisible property and that no value would be assigned to it.
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