Opinion
No. COA11–1400.
2012-07-17
Julie Eriksson KIELL, Plaintiff, v. Charles Steven KIELL, Defendant.
LeCroy and Willcox, PLLC, by M. Alan LeCroy, for plaintiff-appellant. Crowe & Davis, P.A., by H. Kent Crowe, for defendant-appellee.
Appeal by plaintiff from order entered 5 July 2011 by Judge C. Thomas Edwards in Catawba County District Court. Heard in the Court of Appeals 4 April 2012. LeCroy and Willcox, PLLC, by M. Alan LeCroy, for plaintiff-appellant. Crowe & Davis, P.A., by H. Kent Crowe, for defendant-appellee.
HUNTER, ROBERT C., Judge.
Julie Eriksson Kiell (“plaintiff”) appeals from an order of the Catawba County District Court confirming the arbitrator's judgment of equitable distribution and order of alimony, and denying her motion to vacate the same. Plaintiff alleges several errors of law and errors in calculations were made by the arbitrator in distributing the marital property belonging to her and Charles Steven Kiell (“defendant”), and that the trial court erred in confirming the arbitration award. After careful review of the record, we affirm, in part, reverse, in part, and remand.
Background
The parties were married 20 June 1993. No children were born of the marriage. During the course of the marriage, the parties acquired the following marital property that is the subject of this appeal: the marital home in Hickory and an adjoining lot, a partial share of Hickory Surgical Clinic, Inc., a Lord Abbott Employee Retirement Plan, two Baird retirement accounts, a Wachovia Securities account, and two Northwestern Mutual Life insurance policies.
The parties separated 28 August 2003. On 17 August 2004, plaintiff filed for divorce from bed and board in Catawba County District Court. Defendant moved to compel arbitration pursuant to a collaborative law agreement signed by the parties. Plaintiff sought a jury trial, alleging that the agreement was void due to fraud and had been breached by defendant. This Court held in Kiell v. Kiell, 179 N.C.App. 396, 401, 633 S.E.2d 827, 830 (2006), that plaintiff was not entitled to a jury trial. On remand, the parties agreed to arbitration, which was to be “binding except for errors of law which may be appealed by either party.”
Arbitration hearings were held between April and October 2008 before arbitrator W. Wallace Respess, Jr. After the arbitrator amended his initial awards for alimony and equitable distribution, the trial court confirmed the arbitrator's amended order of alimony and second amended judgment of equitable distribution as final judgments on 5 July 2011. Plaintiff timely entered notice of appeal.
Discussion
The North Carolina Family Law Arbitration Act (the “Act”) provides, in part, that where “parties contract in an arbitration agreement for judicial review of errors of law in the award, the court shall vacate the award if the arbitrators have committed an error of law prejudicing a party's rights.” N.C. Gen.Stat. § 50–54(a)(8) (2011). Additionally, the Act provides that “the court shall modify or correct the award where ... [t]here is an evident miscalculation of figures or an evident mistake in the description of a person, thing, or property referred to in the award[.]” N.C. Gen.Stat. § 50–55(a), (a)(1). “ ‘On appeal of a trial court's decision confirming an arbitration award, we accept the trial court's findings of fact that are not clearly erroneous and review its conclusions of law de novo.” ’ Barton v. Barton, –––N.C.App. ––––, ––––, 715 S.E.2d 529, 531 (2011) (quoting First Union Secs., Inc. v. Lorelli, 168 N.C.App. 398, 400, 607 S.E.2d 674, 676 (2005)).
Upon application by either spouse for a distribution of the marital estate, section 50–20 of our General Statutes requires the court to determine what property is marital property or divisible property and what property is the separate property of either spouse. N.C. Gen.Stat. § 50–20(a)–(b). After establishing the net value of the property, the court must provide for an equal division of the marital and divisible property “unless the court determines that an equal division is not equitable,” whereupon it must provide for an equitable division of the property based upon the distribution factors provided in the statute. N.C. Gen.Stat. § 50–20(c).
Here, the arbitrator determined that an unequal division of the marital estate would be equitable and divided the property in consideration of the statutory distribution factors. Plaintiff claims, however, that the arbitrator committed a number of errors of law and errors of calculation in determining the equitable distribution award and that the trial court erred in confirming the award.
Although plaintiff entered notice of appeal from the award of alimony, she has made no arguments regarding the alimony award in her brief. Accordingly, we conclude she has abandoned any such arguments. N.C. R.App. P. 28(a) (2012).
A. Retirement and Securities Accounts
i. Greater than Fifty–Percent Distribution
Plaintiff first argues that the arbitrator erred by distributing to her the entire marital portion of the Lord Abbott and Baird retirement accounts because the distribution was a violation of N.C. Gen.Stat. § 50–20.1(e). The statute states, in part:
No award [of retirement benefits] shall exceed fifty percent (50%) of the benefits the person against whom the award is made is entitled to receive ... except that an award may exceed fifty percent (50%) if (i) other assets subject to equitable distribution are insufficient; or (ii) there is difficulty in distributing any asset or any interest in a business, corporation, or profession; or (iii) it is economically desirable for one party to retain an asset or interest that is intact and free from any claim or interference by the other party[.]
N.C. Gen.Stat. § 50–20.1(e). Plaintiff concedes that defendant's interest in his business is difficult to distribute and that it is economically desirable to keep defendant's business interest intact. Nevertheless, she argues that the distribution to her of more than 50% of the benefits defendant was entitled to receive is contrary to law because there were other assets subject to equitable distribution. We disagree.
Plaintiff seems to confuse the “or” separating the subparts of N.C. Gen.Stat. § 50–20.1(e) for an “and.” The statute allows an award of more than 50% of a retirement benefit if any one of the listed factors is present. Since plaintiff has conceded that factors (ii) and (iii) are present, the distribution was within the discretion of the arbitrator, and her argument is overruled.
ii. Tax Consequences
Plaintiff further argues that even if the distribution of retirement assets is proper, the arbitrator erred in failing to consider the tax consequences to plaintiff of liquidating the retirement accounts and the Wachovia Securities account as he was required to do under N.C. Gen.Stat. § 50–20(c)(11). We disagree.
Section 50–20(c) requires that in making an unequal division of assets, the trial court must consider the tax consequences each party would have incurred “if the marital and divisible property had been sold or liquidated on the date of valuation. The trial court may, however, in its discretion, consider whether or when such tax consequences are reasonably likely to occur in determining the equitable value deemed appropriate for this factor.” N.C. Gen.Stat. § 50–20(c)(11). The record shows that the arbitrator made findings of fact as to the tax consequence for each party regarding the two Baird retirement accounts. Mr. Respess concluded it was not likely that plaintiff would be required to liquidate those retirement assets in the foreseeable future; and that “the tax consequences to the parties for the liquidation of these accounts would be essentially the same.”
As for the Wachovia Securities account, the arbitrator specifically found the account to be a liquid asset, but there is no evidence that the arbitrator considered the tax consequences of selling assets in the Wachovia Securities account in order to distribute each parties' share of the account. However, where a party fails to present evidence that the sale or liquidation of the asset is required or is imminent, it is improper to consider tax consequences of such actions as the tax consequences would be speculative or hypothetical. See Cochran v. Cochran, 198 N.C.App. 224, 238, 679 S.E.2d 469, 478 (2009) (rejecting the defendant's argument that the trial court erred by failing to consider the tax consequences of selling the marital home because there was no evidence that the sale was necessary or imminent), disc. review denied,363 N.C. 801, 690 S.E.2d 533 (2010); Harvey v. Harvey, 112 N.C.App. 788, 793, 437 S.E.2d 397, 400 (1993) (“[I]t is improper to consider possible tax consequences as a distributive factor under [N.C. Gen.Stat.] § 50–20(c)(11) in the absence of evidence that some taxable event has already occurred or that the distribution ordered by the court will itself create some immediate tax consequence to either of the parties.”). Here, as plaintiff has presented no evidence that she would be required to sell or liquidate her distribution from the Wachovia Securities account, her argument that the arbitrator erred in failing to consider the tax consequences of such sale or liquidation is overruled.
B. Reduction in Mortgage Principal
Following the parties' separation, plaintiff continued to live in the marital home while defendant made the mortgage payments from his separate property. Plaintiff argues that the arbitrator erred in giving defendant a dollar-for-dollar credit against the marital estate for the amount by which defendant's payments reduced the principal balance of the mortgage since the arbitrator awarded the home to defendant and credited the mortgage payments as spousal support in calculating the award of alimony. We disagree.
Decreases in marital debt are “divisible property” which must be distributed in an order of equitable distribution. N.C. Gen.Stat. § 50–20(b)(4)(d). As we stated in Walter v. Walter, 149 N.C.App. 723, 731, 561 S.E.2d 571, 576–77 (2002), “[a] spouse is entitled to some consideration, in an equitable distribution proceeding, for any post-separation payments made by that spouse (from non-marital or separate funds) for the benefit of the marital estate.” In Hunt v. Hunt, 85 N.C.App. 484, 491, 355 S.E.2d 519, 523 (1987), we concluded that where a party has made post-separation mortgage payments, that party “should be credited with at least the amount by which he decreased the principal owed on the marital home.”
Plaintiff argues that we should rely on the Walter Court's statement that where the marital home was “distributed to the spouse who had the post-separation use of it or who made post-separation payments relating to its maintenance, there is, as a general proposition, no entitlement to a credit or distributional factor.” Walter, 149 N.C.App. at 732, 561 S.E.2d at 576–77. As plaintiff notes, however, the Walter Court also stated that “the trial court may, in its discretion, weigh the equities in a particular case and find that a credit or distributional factor would be appropriate under the circumstances.” Id. at 732, 561 S.E.2d at 577.
While the marital home was distributed to defendant, plaintiff lived in the home payment-free for at least five years prior to the distribution and this is a factor the arbitrator could properly consider in calculating the distribution. Id. at 732, 561 S.E.2d at 576–77. Distribution of the home to defendant and plaintiff's post-separation use of it would seem to balance each other out, leaving defendant's payment of the mortgage principal as the remaining factor for which he may reasonably be given a credit. Id. at 732, 561 S.E.2d at 576–77. Further, the parties stipulated that the marital home would be distributed to defendant prior to the entry of the equitable distribution order, thus restricting the arbitrator's flexibility in making his distribution.
In finding of fact number 7, the arbitrator addressed each party's post-separation mortgage payments and the corresponding reduction in the principal owed on the marital home. The arbitrator's conclusion of law number 3 provided his justification for the unequal division of the marital estate, specifically noting defendant's contribution to the reduction of the principal owed on the marital home.
Plaintiff does not cite any authority for her contention that a credit for mortgage payments for the purpose of calculating equitable distribution is not allowed when the payments are also considered to be spousal support for the purpose of calculating alimony. The arbitrator did not err in awarding defendant a credit against the marital estate for the reduction of principal on the marital home. Plaintiff's argument is overruled.
C. Life Insurance Policies
Plaintiff argues that the arbitrator erred by failing to distribute the post-separation passive increase in the value of two life insurance policies. We agree.
Pursuant to N.C. Gen.Stat. § 50–55(a)(1), if the arbitrator made an evident error in his calculations plaintiff is entitled to have the error corrected on remand.N.C. Gen.Stat. § 50–20(b)(4)(a) provides that “[a] ll appreciation and diminution in value of marital property and divisible property of the parties occurring after the date of separation and prior to the date of distribution” is divisible property except for that appreciation or diminution that results from the post-separation actions of one spouse. See Brackney v. Brackney, 199 N.C.App. 375, 385–88, 682 S.E.2d 401, 408–09 (2009) (noting that passive appreciation is appreciation “due solely to. circumstances beyond the control of either spouse” and concluding that the appreciation in value of the parties' marital home that occurred after the date of separation was divisible property; while the appreciation in value was made possible by the husband's post-separation action of closing on the sale of the house, the appreciation was “ the result of market forces” (emphasis added)). Thus, any passive appreciation in the value of the policies following separation
Contrary to plaintiff's claim, however, in the case of an evident miscalculation she is not entitled to have the order vacated. The remedy for an evident miscalculation or mistake is a modification or correction of the award under N.C. Gen.Stat. § 50–55(a)(1). See Barton, ––– N.C.App. at ––––, 715 S.E.2d at 537 (citing N.C. Gen.Stat. § 50–55(a)(1) to reverse, in part, and remand the trial court's order for the correction of an evident mistake in the arbitrator's award). is divisible property and must be distributed between the parties.
The parties possessed as marital property two Northwestern Mutual Life insurance policies with account numbers ending in 167 and 570. The arbitrator found that there was no passive appreciation post-separation; any increase in the value of the policies after the date of separation was due solely to defendant's payment of premiums. The record shows that this was a miscalculation.
The record supports plaintiff's contention that the increase in the value of each policy was approximately twice the amount of the premiums paid during the same period. Policy statements from Northwestern Mutual clarify that approximately half of the increase in the policies' values during this period was from interest and dividends. Thus, there was an evident miscalculation of the divisible value of the policies which must be corrected on remand.
D. Valuation of Defendant's Business Interest
Plaintiff argues that the arbitrator miscalculated the value of defendant's partial ownership of his employer, Hickory Surgical Clinic, Inc. (“the corporation”). Specifically, she alleges that the value of his share of the corporation as determined by an appraiser did not include the value of the building in which the clinic operates and which is partially owned by the corporation. She therefore argues that the building is a separate marital asset which remains to be valued and distributed. We disagree.
Defendant owns a 1/7th share of Hickory Surgical Clinic, Inc. Hickory Surgical Clinic, Inc. owns a 1/4th share of Hickory Surgical Real Estate, a partnership. Hickory Surgical Real Estate, in turn, is a partner in Medical Specialties Center, Inc., which owns the building in which defendant's clinic is located. The arbitrator found that defendant's 1/7th share of Hickory Surgical Clinic, Inc. was valued at $43,000.00 as of the date of distribution. In his award the arbitrator stated that the value of Medical Specialties Center, Inc. was “included within the net asset value of $43,000.00 for Hickory Surgical Clinic, Inc.”
Nevertheless, plaintiff argues that the appraisal document on which the arbitrator relied did not value the building because the appraisal states, with regard to the Hickory Surgical Real Estate, “[w]e have not obtained the market value of this interest.” The appraisal makes clear, however, that rather than independently appraising Hickory Surgical Real Estate, the appraiser accepted the stated value of the investment which was included in the corporation's books. The appraiser also reclassified the 1/4th share of Hickory Surgical Real Estate from an “investment” to a “non-operating asset,” but stated that this reclassification did not impact the corporation's overall value.
Thus, although the value of Hickory Surgical Real Estate was not independently appraised, it is clear that it was included in the valuation of defendant's share of the corporation. Plaintiff has presented no other evidence of the asset's value. We conclude the arbitrator did not err in accepting the appraised value of defendant's business interest.
Conclusion
For the reasons stated above, the trial court's order is affirmed, in part, reversed, in part, and remanded.
Affirmed, in part, reversed, in part, and remanded. Judges STROUD and BEASLEY concur.
Report per Rule 30(e).