Speculative Taxes and Equitable Distribution

Dolan v. Dolan, 148 N.C. App. 256 (2002).

Facts: Plaintiff and Defendant married in 1971. Plaintiff went to optometry school and eventually he started his own practice and also bought rental properties to supplement the family income. The parties separated in 1994. A claim for Equitable Distribution (ED) was brought in a counterclaim by the Defendant. For ED, the parties entered into certain stipulations. They stipulated to the values of the rental properties. There were some contentions in the proposed order. However, the Judge signed an Order, which found that Plaintiff would incur certain amounts for taxes for the “liquidation” of rental properties distributed to him, if he decided to do so. The Order also found that Defendant would incur taxes for the liquidation of the rental properties distributed to her, if she decided to do so. Defendant appeals.

Rationale: While tax consequences to either party is an appropriate factor when considering whether an equal distribution of property is equitable, there is a requirement that the trial court only consider the tax consequences that will result from the distribution of property that the court actually orders. Hypothetical tax consequences are not proper. There is where the trial court erred. The findings for both were conditional—the tax consequences, even if accurate, were only if either party decided to “liquidate” the rental properties. Nothing in the trial court’s judgment mandated that a party liquidate a property. Those tax consequences may never be realized if, for instance, Defendant decided to hold on to the rental properties distributed to her. Therefore, to consider the hypothetical tax consequences in whether a split was equitable amounted to reversible error.