Third Party to Equitable Distribution

Crowell v. Crowell, 809 S.E.2d 325 (2018).

In North Carolina, Equitable Distribution (ED) is one of the mechanisms by which former spouses separate their personal and real property. Sometimes property can be mingled in with third parties, such as in cases where either a trust or a third-party business entity is involved. The case below discusses how a court may handle such an issue.

Facts: Plaintiff wife owned several LLCs and held shares of corporations before marrying Defendant Husband. After marriage, the parties began borrowing from those businesses to live above their means. As a consequence, debts were amassed. They separated, and in February of 2014, Plaintiff filed for equitable distribution. The trial court had found that Plaintiff had two separate properties: 14212 and 14228 Stewart’s Bend Lane. She transferred the latter to her son, and argued that CKE Properties, Inc. (hereinafter, CKE) owned the former. After the ED hearing, the trial court entered an order commanding Plaintiff to sell the 14212 property and use the proceeds to pay Defendant as part of the distributive award. Plaintiff appealed.
Issue: Was the trial court in error when they did not join CKE to the lawsuit, even though they ordered the sale of the 14212 property?
Holding: No.
Rationale: Plaintiff argued that this case resembled an earlier case where the court found error in not joining the trust that held a business. The Nicks case that Plaintiff cited held that the court was in error when it ordered a trust to distribute an LLC that it was holding to the Husband, and for Husband to pay a distributive award to offset the assets he was distributed, despite not being a party. This argument was rejected because this Court distinguished this case from Nicks based on two factors: 1) that the LLC in Nicks was marital property and 2) that the LLC was a part of the distribution to Husband; therefore, because the trust was not a party to the lawsuit, the court lacked jurisdiction to distribute that LLC. Here, the 14212 property was separate property and it was not part of the distribution, but the trial court can consider it separate property when determining the distribution of the marital property.
Lessons and Observations:

1. A court can order the liquidation of separate property to pay for the distributive award. In this case, the parties amassed a great amount of debts, and one of the only ways for Plaintiff to pay the award would be the liquidation. Separate property can be considered in the Court’s decision when distributing the marital property.
2. There was a very contentious fight over who or which entity owned those properties. CKE was a corporation owned solely by the Plaintiff. It is unclear if the trial court took this in consideration in their decision.
3. One Judge dissented and wrote that because the rights belonging to CKE were affected, it should be considered a necessary party and should have been joined to the action.
4. Marital assets and property held and owned by a third party, or comingled in a third party, are complex items for ED. An experienced specialist helps.