Using Marital Funds to Pay Non-Marital Debts Before Separation

Property can be classified into various categories in North Carolina divorces, including marital and separate. Equitable distribution will handle these types of property differently. In most situations, separate property is not considered to be part of the marital estate and is not divided between spouses. However, the way spouses use separate property can affect marital property and equitable distribution, including paying off non-marital debt with marital money.

DeAtley v. DeAtley

In the case of DeAtley v. DeAtley, Husband appealed an equitable distribution order, and Wife cross-appealed. Husband argued that the trial court’s decision regarding distribution of property was not supported by the evidence, and Wife’s argument centered on the valuation of the marital home being in error.

Husband filed for divorce, and Wife’s counterclaim included a claim for equitable distribution, after which time Husband filed an amended complaint to include a claim for an unequal equitable distribution, as well. As part of the divorce proceedings, both spouses called expert witnesses to provide a valuation of the marital home. Husband’s expert witness, a real estate agent who was qualified as an expert in comparative market analysis, valued the home at $1.3 million. Wife’s expert, a residential real estate appraiser, valued the home at $1.135 million. The trial court found that the current value of the marital home was $1,301,353.

To support its decision, the trial court used various findings of fact, including that Husband had appeared to pay off non-marital debt close to separation, resulting in a reduction of marital assets. The court distributed 55% of the marital estate to Wife and 45% to Husband, further ordering Wife to pay Husband a distributive award of a little over $360,000. The trial court did not make a finding as to the total value of the marital estate.

Appeal and Cross-Appeal

Husband appealed this decision, and Wife cross-appealed eight days later. The Court of Appeals agreed with the parties that several of the lower court’s findings were erroneous, specifically the finding regarding Husband paying off non-marital debt. The appellate court determined that this finding of fact regarding a reduction in the value of the marital estate was too vague to be proper.

The finding in question stated that Husband appeared to have paid off non-marital debt and reduced marital assets, but, as the Court of Appeals stated, seeming to do something is not a finding that someone did do something. The appellate court asserts that findings of fact are meant to be statements of what actually happened; thus, to be proper, they must state what occurred rather than what appears to have occurred. In addition, there was no evidence to support the trial court’s finding that Husband engaged in economic misconduct, such as using marital assets to pay off non-marital debt. The case was remanded to the trial court to make further findings regarding the vacated portions of the order, including the issue of whether or not Husband paid off non-marital debts and reduced the value of marital assets.

Despite there being no proof in the trial court’s findings that this occurred in DeAtley v. DeAtley, the Court of Appeals does classify such behavior as economic misconduct in some cases. Further considerations may be applied on a case-by-case basis, such as how close to separation the financial action was made and whether both spouses agreed.