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Nicks v. Nicks

Court of Appeals of North Carolina

June 16, 2015


Heard in the Court of Appeals February 18, 2015.

Page 366

[Copyrighted Material Omitted]

Page 367

Catawba County, No. 09 CVD 3427.

Bell, Davis & Pitt, P.A., by Robin J. Stinson, for Plaintiff.

Jonathan McGirt for Defendant.

STEPHENS, Judge. Judges HUNTER, JR., and TYSON concur.


Page 368

Cross-appeals from order and judgment entered 23 January 2014 by Judge Mark L. Killian in Catawba County District Court.

Page 369


Plaintiff Carl Michael Nicks (" Mike" ) and Defendant Sally Agner Nicks (" Sally" ) filed cross-appeals from the Catawba County District Court's " Order/Judgment" in their action for, inter alia, equitable distribution. Mike argues that the trial court erred in classifying, valuing, and distributing certain assets to which neither party held legal title, and also contends that the court erred by awarding permanent alimony to Sally. Sally argues that the trial court erred by imputing income to her, resulting in a reduction of her alimony award, and by denying her motion to modify child support, without making any findings as to whether she had depressed her income in bad faith. Sally also contends that the trial court erred by failing to take into account the tax ramifications of its alimony award, by failing to classify and distribute as marital property the passive postseparation appreciation of Mike's Schwab IRA, and by summarily denying her motion for postseparation support. After careful consideration, we affirm in part, vacate in part, and remand the trial court's Order/Judgment for further findings and proceedings consistent with this opinion.

I. Facts and Procedural History

Mike and Sally were married on 1 May 1983, separated on 22 June 2009, and divorced on 31 March 2011. There were four children born of the marriage, one of whom, Darcy, was still a minor living with Sally at the time the trial court entered its Order/Judgment.

From 1990, when the parties moved to Hickory, until 2002, Mike was employed as an orthopedic surgeon at Hickory Orthopaedic Center, P.A. In 2002, Mike was diagnosed with severe obstructive sleep apnea, which prevented him from continuing to practice medicine. As a result, Mike applied for and began receiving disability insurance benefits in the amount of $19,000.00 per month; these benefits will terminate when Mike reaches age 65. Mike's medical license expired in 2004.

Sally is a board-certified internist and rheumatologist and is currently licensed to practice as a physician in North Carolina. Sally was the primary caretaker of the parties' children during the marriage but practiced medicine on a part-time basis. In 1990, she started her own practice, Piedmont Rheumatology, where she worked for three days a week until 1997 when, after she unexpectedly became pregnant with the parties' fourth child, Darcy, she sold that practice to her partner at Mike's urging. Sally did not practice medicine between the years 1998 and 2008.

In 2003, Mike confessed to Sally that he had engaged in an extra-marital affair with a 21-year-old female employee at his workplace. Although this disclosure profoundly affected Sally, she decided to stay with Mike and their children. The last six years of the parties' marriage followed a tumultuous pattern whereby Mike would move out of the marital residence for weeks or months at a time, then the parties would reconcile. This pattern ended when the parties finally separated on 22 June 2009 after Mike moved out of the marital residence and told Sally, who did not want to separate, that he was no longer happy with their marriage and that she would have to work full-time. Sally had resumed practicing medicine on a part-time basis in 2008 at Appalachian Regional Medical Associates in Boone after Mike encouraged her to return to work because of concerns that his disability insurer might challenge his entitlement to benefits. Sally declined an offer of full-time employment at the Boone clinic but was able to earn up to $8,250.00 per month as a result of her part-time employment there. However, in 2012, she was forced to cut back her work schedule in order to spend more time with, and provide more stability for, the parties' minor daughter, who had been experiencing severe emotional problems that required treatment through medication and counseling. In February 2013, the Boone clinic closed, leaving Sally unemployed. Since then, she has not applied for employment as a rheumatologist and does not plan on returning to work until the parties' minor daughter graduates from high school in 2016.

On 4 September 2009, Mike filed a complaint for child custody, child support, and equitable distribution of marital property.

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On 9 November 2009, Sally filed her answer and counterclaim, asserting claims for child custody and child support, equitable distribution, postseparation support, and alimony. On 23 December 2009, Mike filed a verified reply. On 2 March 2010, an order granting Sally temporary child custody and temporary child support was entered by stipulation of the parties. On 12 April 2010, an amended order was entered to correct typographical errors contained in the original order. On 3 March 2011, an order granting Sally permanent child custody and permanent child support was entered by stipulation of the parties. On 8 December 2011, a trial on the parties' remaining claims commenced in Catawba County District Court. However, because the judge assigned to hear the case was appointed to the superior court before the trial concluded, a mistrial was declared on 14 December 2012. Consequently, this matter was not calendared for hearing until 29 July 2013, when a bench trial began in Catawba County District Court that continued over five days spanning the next six weeks until 9 September 2013.

The evidence introduced at trial tended to show that prior to their separation, at Mike's urging upon the advice and counsel of an attorney licensed in Georgia named Chris Riser, the parties began implementing an estate plan--consisting of a trust and three LLCs--in order to take advantage of tax loopholes and to protect assets in the event of lawsuits. On 4 January 2008, Mike's father, Buster Brown Nicks, established the CMN 2008 Trust (" the Trust" ), an irrevocable trust with himself as grantor and Premier Trust, Inc., of Las Vegas, Nevada, as trustee. The Trust was established with a gift of $10,000.00 from Mike's father and a 100% membership interest in Entrust, LLC (" Entrust" ). Mike and Sally are the only beneficiaries of the Trust, from which they have each received annual payments of $10,000.00 since its inception. Mike has the right to make withdrawals from the Trust and also has a lifetime power of appointment and the right to remove any trustee with or without just cause; in addition, he serves as the investment manager of the trust property.

Entrust is a manager-managed limited liability company incorporated in Delaware on or about 11 December 2007 by Buster Brown Nicks, who was initially its sole member. On 4 January 2008, his membership interest was transferred to the Trust. On 17 January 2008, Mike and Premier Trust, Inc., as trustee of the Trust, signed the operating agreement for Entrust. As provided by that agreement, Premier Trust, Inc., is the sole member of Entrust while Mike is the manager and has the right to decide whether to make distributions of profits and assets from Entrust.

During the marriage, the parties acquired several tracts of land amounting to roughly 125 acres in Catawba County. In December 2007, the parties conveyed this realty, without consideration, to Green Park LLC, a North Carolina Limited Liability Company (" Green Park" ). The articles of organization for Green Park had been submitted to the North Carolina Secretary of State for filing roughly three weeks before this transaction. In its operating agreement, Mike is listed as the sole member-manager of Green Park. On 23 January 2008, the parties entered into an agreement to sell 100% of their interest in Green Park to Entrust. On 24 January 2008, the parties conveyed their interest in Green Park to Entrust for a purchase price of $2,200,000.00 payable in accordance with the terms of a promissory note which bears interest at the rate of 5% compounded semi-annually, with annual payments of $10,000.00 to both parties beginning on 31 January 2009 and full payment due on the maturity date of 31 January 2033. That same day, Mike transferred to Entrust marital property consisting of $100,000.00 in cash and shares of stock in several companies as well as various mutual funds with an estimated value of $560,000.00 at the time of transfer. In return, Entrust executed a promissory note for $660,000.00 made payable to Mike.[1]

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During the trial, Sally testified that she had expressed reservations about Mike's proposed estate plan but ultimately went along with it, although she had direct involvement only in the transactions involving Green Park. As Sally explained, during the time the transactions were being made, we

discussed them. I had reservations about it. I was--it seemed very complicated and convoluted to me. I was concerned that I was putting myself in a very vulnerable situation, but Mike assured me that I wasn't going to lose anything, that I had everything to gain by doing this. I was concerned about not having access to our funds. And he said that the way it was set up, it was just all for our protection of our financial future. That we could get our funds back out. The trustee would protect us, if we didn't want to take the funds out. But that we could take them out, if we wanted to. That was what he told me.

Sally also testified that Mike " promised to keep me informed of what he was doing with the investments and give me a regular accounting" but never did so.

The trial court entered its Order/Judgment on 23 January 2014. In its findings of fact, the trial court determined that Entrust and the two promissory notes it executed on 24 January 2008 were marital property. The court further found that Entrust was worth $3,046,071.27 as of the date of separation, based on calculations of the fair market value of the two promissory notes by Sally's expert witness Bryan W. Starnes, a certified public accountant in accreditation for business valuations. The court ultimately concluded that " an equal distribution of the net value of the marital property is equitable" but that " an in-kind distribution is not practicable in this matter" because

a substantial portion of the parties' marital property was transferred to [] the Trust and Entrust []. In exchange for the conveyance of marital property, unsecured promissory notes were delivered to the parties.
98. [Mike] has withdrawal rights and he serves as the investment manager of all of the [entities] under the umbrella of [] the Trust. [Mike] has the discretion to make distributions of assets from Entrust.
99. There are sufficient assets in the various [LLCs] from which [Mike] can access to pay a distributive award. Some of these assets include the real property owned by Entrust [], cash, shares of stock in various companies and mutual funds.
100. The presumption in favor of an in-kind distribution has been rebutted and a distributive award will achieve equity between the parties.

The court therefore ordered that Entrust's assets be distributed to Mike and ordered that he pay Sally " a distributive award in the amount of $1,546,352.11," with $100,000.00 due within 90 days of the entry of the Order/Judgment followed by six annual installments of $241,058.69 beginning on 1 January 2015 with interest accruing at the legal rate of eight percent.

The trial court's order also addressed Sally's claims for alimony, child support, and postseparation support. After finding that Sally has reasonable monthly expenses of

Page 372

$11,228.00 and the ability to earn at least $8,000.00 per month in gross income, the trial court imputed a gross monthly income of at least $8,000.00 to Sally and concluded that " the circumstances render it necessary for [Mike] to pay [Sally] $3,000.00 per month as permanent alimony." The court denied Sally's motion to modify child support based on its conclusion that " [t]here has not been a substantial change of circumstances of the parties since the entry of the previous Order of child support." The court also dismissed Sally's claim for postseparation support.

On 11 February 2014, Mike filed notice of appeal to this Court. On 18 February 2014, Sally filed notice of cross-appeal to this Court. On 19 February 2014, Mike filed a motion to stay execution of the trial court's Order/Judgment under N.C.R. Civ. P. 62(d) and section 1-289 of our General Statutes. On 29 March 2014, the trial court ordered that the amount of the undertaking required to stay execution of the Order/Judgment be set at $2,000,000.00, based in part on its findings that Mike " exercises effective control over substantial assets originating from the parties' marital estate that are nominally held by a trust or a limited liability company" and that, " [c]onsidering the amount of the judgment and the financial resources available to [Mike], the amount of the undertaking provided hereinbelow is proper and reasonable for the security of [Sally] pending appeal."

II. Analysis

A. Classification, valuation, and distribution of Entrust

Mike argues that the trial court erred in distributing Entrust to him because neither Entrust nor the Trust were owned by either of the parties on the date of separation. We agree.

[T]he standard of review on appeal from a judgment entered after a non-jury trial is whether there is competent evidence to support the trial court's findings of fact and whether the findings support the conclusions of law and ensuing judgment. The trial court's findings of fact are binding on appeal as long as competent evidence supports them, despite the existence of evidence to the contrary.
The trial court's findings need only be supported by substantial evidence to be binding on appeal. We have defined substantial evidence as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. As to the actual distribution ordered by the trial court, when reviewing an equitable distribution order, the standard of review is limited to a determination of whether there was a clear abuse of discretion. A trial court may be reversed for abuse of discretion only upon a showing that its actions are manifestly unsupported by reason.

Dechkovskaia v. Dechkovskaia, __ N.C.App. __, __, 754 S.E.2d 831, 834 (citation omitted), disc. review denied, 367 ...

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