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Crago v. Crago

Court of Appeals of North Carolina

November 5, 2019

DIETER CRAGO, Plaintiff,

          Appeal by defendant from order entered 19 June 2018 by Judge Jena P. Culler in Mecklenburg County No. 16 CVD 11052 District Court. Heard in the Court of Appeals 19 September 2019.

          Rosenwood, Rose & Litwak, PLLC, by Nancy S. Litwak, Erik M. Rosenwood, and Meredith R. Hiller, for plaintiff.

          Plumides, Romano, Johnson & Cacheris, P.C., by Richard B. Johnson and John Cacheris, for defendant.

          ARROWOOD, Judge.

         Candice Crago ("defendant") appeals from an equitable distribution and alimony Order awarding her ex-husband, Dieter Crago ("plaintiff"), $120, 000.00, and challenges the denial of alimony and attorney's fees. For the following reasons, we affirm.

         I. Background

          Plaintiff and defendant were married on 23 June 2007. Plaintiff and defendant both worked as engineers until 2010, when they were laid off. In order to support themselves through unemployment, plaintiff and defendant liquidated their 401(k) accounts and pension plans. Plaintiff later obtained work again and became the sole wage earner for the remainder of the marriage, while defendant enrolled in school to pursue various areas of study. In 2013, plaintiff and defendant opened a joint bank account, from which defendant would sometimes withdraw funds to transfer to her separate account. Defendant would also deposit checks written to her by plaintiff into her separate account. The parties had no children together, but defendant had two children from a previous marriage to Michael Heintz.

         On 22 September 2004, defendant and Mr. Heintz took out a $1, 000, 000.00 life insurance policy on Mr. Heintz's life and named defendant as the beneficiary. During her marriage to plaintiff, defendant paid the insurance premiums partly with funds she received from plaintiff. In October 2015, following Mr. Heintz's death in September, defendant received the payout from the life insurance policy. On 16 January 2016, plaintiff and defendant separated. On 24 June 2016, plaintiff filed a "Complaint" for equitable distribution of the parties' assets. On 20 October 2016, defendant filed a counterclaim for equitable distribution, alimony, and attorney's fees.

          A trial was held on 15 March 2018, and the trial court issued an "Order for Equitable Distribution and Alimony" ("Order") in which it determined the life insurance policy to be marital property, and distributed the property 80% to defendant and 20% to plaintiff. Plaintiff was awarded $120, 000.00 in proceeds from the life insurance policy, and was assigned all of the parties' tax debt. Defendant's claims for alimony and attorney's fees were denied. Defendant subsequently appealed.

         II. Discussion

         On appeal, defendant assigns as error the trial court's: (1) classification of life insurance proceeds, 2012 GMC Sierra, BB&T Trust Account, and certain tax debt as marital property; (2) distribution to plaintiff in the amount of $120, 000.00; and (3) denial of defendant's claims for alimony and attorney's fees.

         When the trial court sits without a jury, this Court reviews a trial court's equitable distribution order for "whether there was competent evidence to support the trial court's findings of fact and whether those findings of fact supported its conclusions of law." Casella v. Alden, 200 N.C.App. 24, 28, 682 S.E.2d 455, 459 (2009) (citing Oakley v. Oakley, 165 N.C.App. 859, 861, 599 S.E.2d 925, 927 (2004)). "The division of property in an equitable distribution 'is a matter within the sound discretion of the trial court.'" Cunningham v. Cunningham, 171 N.C.App. 550, 555, 615 S.E.2d 675, 680 (2005) (quoting Gagnon v. Gagnon, 149 N.C.App. 194, 197, 560 S.E.2d 229, 231 (2002)). "A trial court may be reversed for abuse of discretion only upon a showing that its actions are manifestly unsupported by reason." White v. White, 312 N.C. 770, 777, 324 S.E.2d 829, 833 (1985).

         A. Classification of the Life Insurance Proceeds

         1. The Mechanistic Approach Was Proper

         Defendant first argues the trial court abused its discretion when it rejected the analytic approach when determining that the life insurance proceeds were marital property in its equitable distribution Order. We disagree.

         "Pursuant to N.C. Gen. Stat. § 50-20 [(2017)], equitable distribution is a three-step process requiring the trial court to '(1) determine what is marital [and divisible] property; (2) find the net value of the property; and (3) make an equitable distribution of that property.'" Petty v. Petty, 199 N.C.App. 192, 197, 680 S.E.2d 894, 898 (2009) (quoting Cunningham, 171 N.C.App. at 555, 615 S.E.2d at 680)). Under North Carolina law, marital property is "all real and personal property acquired by either spouse or both spouses during the course of the marriage and before the date of the separation of the parties, and presently owned, except property determined to be separate property or divisible property[.]" N.C. Gen. Stat. § 50-20(b)(1) (2017). Separate property is that acquired by a spouse before marriage, or acquired by devise, descent, or gift during the marriage. N.C. Gen. Stat. § 50-20(b)(2). Generally, divisible property refers to certain property received after the date of separation but prior to distribution. N.C. Gen. Stat. § 50-20(b)(4).

         North Carolina courts have adopted two different approaches for determining what is marital and separate property: the "mechanistic" approach and the "analytic" approach. In Johnson v. Johnson, our Supreme Court described the mechanistic approach as:

literal and looks to the general statutory definitions of marital and separate property and concludes that since the award was acquired during the marriage and does not fall into the definition of separate property or into any enumerated exception to the definition of marital property, it must be marital property.

317 N.C. 437, 446, 346 S.E.2d 430, 435 (1986). In contrast, "[t]he analytic approach asks what the award was intended to replace," focusing on the purpose of the compensation rather than its statutory definition. Id.

         In support of her argument the trial court erred by not applying the analytic approach, defendant cites several cases concerning classification of personal injury settlements and disability benefits. See Johnson, 317 N.C. 437, 346 S.E.2d 430 (1986); Cooper v. Cooper, 143 N.C.App. 322, 545 S.E.2d 775 (2001); Finkel v. Finkel, 162 N.C.App. 344, 590 S.E.2d 472 (2004). However, defendant also acknowledges North Carolina courts have never applied this approach in the context of life insurance proceeds. See Foster v. Foster, 90 N.C.App. 265, 368 S.E.2d 26 (1988). Nevertheless, she urges us to adopt the analytic approach in this case, based on "important public policy considerations" surrounding whether life insurance proceeds intended to benefit a spouse's children from another marriage should be considered marital property. Furthermore, she argues Foster is distinguishable from the present case and therefore should not be binding on this Court.

         In Foster, the husband and wife had purchased a life insurance policy on their children during their marriage. 90 N.C.App. at 265, 368 S.E.2d at 26. After the parties separated, the husband alone paid the premiums for the policy. During the separation period, one of the children passed away and the life insurance proceeds were paid and placed in a trust account. Id. at 265, 368 S.E.2d at 27. In divorce proceedings, the wife claimed the life insurance proceeds were a marital asset because some of the policy premiums had been paid for with marital funds. Id. at 266, 368 S.E.2d at 27. We disagreed, holding that because the claim for death benefits did not arise until after separation, when their son passed away, the policy proceeds were the husband's separate property. Id. at 268, 368 S.E.2d at 28. In making our ruling, we noted that, pursuant to N.C. Gen. Stat. § 50-20, "in order for property to be considered marital property it must be 'acquired' before the date of separation and must be 'owned' at the date of separation." Id. at 267, 368 S.E.2d at 27.

         Defendant argues the present case is distinguishable from Foster because that case concerned a life insurance policy on the lives of the parties' own children, whereas the policy in dispute here covered the life of her ex-husband and was intended to be used to care for her children from her prior marriage. However, the relevant fact under the mechanistic approach we applied in Foster was whether the property was acquired before the date of separation, not who the policy covered or what its intended purpose was. See id.

         Here, defendant executed the life insurance policy on her ex-husband prior to her marriage to plaintiff. However, evidence showed defendant paid the insurance premiums in part with money she received from plaintiff. Thus, the insurance premiums were paid in part with marital funds. In addition, the claim for death benefits arose prior to the parties' separation, upon Mr. Heintz's death in September 2015. The proceeds were also paid to defendant prior to her separation from plaintiff in January 2016. In keeping with our holding in Foster, whether the property was acquired prior to the parties' separation controls whether it is considered marital or separate property. Accordingly, because defendant received the proceeds before separating from plaintiff, the trial court did not err in concluding the proceeds were marital property. The trial court also did not abuse its discretion in applying the mechanistic approach, which this Court has applied in the insurance context, instead of the analytic approach advocated by defendant.

         2. Source of Funds

         In the alternative, defendant contends the trial court abused its discretion in its ...

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