Fountain v. Fountain

• Decision Date: 05 February 2002
• Docket Number: No. COA01-14.,COA01-14.
• Citation: 148 NC App. 329,559 S.E.2d 25
• Parties: Reginald Morton FOUNTAIN, Jr., Plaintiff, v. Christine Mazza FOUNTAIN, Defendant.
• Court: North Carolina Court of Appeals

559 S.E.2d 25

148 NC App. 329

Reginald Morton FOUNTAIN, Jr., Plaintiff, v. Christine Mazza FOUNTAIN, Defendant.

No. COA01-14.

Court of Appeals of North Carolina.

February 5, 2002.

Charles William Kafer, New Bern, for plaintiff-appellee.

Lea, Clyburn & Rhine by J. Albert Clyburn and James W. Lea, III, Wilmington, for defendant-appellant.

GREENE, Judge.

Christine Mazza Fountain (Defendant) appeals an equitable distribution judgment and order filed 19 April 2000.

Reginald Morton Fountain, Jr. (Plaintiff) and Defendant were married on 21 April 1993 and separated on 2 September 1998 (the period between 21 April 1993 and 2 September 1998 will be referred to as "the marriage"). No children were born during the marriage. The parties lived together continuously in North Carolina from 21 April 1993 until early 1994, when Defendant moved back to the home of her parents on Kent Island, Maryland. From 1994 through 1998, Defendant spent very little time in the marital home, but Plaintiff made several trips to Maryland for the purpose of visiting Defendant during this time. On 3 September 1998, Plaintiff filed a complaint seeking a divorce from bed and board and equitable distribution. Defendant, however, did not file an answer to Plaintiff's complaint and default was entered against Defendant on 21 October 1998. Subsequently, Plaintiff was granted a divorce from bed and board on 26 October 1998. On 30 September 1999, Defendant filed a complaint praying for equitable distribution, along with other relief. On 23 November 1999, the trial court dismissed most of Defendant's claims but preserved and consolidated her claim for equitable distribution.

The trial on the issue of equitable distribution began on 14 February 2000 and lasted approximately eleven days. The property to be classified, valued, and distributed included, in pertinent part: 480,000 stock options (the FPB stock options) received from Plaintiff's employer Fountain Powerboats, Inc. (FPB); Plaintiff's checking account (the First Citizens Account); Defendant's checking accounts; Eastbrook Apartments; Fairview Shopping Center Realty (Fairview); Fairview Foods (Piggly Wiggly); and a note receivable on a Cessna Citation Jet (the FPB note). During the course of the trial, Plaintiff offered his testimony along with seventeen other witnesses and Defendant offered her testimony along with nine other witnesses.

The issues are: (I) the marital property classification of: (A) the FPB note; (B) the funds on deposit in the First Citizens Account; and (C) the post-marriage increase in value of Piggly Wiggly; (II)(A) the proper method for classifying stock options; (B) the proper method for valuing stock options; and (C) the proper distribution of stock options; and (III) the use of the following, as distributional factors: (A) Defendant's surgeries; and (B) Defendant's place of residence during the marriage.

I Classification of Property

In equitable distribution actions, the trial court is required to classify, value, and distribute marital property, including marital debt, and divisible property, including divisible debt. N.C.G.S. §§ 50-20(a), 50-20(b)(4)(d) (1999); Byrd v. Owens, 86 N.C.App. 418, 423, 358 S.E.2d 102, 106 (1987). A "party claiming that property is marital has the burden of proving beyond a preponderance of the evidence" that the property was acquired: by either or both spouses; during the marriage; before the date of separation; and is presently owned.¹ Lilly v. Lilly, 107 N.C.App. 484, 486, 420 S.E.2d 492, 493 (1992). "If the party meets this burden, then `the burden shifts to the party claiming the property to be separate to show by a preponderance of the evidence that the property meets the definition of separate property.'" Id. (citation omitted). If both parties meet their burdens, the property is considered separate property. Ciobanu v. Ciobanu, 104 N.C.App. 461, 466, 409 S.E.2d 749, 752 (1991). Separate property includes

[1]all real and personal property acquired by a spouse before marriage[;] ... [2] [p]roperty acquired in exchange for separate property [; and] ... [3] increase[s] in value of separate property and income derived from separate property[.]

N.C.G.S. § 50-20(b)(2) (1999). If, however, the separate property enjoys an increase in value "attributable to the [substantial] financial, managerial, and other contributions of the marital estate" (an active increase), any increase in value would be marital property. Ciobanu, 104 N.C.App. at 465, 409 S.E.2d at 751; O'Brien v. O'Brien, 131 N.C.App. 411, 421, 508 S.E.2d 300, 307 (1998), disc. review denied, 350 N.C. 98, 528 S.E.2d 365 (1999). If a passive increase in separate property occurs, i.e. inflation, that increase would remain separate property. Wade v. Wade, 72 N.C.App. 372, 379, 325 S.E.2d 260, 268, disc. review denied, 313 N.C. 612, 330 S.E.2d 616 (1985). Commingling of separate property with marital property, occurring during the marriage and before the date of separation, does not necessarily transmute separate property into marital property. O'Brien, 131 N.C.App. at 419, 508 S.E.2d at 306; Lilly, 107 N.C.App. at 487, 420 S.E.2d at 494. Transmutation would occur, however, if the party claiming the property to be his separate property is unable to trace the initial deposit into its form at the date of separation. O'Brien, 131 N.C.App. at 419, 508 S.E.2d at 306.

A The FPB Note

Defendant first argues the Cessna Citation I (the Cessna), acquired by Plaintiff after marriage and before the date of separation, was marital property and thus the FPB note taken by Plaintiff when he sold the Cessna, which had a value of approximately $315,000.00 at the time of separation, is marital property. This argument is based on her claim that the monies used to pay for the Cessna came out of the First Citizens Account that contained marital funds, and to the extent the Cessna was paid for from this account, it (and the FPB note given in exchange for the Cessna) is marital property. Plaintiff admits the funds used to make the payments on the Cessna mortgage came out of the First Citizens Account and that the account contained marital funds, but he contends the monies used to pay for the Cessna were separate monies and the commingling of these separate monies in the First Citizens Account did not transmute all the monies in that account into marital property. Plaintiff argues the monies placed in the First Citizens Account to cover the Cessna mortgage payments came from a lease of the Cessna and, because the Cessna was obtained in exchange for the Piper Cheyenne I (the Piper) and the Piper was his separate property, the lease monies put into the First Citizens Account were his separate monies. It follows, he contends, the Cessna was his separate property, as was the FPB note received in exchange for the sale of the Cessna. We agree with Plaintiff.

In this case, Plaintiff acquired the Piper prior to the marriage and gave a lien on the Piper to secure a note (the Piper note) in the amount of $444,005.70. After the purchase of the Piper, Plaintiff leased it to FPB and the lease payments were used to make the payments on the Piper note. Early in the marriage, the Piper lease payments were placed in the First Citizens Account and the Piper note payments were made from this account. The lease income was in an amount sufficient to make the Piper note payments and also to cover the maintenance expenses of the aircraft. In 1996, Plaintiff traded the Piper for the Cessna, which was titled in Plaintiff's name, and he gave a lien on the Cessna to secure a note (the Cessna note). The Cessna was also leased to FPB and the lease payments were placed into the First Citizens Account and payments were made on the Cessna note from that account. The lease income from the Cessna was in an amount sufficient to make the Cessna note payments and also to cover the maintenance expenses of the aircraft. In 1997, Plaintiff sold the Cessna to FPB and he received in exchange for that sale the FPB note in the amount of $415,820.57.

As Plaintiff owned the Piper prior to the marriage, it was Plaintiff's separate property and thus the income received from the lease of the Piper after the marriage remained Plaintiff's separate property.² N.C.G.S. § 50-20(b)(2). The deposit of that income into an account containing marital funds (a commingling) required Plaintiff, in order to preserve the separate classification of these monies, to trace those deposits into the payments on the Piper note. The record shows Plaintiff satisfied this burden.³ When Plaintiff exchanged the Piper for the Cessna, the Cessna became Plaintiff's separate property since the Piper remained Plaintiff's separate property at the time of the transfer.⁴ N.C.G.S. § 50-20(b)(2). The payments Plaintiff received for the lease of the Cessna were commingled with marital funds in the First Citizens Account, but again, the record shows Plaintiff met his burden of tracing those account funds into the payments on the Cessna note.⁵ Thus, the Cessna remained Plaintiff's separate property entirely,⁶ and when it was sold and Plaintiff received the FPB note in exchange, that note was properly classified by the trial court as Plaintiff's separate property.

B The First Citizens Account

Defendant next argues the funds on deposit in the First Citizens Account on 2 September 1998 should have been classified as marital property. We disagree.

We have determined the FPB note represents "separate property" and was correctly classified as Plaintiff's separate property. Thus, the proceeds from any payments on that note were Plaintiff's separate property.⁷ On 2 September 1998 (the day the parties separated), a payment was deposited into the First Citizens Account on the FPB note in the amount of $157,910.98. The only other monies in that account on the date of separation were $16,877.55, which represented income from a separate property belonging to Plaintiff.⁸ That income was...