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Smith v. Smith8/17/1993
g company for a variety of defendant's business interests. On the date of the parties' separation, defendant owned 90.4% of the stock of Sonic. The court found that the net value of defendant's interest in Sonic as of the date of separation was $35,515,000. It appears that the court found defendant's interest in Sonic was of a dual nature, having both a marital property component and a separate property component. The court found the asset to be primarily marital in that it found the separate property component had a net value as of the date of separation of only $1,196,862, leaving a marital property component with a net value as of that date of $34,318,000.
Sonic, as a North Carolina corporation and holding company, did not come into existence until December 1987. Sonic was the product, however, of a long series of mergers, name changes, and acquisitions involving various business entities in which defendant had an interest, which for the most part occurred during the parties' marriage. The trial court approached the classification of Sonic by first identifying the assets in which defendant had an interest
as of the date of marriage, which after the date of marriage were contributed by defendant towards the eventual creation of Sonic. In so doing, the court traced the history of much of defendant's business dealings during the marriage and the history of the events leading to the creation of Sonic. Despite the fact Sonic did not exist on the date of marriage, the court, in effect, classified Sonic by treating it as defendant's separate property that had appreciated in value during the marriage. The court determined that all of the appreciation in value of Sonic during the marriage had been active, and therefore was marital property.
The court found that the assets owned by defendant prior to the marriage which were utilized in the eventual creation of Sonic, comprised the separate property component of Sonic, and had a total net value as of the date of marriage of $1,196,862. Consistent with its finding that all of the appreciation in Sonic during the marriage had been active, the court found that there had been no passive appreciation during the marriage in the separate property component of Sonic. The court further found that $1,196,862 was the date of separation net value of Sonic, and that this was defendant's separate property which was to be returned to him.
Two arguments are made by defendant that the court erred in classifying Sonic: (1) by failing to provide him with a fair and proportionate return on his investment of separate property in the marital estate; and (2) by "classifying separate property as marital." In the latter argument he contends the court's finding that all of the appreciation of Sonic during the marriage was active is unsupported by the record. We uphold the court's classification of Sonic, but we use a different analysis from that utilized by the trial court.
The trial court's first task in an action for equitable distribution is to classify all property owned by the parties as marital or separate in accordance with the definitions set forth in N.C. Gen. Stat. § 50-20(b) (Cum. Supp. 1992). See N.C. Gen. Stat. § 50-20(a) (Cum. Supp. 1992); McLean v. McLean, 323 N.C. 543, 374 S.E.2d 376 (1988). N.C. Gen. Stat. § 50-20(b)(1), in pertinent part, defines marital property as "all . . . 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 . . . ." Sepa
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