In opinion with numerous oddities, Supreme Court approves active/passive approach to valuing marital property

Posted Tuesday, November 1st, 2011 by Gregory Forman
Filed under Attorney's Fees, Child Support, Equitable Distribution/Property Division, Of Interest to Family Court Litigants, Of Interest to Family Law Attorneys, South Carolina Appellate Decisions, South Carolina Specific

In the October 31, 2011 opinion in Burch v. Burch, 395 S.C. 318, 717 S.E.2d 757 (2011), the South Carolina Supreme Court finally ratifies the passive versus active gain distinction the Court of Appeals has used for years in determining the valuation date for marital assets that change value between the date of filing and the date of distribution.  It also contains a number of odd rulings on child support and property division.

Under the active versus passive gain analysis, both parties are entitled to share in any passive gains or losses in property value during the litigation period and the court should value such assets as of the date of trial.  However, for gains or losses created by one party’s active participation during the litigation period, the court is supposed to value the asset as of the date of filing and credit the active party with any gain or loss.  The Supreme Court explained the rationale for this by citing Roy T. Stuckey, Marital Litigation in South Carolina 310 (3rd ed., 2001):

It is fairer to value a passive asset at or near the time of the final hearing, because both parties are equally deserving to share in any increase or decrease . . . . [On the other hand,] active assets should be valued at the time of commencement [or filing] of the marital litigation, to enable the person who causes the change in value to receive the benefits of his or her labor and skills or, conversely, to prevent the person who controls the assets from manipulating the value downward during litigation.

In Burch, Husband was the minority partner in a couple of real estate ventures.  In the first venture, the company owned real estate with no equity as of the date of filing.  During the litigation, Husband did nothing to increase the value of this venture but one of his partners did substantial marketing work and eventually he purchased Husband’s interest for $1,591,500.  The Supreme Court determined that the gain in value of this business venue was passive–because Husband had done nothing during the litigation to affect its value–and that therefore Wife was entitled to one-half of the purchase price.  However, for the other business venture there was no evidence whether the gain was passive or active.  Finding that Wife had the burden of proving it was a passive gain (not that Husband had the burden of proving it was an active gain), the Supreme Court valued this asset as of the date of filing and credited Husband with all of the post-filing gain.

Wife raised two issues regarding child support, claiming the lower court erred in only awarding $1,000 per month in child support and in not requiring Husband to contribute to son’s private school tuition.  The Supreme Court rejected Wife’s argument that Husband should pay more than $1,000 per month in child support, holding:

The family court determined that Wife had an income of $10,418.16 per month and Husband had an income of $6,792 per month.  Wife paid $119 per month to provide health insurance for Son and $200 per month for babysitters.  Because Son spent 132 overnights annually with Husband, the family court classified the case as a “shared custody” calculation under the Guidelines.  Under a “shared custody” calculation under Worksheet C, Husband would be required to pay only $181 per month in child support.   Therefore, by requiring Husband to pay $1,000 per month, the family court deviated upward and exercised its discretion to provide a living standard for the child substantially equal to that of the person owing the duty to support.

Citations omitted.

However, on the issues of the child’s private school tuition, the Supreme Court reversed the lower court’s determination that Husband should not have to contribute, reasoning:

Son has attended Heathwood Hall since kindergarten, and the Record does not suggest it would be detrimental or against the child’s best interest to continue to attend Heathwood Hall.  We see no reason here to upset the status quo.  Given Husband’s income and high standard of living, Husband can afford to contribute approximately $6,000 towards Son’s private education to maintain Son at the standard of living he would have been provided but for the divorce. Thus, we reverse the family court and order Husband to contribute fifty percent of the cost of Son’s tuition at Heathwood Hall.

Citations omitted.

In fashioning its private school tuition and child support award, the Supreme Court may have done an injustice to Husband.  While denying Wife her request that he contribute to private school tuition, the family court ordered Husband to pay child support that was $819 per month over the guidelines figure.  Perhaps in awarding so much child support, the lower court was implicitly but indirectly having Husband contribute towards private school tuition.

Another oddity involved the Supreme Court reversal of the trial court’s forgiveness of a  $3,982.80 obligation Husband was ordered to contribute towards the marital home mortgage as part of a temporary order.  Husband didn’t make this contribution and Wife subsequently refinanced the mortgage for $54,279.66 less than the stipulated payoff on the mortgage.  The family court gave Wife full credit for this $54,279.66 but didn’t require Husband to reimburse Wife the $3,982.80.

The Supreme Court reversed and ordered Husband to reimburse Wife $3,982.80, finding that since he did not act equitably in disobeying the temporary order, he was “not entitled to have his obligation absolved in equity.”  One would think that giving Wife full credit for $52,279.66 in return for Husband’s $3,982.80 punished Husband enough for his failure to follow the temporary order but apparently, to our Supreme Court, it wasn’t.

Finally the Supreme Court affirmed the trial court’s award of $3,250 in attorney’s fees to Husband, which the lower court justified by “Wife’s non-cooperation and delay.”  Wife argued the family court improperly considered information from the parties’ mediation in reaching this decision.  The Supreme Court, in affirming, noted “that both parties may have waived confidentiality by agreeing to voluntarily submit the various offers of settlement for the court’s consideration.”

A final oddity: this case supposedly came to the Supreme Court upon a Writ of Certiorari to the Court of Appeals but I find no published or unpublished opinion from the Court of Appeals on this case.  How does that happen?

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