Nelson demonstrates the problems of inaccurate or incomplete financial disclosure when resolving equitable distribution

The August 21, 2019 Court of Appeals opinion in Nelson v. Nelson demonstrates the problems of inaccurate or incomplete financial disclosure when resolving equitable distribution issues.

In Nelson both parties, but especially Husband, went to trial with incomplete or inaccurate information regarding the value of and their interest in various assets and debts, including real property. The family court attempted to value and equitably divide the assets. One of the assets, a property at 6 Judith Street in Charleston, was purchased by Husband and his cousins, but only his cousins were listed on the deed. During litigation Husband made multiple, and conflicting representations on his percentage interest in this property and on whether this property was mortgaged. In its final order, the family court valued Husband’s interest in the property at $300,000 and found there was no mortgage.

Subsequent to the entry of that order, Husband filed a motion to reconsider but failed to list the grounds for that motion. Shortly before the motion to reconsider hearing, Husband produced a memorandum in support of the motion. At the hearing Wife objected to consideration of the memo as prejudicial and untimely. The family court agreed and dismissed Husband’s motion because it failed to state with particularity the grounds therefor. Husband did not appeal this order but appealed the final order on equitable distribution.

Subsequent to that, Husband filed a Rule 60(b)(1) motion, arguing fraud or excusable neglect, and provided the family court proof of the existence of a mortgage on 6 Judith Street. Wife argued there was no evidence of fraud or excusable neglect because Husband had ample opportunity to present evidence of a mortgage throughout the course of litigation yet failed to do so. Accordingly, Wife asserted Husband’s failure to present this information did not amount to excusable neglect.

The family court found that although the mortgage information was knowable by Husband and he had a duty to disclose accurate information about the property on his financial declaration, there was excusable neglect on the part of both Husband and Wife for presenting incomplete evidence regarding the existence of a mortgage on 6 Judith Street. Accordingly, the family court granted Husband’s 60(b) motion and issued an amended final order including the newly discovered mortgage. After amending the final order and accounting for the refinanced mortgage, the family court found Husband’s net equity in the property was only $62,516. Wife appealed this order, and her appeal was consolidated with Husband’s appeal.

The Court of Appeals affirmed on all issues. It affirmed the granting of Rule 60(b) relief to Husband. Analyzing the factors for granting such relief set forth in Rouvet v. Rouvet, 388 S.C. 301, 696 S.E.2d 204 (Ct. App. 2010), it found the first factor, the promptness with which relief is sought, was close; although Husband could have discovered and disclosed the mortgage prior to or at trial by contacting to his partners or conducting a property records search, he timely moved for relief under Rule 60(b) when he discovered the existence of the new mortgage. Next, it found Husband’s failure to act promptly by obtaining and disclosing the mortgage information prior to or at trial weighed in Wife’s favor. However, it found the existence of the refinanced mortgage was a meritorious defense favoring Husband. Finally, it found that although Wife would suffer some prejudice due to Husband’s failure to produce the mortgage information at an earlier stage of litigation, not granting the Rule 60(b) motion would result in a windfall to Wife to which she would not otherwise be entitled. Therefore, it found this factor weighs in favor of Husband. As a whole, it found these factors, particularly the existence of a meritorious defense and limited prejudice to Wife, weighed in favor of granting relief.

The Court of Appeals affirmed the family court’s valuation of 6 Judith Street at $1,000,000, rejecting Husband’s contention that it should have been valued at $920,000. It found that he had failed to preserve the argument that his cousins should have been made parties to this action. It agreed with the family court’s conclusion that Husband was not credible in his trial valuation, as he misrepresented the condition of the property and had listed higher values in prior financial declarations. It also affirmed the family court’s finding that Husband had a 50% interest in this property. It noted his inconsistent testimony on his interest and agreed with the family court’s finding that he lacked credibility on this issue. Thus Wife’s testimony that Husband told her he had a 50% interest was sufficient to sustain the family court’s finding.

The Court of Appeals also affirmed the family court’s finding that Wife’s home at 109 North Shelmore in Mt. Pleasant had a value of $975,000. Both parties’ experts’ appraisals contained flaws. Wife’s expert valued the home at $875,000. However, at trial, he acknowledged understating the square footage of the home. Husband’s expert valued the property at $1.13 million. However he acknowledged that out of the seventy recent sales in the I’On neighborhood, no houses with similar square footage sold for over $1 million. Since the family court’s $975,000 valuation was within the range of evidence presented at trial, the Court of Appeals affirmed that valuation.

Husband appealed numerous issues on the valuation and apportionment of his debt. The Court of Appeals found many of these issues were not preserved for appeal. It affirmed the three remaining debt issues. It found that deficiencies Husband owed on two foreclosed properties were not subject to apportionment because these were non recourse mortgages. It found that Husband was not credible on the potential capital call on one of these properties, as he failed to provide any documentation of that potential liability.

The Court of Appeals affirmed the family court’s finding that Husband was only liable for $5,000 in debt on a Costa Rica property. The Court of Appeals affirmed the family court finding that Husband was not credible regarding this property’s cash flow, as Husband failed to produce evidence of rental income. It further found that absent evidence he was paying interest on a loan from his mother to obtain his interest in this property, the family court properly determined he was not liable for interest on this loan.

The Court of Appeals affirmed the valuation and apportionment of Husband’s tax debts. It determined that penalties and interest Husband incurred on these debts after the date of filing were not marital. It determined that much of what Husband claimed was capital gains tax for 2015 was actually penalties and interest or other tax liability. It affirmed the family court’s determination that the best evidence of this liability was from a schedule on his tax return.

The Court of Appeals also affirmed the family court’s use of the Wife’s valuations of personal property as Wife gave more realistic values to the personal property, was more credible, and had a better recollection of what happened to various pieces of personal property.

The Court of Appeals also affirmed the family court’s award of $35,000 in attorney’s fees to Wife. It disagreed with Husband’s position on beneficial results, and rejected his claim that neither party having an excess of income should alter the attorney fee analysis.

Nelson is one of those cases, quite common in published family law opinions, in which a failure to properly preserve error allows the appellate courts to summarily reject challenges to the lower court’s order. It is also an example of the common problem of alleging and proving valuation errors when one has provided the family court inconstant, inaccurate, or incomplete information on marital assets and debts. The importance of accurate financial disclosure cannot be stressed enough. Trials and appeals on financial issues are routinely lost on this basis.

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