                IN THE COURT OF APPEALS OF NORTH CAROLINA

                                   No. COA16-329

                                Filed: 21 March 2017

New Hanover County, No. 14 CVD 0168

JEFFERY LAWRENCE PORTER, Plaintiff,

             v.

SHEILA JOY PORTER, Defendant.


      Appeal by plaintiff from order entered 14 October 2015 by Judge Melinda H.

Crouch in District Court, New Hanover County. Heard in the Court of Appeals 6

October 2016.


      Wyrick Robbins Yates & Ponton LLP, by K. Edward Greene and Tobias S.
      Hampson, for plaintiff-appellant.

      The Lea/Schultz Law Firm, P.C., by James W. Lea, III and Paige E. Inman,
      for defendant-appellee.


      STROUD, Judge.


      Plaintiff Jeffery Lawrence Porter (“Husband”) appeals from the trial court’s

equitable distribution order filed 14 October 2015. Husband argues that the trial

court erred in the classification, valuation, and distribution of his 1/3 interest in

Rugworks, LLC and that the court erred in awarding defendant Sheila Joy Porter

(“Wife”) a distributional award payable over 15 years subject to an eight percent

interest rate. Although the trial court properly classified and divided Husband’s

business interest in Rugworks as marital property, the court’s order does not properly
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                                  Opinion of the Court



set out the distributive award Husband must pay to Wife. Accordingly, we reverse

the court’s order in part and remand for the trial court to enter an order clearly

establishing the distributive payment due, interest rate, and terms of payment.

                                        Facts

      Husband and Wife were married on 12 April 1996 and had two children during

the marriage.     In April 1998, Husband started a business, Rugworks, LLC

(“Rugworks”) with two business partners. Each partner had a 1/3 interest in the

business, and Husband invested $50,000.00 from a separate retirement account to

acquire his 1/3 interest.   Husband worked full time with Rugworks during the

marriage, while Wife worked during part of the marriage as a respiratory therapist

before eventually becoming a stay-at-home mother after the birth of their second

child, as she remained until the parties’ separation.

      Husband and Wife moved to Wilmington, North Carolina, in 2006, where they

had both grown up, in order to relocate a second Rugworks store from Myrtle Beach,

South Carolina to Leland, North Carolina. At that time, Husband became the main

operator of the relocated store and solely supported the family from this employment

until he and Wife separated.     Husband also formed a business known as R.W.

Management Company with his Rugworks partners to purchase and lease land to

Rugworks. R.W. Management Company was formed after the marriage of the parties




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and there was no evidence presented of any separate property invested in its

acquisition.

       Husband and Wife separated on 2 December 2013.                        Husband filed his

complaint on 15 January 2014 with claims for child custody and equitable

distribution. Wife answered and included counterclaims for alimony, child support,

child custody, and equitable distribution.           All of the pending claims were tried

together on three days, starting on 16 June 2015 and ending on 22 June 2015. The

trial court rendered its rulings on all of the claims orally on 28 July 2015, but the

trial court ultimately entered three separate orders. On 15 September 2015, the trial

court entered a child custody order granting joint custody, with Husband having

primary physical custody of one child and Wife having primary physical custody of

the other.1 A few weeks later, on 14 October 2015, the court entered an order denying

Wife alimony on the basis that she had not presented sufficient proof that she was a

dependent spouse.

       The trial court also entered its equitable distribution order on 14 October 2015.

In the order, the court found that the parties had stipulated to the values of several

items of personal property and financial accounts.               The primary dispute in the

equitable distribution portion of the trial was the valuation of Rugworks and R.W.



       1 This order did not address child support. On 2 October 2015, Wife filed a motion requesting
that the trial court establish child support in accordance with the North Carolina Child Support
Guidelines.

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Management. The trial court found that Husband invested $50,000.00 of separate

funds into Rugworks when it was formed and that at the time of trial, the business

had gross revenues around $10,000,000.00 per year. The court also found that Wife’s

expert was a qualified business valuation expert and noted the valuation techniques

he relied on to determine revenue and profits of Rugworks, specifically the

“capitalization of earnings” technique, which the trial court found to be “the most

credible methodology.”    The court concluded that Husband’s expert, in contrast,

“expressed limited knowledge in the area of business valuations and had not

conducted any of the preferred methods of business valuations on Rugworks.” As for

R.W. Management, the court found that the fair market value of its real estate on the

date of separation was $1,400,000.00. The trial court also found that Husband’s 1/3

interest in the real estate alone was $148,482.00 and that his interest in the net real

estate value and receivable value was a total of $198,553.00.

      After considering a variety of potential distributional factors, the trial court

concluded that an equal distribution would be equitable.        The court found that

Husband “should be required to pay a distributional payment to Wife in the amount

of $348,050.00.” After concluding that Husband had insufficient assets to pay this

amount by making payments of over $5,000.00 per month within six years at no

interest, the court instead concluded that Wife “will need to be paid her distributional

payment over a period of time with interest applied at the legal rate of eight percent



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(8%).” The trial court’s order contains a section regarding the distributional payment,

which states: “In order to equalize the distribution of the parties’ assets and debts,

Husband shall pay a distributional payment to Wife in the amount of $348,050.

Beginning October 1, 2015, Husband shall pay to Wife $3,326.15 per month for a

period of 180 months to satisfy this payment.” Husband timely appealed to this

Court.

                                       Discussion

         Husband raises two issues on appeal regarding the trial court’s equitable

distribution order related to Husband’s interest in Rugworks.           This Court has

previously explained its standard of review in equitable distribution cases as follows:

                      On appeal, when reviewing an equitable distribution
               order, this Court will uphold the trial court’s written
               findings of fact as long as they are supported by competent
               evidence. However, the trial court’s conclusions of law are
               reviewed de novo. Finally, this Court reviews the trial
               court’s actual distribution decision for abuse of discretion.

Mugno v. Mugno, 205 N.C. App. 273, 276, 695 S.E.2d 495, 498 (2010) (citations and

quotation marks omitted).

         I.    Classification and Valuation of Interest in Rugworks, LLC

         Husband first argues that the trial court erred in its classification and

valuation of Husband’s 1/3 interest in Rugworks. At trial, Husband’s main argument

regarding his interest in Rugworks was based upon valuation. Husband presented

expert valuation testimony from an accountant that as of December 2013, Rugworks


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had a negative value. Ultimately, the trial court found that Wife’s valuation expert

used the most credible valuation technique. Wife’s expert, Dr. Craig Galbraith,

testified regarding several valuation methods he compared when determining the

value of Rugworks, and he determined that it had a positive value around $1.8

million. The trial court specifically found his valuation method more credible than

that presented by Husband’s expert and relied on it when determining a marital

value of $566,931.00 for Husband’s 1/3 interest in Rugworks after deducting his

$50,000.00 separate contribution. Husband’s only argument on appeal regarding the

valuation method adopted by the trial court is an alternative claim that the court

“adopted Galbraith’s ‘average’ of his various valuation methods” but that this

calculation “appears to be a mathematical error.”

      Although Husband seeks to treat his argument on appeal as one regarding

valuation, really his arguments predominately address classification. At trial, he put

all of his eggs in the valuation basket, while on appeal he asks that we consider the

classification basket. Husband’s arguments on appeal, including those disguised as

valuation arguments, are based upon the premise that some portion of Rugworks

other than the initial $50,000.00 investment should have been classified as his

separate property.

      Husband now argues that as part of its improper valuation of Rugworks, the

trial court erred in its classification of Husband’s 1/3 interest in Rugworks.



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Specifically, Husband notes that the trial court found, in Finding of Fact No. 16, that

Husband acquired his 1/3 interest in Rugworks with $50,000.00 of separate property.

Husband argues that the trial court did not expressly value his interest in Rugworks

either upon distribution or when it was acquired and that it should have classified

Husband’s 1/3 interest in Rugworks as separate property at the time of separation.

The court did describe Husband’s 1/3 interest, less the $50,000.00 separate

contribution, as having “a total marital value of $566,931.00.”           Nevertheless,

Husband contends that “it is evident the trial court considered the 1/3 interest to be

marital property, with the exception of the $50,000 contribution of separate property.

The evidence and trial court’s own findings, however, establish the 1/3 interest in

Rugworks is [Husband’s] separate property.” But Husband’s argument that his 1/3

interest must be classified entirely as separate has no foundation in the evidence

presented at trial.

      Wife argues that Husband “should be barred from asserting that Rugworks is

not marital property because with the exception of the $50,000.00 initially invested

by [Husband,] there was no dispute regarding the classification of the Rugworks, LLC

property until this appeal.” Wife notes that although Husband was obligated under

N.C. Gen. Stat. § 50-21(a) (2015) to file an initial inventory listing, which is supposed

to identify any property alleged to be separate, he failed to file this inventory. See

N.C. Gen. Stat. § 50-21(a) (“Within 90 days after service of a claim for equitable



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distribution, the party who first asserts the claim shall prepare and serve upon the

opposing party an equitable distribution inventory affidavit listing all property

claimed by the party to be marital property and all property claimed by the party to

be separate property, and the estimated date-of-separation fair market value of each

item of marital and separate property.” (Emphasis added)). Nor did the pretrial

order addressing the issues to be decided in the equitable distribution trial identify

classification of Rugworks as one of the issues for the trial court to decide. The

pretrial order provided as follows:

                   9. For the purposes of equitable distribution, the
             parties agree that the following are the issues to be decided
             by the Court:
             ....
                   E. Value of Rugworks, LLC;
                   F. Value of R.W. Management;

(Emphasis added). On the schedules of the pretrial order setting forth the items of

property and parties’ contentions of values and classification, Wife contended that

Rugworks and R.W. Management were marital property, designated by “M.”

Husband left the column for his contention as to classification blank, although he had

filled in the same column for other items of property on the same page as “M.”

Notably, he did not fill in the classification blank with “S” for “separate.” Husband

notes that he did not stipulate to classification of Rugworks or R.W. Management,

but Wife responds that he also did not make any direct contentions or argument

regarding classification of any portion other than the initial $50,000.00 investment


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                                   Opinion of the Court



as separate property. In fact, he did not even argue in closing that the trial court

should classify any portion of Rugworks other than the initial $50,000.00 investment

as separate. Instead, his position at trial was that Rugworks had a negative value as

of the date of separation.

      Husband responds that “[t]he question before the trial court was whether there

was any increase in the value of Mr. Porter’s 1/3 interest in Rugworks which could be

valued as marital property.” He contends that Wife has made “general assertions

about stipulations -- but points to no stipulation in the record. Nothing in the pre-

trial order indicates the classification and valuation of ‘Rugworks’ has been stipulated

to or decided. To the contrary, Rugworks, and [Husband’s] 1/3 interest, were a central

issue at trial. In closing arguments to the trial court, [Husband’s] trial attorney

argued the 1/3 interest in Rugworks should not be distributed at all because it had

no value (or really a negative value) based on the evidence from [Husband’s]

accountant.”

       We recognize that to some extent classification and valuation arguments at

trial were perhaps conflated, and Husband is correct that there was no stipulation as

to classification, although the parties did stipulate to the classification and values of

several items of property and to the issues to be determined by the trial court in the

pretrial order. We will therefore generously assume that Husband did preserve the




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issue of classification for appeal, despite his failure to note it in his inventory or the

pretrial order.

      Husband argues that a trial court’s classification of property should be

reviewed de novo, noting our case law that states: “Because the classification of

property in an equitable distribution proceeding requires the application of legal

principles, this determination is most appropriately considered a conclusion of law.”

Hunt v. Hunt, 112 N.C. App. 722, 729, 436 S.E.2d 856, 861 (1993). More importantly,

however, Husband and Wife both correctly note that this Court has long held that in

an equitable distribution proceeding, the party seeking the specific classification has

the burden of proving that classification by the preponderance of the evidence. See,

e.g., Brackney v. Brackney, 199 N.C. App. 375, 383, 682 S.E.2d 401, 406 (2009) (“In

equitable distribution proceedings, the party claiming a certain classification has the

burden of showing, by a preponderance of the evidence, that the property is within

the claimed classification.”). Moreover, “[w]hen marital efforts actively increase the

value of separate property, the increase in value is marital property and is subject to

distribution.” Conway v. Conway, 131 N.C. App. 609, 615, 508 S.E.2d 812, 817 (1998)

(citations omitted). “Any increase is presumptively marital property unless it is

shown to be the result of passive appreciation.” Id. at 616, 508 S.E.2d at 817. See

also O’Brien v. O’Brien, 131 N.C. App. 411, 420, 508 S.E.2d 300, 306 (1998) (“[T]he




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party seeking to establish that any appreciation of separate property is passive bears

the burden of proving such by the preponderance of the evidence.”).

      Here, Wife met her burden of showing that Husband’s 1/3 interest in Rugworks

was marital, as it was acquired during the marriage and owned on the date of

separation. But the only evidence Husband presented as to a separate classification

of any portion of Rugworks was the evidence of his initial $50,000.00 investment from

his separate funds. To the extent that there was any evidence as to the appreciation

of Husband’s 1/3 interest during the marriage, it indicated that the appreciation was

active, not passive. Husband was employed full-time with Rugworks during the

marriage and he and his partners worked to expand the business for many years.

No evidence of passive appreciation of Rugworks was presented at trial. To the

contrary, the court heard testimony that Husband played a key role in managing

Rugworks during the course of the marriage and that Wife became a stay-at-home

mother so that Husband could devote his full attention to Rugworks. Husband and

his partners testified about the long hours and hard work they put into establishing

and expanding Rugworks.

      For example, Todd Williams, one of the Rugworks partners, described his role

as well as Husband’s: “It’s management, managing people, managing sales.” He

testified that they got their business by “Reputation. Hard work. Going out and

asking for it” and that they worked “as many [hours] as needed” averaging “10 or 12”



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hours a day. Rugworks opened new locations, and Husband moved to North Carolina

to operate one of the new locations in 2006. Husband failed to meet his burden of

showing that any portion of the increase in value was separate property. Husband

did not even argue to the trial court that any portion of the value of Rugworks other

than the initial $50,000.00 investment was separate; his arguments were almost

exclusively related to valuation. Husband’s classification basket was empty at trial,

and he cannot put new eggs in it now. Other than the initial $50,000.00 investment,

the trial court had no evidence upon which it could classify Husband’s interest in

Rugworks as separate.

         II.   Distributive Award

         Next, Husband contends that the trial court erred in awarding Wife a

distributive award payable over 15 years with interest at the rate of 8% on the entire

amount for the entire 15 years. N.C. Gen. Stat. § 50-20(b)(3) (2015) states that

“ ‘[d]istributive award’ means payments that are payable either in a lump sum or over

a period of time in fixed amounts[.]” Husband contends that: (1) the trial court’s order

improperly requires him to pay 8% interest on the full amount of the award for the

entire 15 years; (2) the trial court failed to find that he has the ability to pay the

award as ordered, and (3) under Lawing v. Lawing, 81 N.C. App. 159, 184, 344 S.E.2d

100, 116 (1986), the trial court erred by extending the period of payment beyond six

years.     To some extent, Husband’s arguments on the distributive award are



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interrelated, since a change in the interest rate or term of payment also changes the

amount of the monthly payments and the determination as to Husband’s ability to

pay. But we must address all three of these variables in the equation, since any or

all may change on remand.

      (1) Interest on distributive award

      The trial court’s findings of fact and decretal establish a distributive award of

$348,050.00 as the amount necessary to equalize the distribution of the total value of

the marital estate, and we have affirmed this ruling above. But the decretal also

requires that “Beginning October 1, 2015, [Husband] shall pay to [Wife] $3,326.15

per month for a period of 180 months to satisfy this payment.” If paid over the full

15 years at 8% per annum interest, the payments would total $598,707.00. The trial

court’s findings addressed the need to have the distributive award paid over a time

period of more than six years as follows:

             34. In order to equalize the distributions to each party,
             Husband should be required to pay a distributional
             payment to Wife in the amount of $348,050.00.

             35. The payout of the distributional payment within six (6)
             years with no interest would result in a payment by
             Husband to Wife in excess of $5,000.00 per month. The
             Court finds that there are not assets from which to make
             this payment and a distributional payment is proper.

             36. In addition, there are no other assets from the marriage
             with which to pay any type of lump sum payment to Wife
             and to require Husband to do so would be a severe financial
             hardship. For Wife’s interest in Rugworks she will need to


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               be paid her distributional payment over a period of time
               with interest applied at the legal rate of eight percent (8%).
               If the Court does not apply an interest rate, the present
               value of a payout over any period of time would be
               substantially less than the total distributional payment.
               Accordingly, it is necessary to apply the legal rate to the
               distributional    payment       until     paid     in    full.2

       Husband argues:

               The trial court ordered the award to be made in payments
               over 180 months (or 15 years) in installments of $3,326.15
               per month, which expressly includes 8% interest amortized
               over the life of the award. In other words, [Husband] is
               required to pay a total amount of $598,707 over this time
               period. The trial court’s order contains no other option for
               [Husband] to comply with this award other than to make
               these monthly payments including interest.

(Footnote omitted). Although the court found that Husband does not currently have

the assets to pay a distributional award in full, we agree with Husband that the

award should be established as a set amount -- $348,050.00 -- and make clear that

this amount may be paid prior to the time set out in the order if Husband is able to

do so, in order to avoid some interest. As noted in Lawing, discussed in further detail

below, a distributive award “should be crafted to assure completion of payment as

promptly as possible.” Id. at 184, 344 S.E.2d at 116. The decretal as written appears

to require Husband to pay the award over the entire period of 15 years in monthly

payments of $3,326.15 and would not allow Husband to pay off the remaining


       2Although the trial court referred to the award as a “distributional payment,” we take this to
mean the same as a distributive award under N.C. Gen. Stat. § 50-20(b)(3).



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principal balance of the award sooner, if he is able to do this.3 Finding of Fact No. 36

suggests that Husband would be able to prepay the distributive award and thus avoid

some of the interest, as it says interest would apply “until paid in full[,]” but the

decretal specifically requires 180 payments of $3,326.15 and does not appear to allow

prepayment. We realize that this may have simply been a poorly worded decretal

provision, but in any event, Husband must be afforded the opportunity to pay the

distributive award sooner and avoid payment of some of the interest. We therefore

remand for the court to clarify in its order that Husband must pay the distributive

award of $348,050.00 and that he shall pay this amount in monthly payments for a

fixed period of time with interest on the balance remaining, but he may pay the

balance remaining sooner and thus avoid payment of additional interest.

       Husband also argues, and we agree, that it is not clear from the order why the

court used an interest rate of eight percent. On 28 July 2015, when making its oral

rendition of the judgment, the trial court stated that it would be using an interest

rate of 3.5 percent. The trial court stated that “the Court would order that that

distributional payment be made over 180 payments at an interest rate of 3.5 years

[sic] for 15 years for a monthly payment of $2,666.87.” During the rendition, the trial



       3  In addition, in the oral rendition of the judgment, the trial court stated that the monthly
payments would be $2,666.87, which would result in a total sum paid of $480,036.60, based upon the
interest rate of 3.5% which the trial court noted at that time. This rendition was also generally
consistent with the distributive award payment schedule requested by Wife’s counsel in his closing
argument. (“So the fact of the matter is, is that 15-year payment results in a payment of about two
grand a month.”).

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court answered some questions from counsel about the ruling and reiterated the 3.5%

rate:

                       [THE COURT:] And do you need further direction
                on -- because you’ve submitted the order?
                       [Wife’s trial counsel]: No, ma’am. No. I know
                what you’re saying. That’s fine. You said 3.5 percent, I
                think; is that right?
                       THE COURT: 3.5 percent.

        We realize that the written order controls over the oral rendition, see, e.g., In

re O.D.S., __ N.C. App. __, 786 S.E.2d 410, 417 (2016) (“[P]rior opinions of this Court

have made clear that, as a general proposition, the written and entered order or

judgment controls over an oral rendition of that order or judgment.”), disc. review

denied, __ N.C. __, 792 S.E.2d 504 (2016); and the trial court may have fully intended

to change the interest rate and monthly payment to the amounts set forth in the

written order, but nothing in the court’s order explains why the interest rate used in

the written order was eight percent, other than that the order noted that this is “the

legal rate.”4 It is possible that the trial court decided after its oral rendition to use

eight percent instead of 3.5 percent, but it is also possible that eight percent was

included inadvertently because it was the usual “legal rate” at that time. N.C. Gen.

Stat. § 24-1. Wife argues simply that a rate of eight percent has been allowed in other



        4 N.C. Gen. Stat. § 24-1 (2015), entitled “Legal rate is eight percent[,]” states: “The legal rate
of interest shall be eight percent (8%) per annum for such time as interest may accrue, and no more.”
Id. This statute was later amended in 2016, but the amended version would not have been in effect at
the time the trial court entered its order on 14 October 2015. See 2016 N.C. Sess Law 2016-90 (eff.
July 11, 2016) (adding the phrase “Except as otherwise provided in G..S. 136-113,” to the statute).

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cases, such as Lawing, 81 N.C. App. at 178, 344 S.E.2d at 113; but the fact that this

Court affirmed an order with a particular interest rate in one case does not mean that

the interest rate has been approved for all cases, or that all awards require an interest

payment. This Court has long held that “the decision of whether to order the payment

of interest on a distributive award is one that lies within the discretion of the trial

judge.” Mrozek v. Mrozek, 129 N.C. App. 43, 49, 496 S.E.2d 836, 840 (1998). And we

have ruled on orders with other interest rates as well. See, e.g., Becker v. Becker, 127

N.C. App. 409, 413, 489 S.E.2d 909, 913 (1997) (finding abuse of discretion due to

unduly delay of distributive award in matter where trial court ordered the plaintiff

to pay distributive award “plus interest at the rate of seven percent per annum”).

      With each equitable distribution order, the trial court has to consider the

circumstances in that particular case, the current economic conditions, and the ability

of the payor to pay a distributive award under N.C. Gen. Stat. § 50-20(e). The

combination of the interest rate and the term of payment will determine the monthly

payments, and the trial court must consider whether the payor has the ability to pay

those monthly payments. See Lawing, 81 N.C. App. at 179, 344 S.E.2d at 113 (“[N.C.

Gen. Stat. § 50-20(e)] clearly recognizes that the court may make the distributive

award payable over an extended period.         Since G.S. 50-20(e) does not limit the

duration of the time period for payment, nothing else appearing, the structure and

timing of payment of the award would rest with the discretion of the trial judge.”).



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As the decision is ultimately up to the discretion of the court, Mrozek, 129 N.C. App.

at 49, 496 S.E.2d at 840, the trial court may decide to adjust the interest rate or the

payment term or both to bring the monthly payments to an appropriate level. In this

case, the change in interest rate from 3.5% to 8% per annum increased the amount of

Husband’s monthly payments by $659.28; this amount is not insignificant and is also

relevant to Husband’s arguments as to his ability to pay. On remand, the court

should clarify the interest rate and the corresponding monthly payment, with

Husband permitted to pay the remaining balance of the distributive award sooner

than the full term of the payments.

      We also recognize that another possible reason for any confusion or ambiguity

in the order could be the fact that the trial court heard both alimony and equitable

distribution in the same trial but entered two separate orders on the same day -- one

denying Wife’s alimony claim and one granting equitable distribution. While neither

order specifically references to or relies upon the other, they are interrelated. Neither

Husband nor Wife has appealed the alimony order, so we cannot disturb it; but in the

alimony order, the trial court noted:

             The Court has considered the distributional payment and
             child support obligation that will be paid by the Plaintiff to
             the Defendant as well as factors set forth in N.C.G.S §50-
             16.3 (A) in its decision with regard to an award of alimony.

(Emphasis added).




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       There may have been other reasons the trial court did not award Wife alimony,

since one of the factors noted by the alimony order was Wife’s marital misconduct,

but the alimony order shows that the trial court’s denial of alimony was ultimately

based on its determination that Wife was not a dependent spouse, as indicated in one

of the two conclusions of law made in the order. The trial court found:

               2. Wife has not presented sufficient proof that she is a
               dependent spouse as that term is defined by the North
               Carolina General Statutes who is actually dependent upon
               Husband for her maintenance and support and is
               substantially in need of maintenance and support from
               Husband.

And the trial court determined that Wife was not a dependent spouse in need of

alimony at least in part because of the distributional payments in the equitable

distribution order -- in the specific amount of $3,326.15 -- and perhaps child support

established in another order.5 When we look at the two orders in our record together,

it seems possible that the trial court may have found Wife to be a dependent spouse

and ordered that Husband pay alimony of some amount but for the distributive award

in the amount and for the time period set forth in the equitable distribution order.

Husband’s brief recognizes this possibility, as he argues, “the award appears designed




       5  Our record does not include a child support order, although Wife had requested that a child
support order be entered. Since Husband’s income was far more than Wife’s income, it would appear
that Husband would have had some child support obligation to Wife, although our record does not
reveal what the amount would be. We also note that by the time the trial court receives this case on
remand, the parties’ oldest child will be age 18 and the younger will be age 16, so the child support
obligation may be different than it was at the time of the order on appeal.

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                                    Opinion of the Court



to ensure [Wife] a stream of income for as long as possible including a high interest

rate, which effectively replaces the alimony payments she was denied in the alimony

order entered the same day on the basis she was not a dependent spouse who needed

any support.” On remand, the trial court thus has the discretion to reconsider the

manner of payment of the distributive award, while considering that Wife will not

receive any alimony since the order denying alimony has not been appealed.

      (2) Ability to pay distributive award in monthly payments

      Husband also argues that the trial court failed to consider his ability to pay

the distributive award and specifically that he is unable to pay either the lump sum

of $348,050.00 or $3,326.15 per month. Husband argues:

                    The trial court made no finding [Husband] has the
             ability to pay this amount nor did the trial court identify a
             source of funds by which [Husband] could pay this award.
             The only finding the trial court made was its finding
             [Husband] did not have the ability to pay the distributive
             award over 6 years even without interest.

The trial court’s actual finding in the equitable distribution order as to Husband’s

ability to pay was the following:

             35. The payout of the distributional payment within six (6)
             years with no interest would result in a payment by
             Husband to Wife in excess of $5,000.00 per month. The
             Court finds that there are not assets from which to make
             this payment and a distributional payment is proper.

The trial court’s finding, particularly if read in context with the remainder of the

order, does acknowledge, albeit indirectly, that Husband did not have the ability to


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                                        Opinion of the Court



pay $348,050.00 immediately and that he did not have the ability to pay monthly

payments “in excess of $5,000.00 per month[,]” which would be the amount required

to pay the entire award within six years. The findings did not directly address

Husband’s ability to pay the distributive payments of $3,326.15 per month as ordered

(or $2,666.87, as stated in the rendition), other than to order the payments over a

longer period of time to make the monthly payments lower than $5,000.00 per month.

In fact, the equitable distribution order did not address Husband’s income or

expenses at all. Again, this problem may arise from the fact that the alimony order

entered on the same day did include one finding regarding Husband’s income and

expenses:

               [Husband’s] currently [sic] gross income is $10,400.00 per
               month but has presented no evidence with regard to his
               deductions or his expenses on a monthly basis.6

Since the alimony order denied alimony, perhaps the trial court determined there

was no need for the trial court to address Husband’s earnings or expenses in more

detail; and even if those things should have been addressed, the alimony order was

not appealed. Furthermore, we note that the trial court may have addressed the

income and expenses of the parties in more detail in a child support order, as alluded

to in the alimony order, but we do not have the benefit of a child support order in our


       6 We note that the distributive payment as ordered would be around 32% of Husband’s gross
income before deduction of any taxes or living expenses, and he perhaps also pays some child support,
according to the alimony order. Based on these numbers, Husband’s argument of inability to pay is
not unreasonable.

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record. In short, on the record before us we cannot determine how the trial court

evaluated Husband’s ability to pay the monthly payment on the distributive award,

and as discussed above, on remand it is possible that the monthly amount may be

revised if the interest rate or term of payment is revised. We therefore must remand

for additional findings regarding Husband’s ability to pay the distributive award as

directed by the trial court on remand, whether in the same amount as previously

ordered in the order on appeal or in a different amount.

      (3) Extension of payment of distributive award beyond 6 years

      Husband argues that the 15 year period for payment of the distributive award

is in violation of N.C. Gen. Stat. § 50-20(b)(3), which provides:

             (3) “Distributive award” means payments that are payable
             either in a lump sum or over a period of time in fixed
             amounts, but shall not include alimony payments or other
             similar payments for support and maintenance which are
             treated as ordinary income to the recipient under the
             Internal Revenue Code.

Husband relies upon Lawing and argues that the trial court erred because that case

holds “that a court’s authority to make distributive awards is limited and that a court

may not enter a distributive award that will be treated as ordinary income under the

Internal Revenue Code.” 81 N.C. App. at 179, 344 S.E.2d at 114. Husband argues

that the trial court’s “inclusion of the taxable interest component as an express part

of the distributive award in this case is error, and this Court should reverse the trial

court’s distributive award and remand the matter with instructions to the trial court


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                                  Opinion of the Court



to reconsider its distributive award and strike the taxable interest component.” We

have already determined above that the trial court must consider the interest as well

as the schedule and payments for the distributive award, but as the period over which

the distributive award will be paid must be addressed on remand, we must also

address this issue.    Husband asks this Court to remand to “reconsider” the

distributive award and “strike the taxable interest component[,]” but his arguments

do not support this particular relief on remand.

      Wife argues that

             [a] trial court is not prohibited from entering a payment
             structure of this nature as long as the appropriate findings
             are made. In the instant case, there were not sufficient
             assets in the marital estate that would allow [Wife] to
             recoup the distributive award immediately, and [Husband]
             did not have sufficient assets in order to make the required
             payment within six years. A payment of this magnitude
             within the six year time frame would require a payment in
             excess of $5,000.00 per month, which would result in severe
             financial hardship to [Husband]. The inability to pay
             outside of this payment structure is admitted by [Husband]
             in [his brief.] Pursuant to Lawing, because the trial court
             made findings regarding [Husband’s] inability to pay the
             distributive award within the six year time frame, the trial
             court did not err in entering a payment schedule of this
             nature.

(Record citations omitted).

      In Lawing, the defendant-husband was ordered to pay a distributive award to

plaintiff-wife of $245,000.00, with $25,000.00 due immediately and the remainder in

payment of $1,000.00 per month with interest at “8% per annum on the balance” over


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                                  Opinion of the Court



220 months, or 18.3 years. Id. at 178, 344 S.E.2d at 113. On appeal, the plaintiff-

wife argued that this award was “contrary to the statutory definition and

authorization, and that it inequitably makes her dependent on defendant over an

inordinately lengthy period.” Id. The Lawing court held that the trial court has

authority to make a distributive award which is payable over a period of more than

six years, but only

             upon a showing by the payor spouse that legal or business
             impediments, or some overriding social policy, prevent
             completion of the distribution within the six-year period.
             Awards for periods longer than six years, if necessary,
             should be crafted to assure completion of payment as
             promptly as possible. This will serve both statutory goals:
             affording the recipient’s share non-recognition treatment
             under the Code, and fairly wrapping up the marital affairs
             as quickly and certainly as possible.

Id. at 184, 344 S.E.2d at 116 (citation omitted). This Court held that the payment

schedule was “erroneous as a matter of law and must be vacated” because the

defendant-husband -- the payor spouse -- failed to make any “showing of legal or

business impediments to an earlier distribution[.]” Id.

      Cases since Lawing have reiterated the requirement that if a distributive

award will extend beyond six years, the payor spouse must show, and the trial court

must find:

             legal or business impediments, or some overriding social
             policy, prevent completion of the distribution within the
             six-year period. Our court later held the trial court has a
             concurrent duty to affirmatively find the existence of these


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             grounds for extending the payment period beyond six
             years. . . . In addition, we have also stated that awards for
             periods longer than six years, if necessary, should be
             crafted to assure completion of payment as promptly as
             possible.

Becker, 127 N.C. App. at 413, 489 S.E.2d at 912-13 (citations, quotation marks, and

ellipses omitted).

      In Smith v. Smith, 111 N.C. App. 460, 433 S.E.2d 196 (1993), rev’d in part on

other grounds, 336 N.C. 575, 444 S.E.2d 420 (1994), this Court affirmed an order

which demonstrates the type of findings needed to order a distributive award payable

over a period beyond six years:

             The court found, among its numerous detailed findings
             made concerning the distributive award, that the total
             amount of the award could not be paid within the six year
             period after the date of the parties’ divorce because of: (1)
             certain legal impediments to transfer; (2) business
             impediments to transfer; (3) disputes concerning the value
             of the property owned at the time of the cessation of the
             marriage; and (4) “other factors.” As the “other factors”
             found by the court preventing payment of the award within
             the six year period, the court noted that defendant did not
             have the present liquidity or ability to pay the award
             within that time, and that a reasonable social policy does
             not require the forced dissolution and liquidation of a
             substantial marital estate in order to effectuate complete
             payment of a distributive award within a six year period.

                    The court further addressed in detail defendant’s
             ability to pay the distributive award as ordered. The court
             found that defendant has the ability to make substantial
             monthly payments and to pay the distributive award
             within the time required by the court; that given
             defendant’s age (63 when the judgment was entered), a


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                                    Opinion of the Court



             reasonable period in which to accomplish transfer of the
             distributive award as promptly as possible is ten years, or
             120 months; and that this period of time for payment of the
             award is a reasonable period that assures completion of the
             payment as promptly as possible under the circumstances.

Id. at 516, 433 S.E.2d at 229-30.

      These cases establish that the burden is upon the payor-spouse -- here,

Husband -- to make a “showing . . . that legal or business impediments, or some

overriding social policy, prevent completion of the distribution within the six-year

period.” Lawing, 81 N.C. App. at 184, 344 S.E.2d at 116. In addition, the trial court

must make findings as to the facts which justify a longer period of time for completion

of the distribution. See, e.g., Harris v. Harris, 84 N.C. App. 353, 364, 352 S.E.2d 869,

876 (1987) (“Because the trial court made no findings which would permit completion

of the payment of the distributive award beyond six years from the date the parties’

marriage was terminated, we must vacate that portion of the order providing for the

distributive award and remand this case for further proceedings consistent with this

opinion.”). Lawing seems to say that where the payor-spouse has failed to make this

evidentiary showing, the trial court erred as a matter of law in ordering a delayed

payment schedule for the distributive award and thus vacated that portion of the

order. 81 N.C. App. at 184, 344 S.E.2d at 116. Later cases seem to soften the

requirements upon the payor-spouse a bit, as in Becker, where this Court reversed

and remanded the case to the trial court “for reassessment of its decision to order an



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                                      Opinion of the Court



unequal division without considering the improper factor listed in finding 13(e)” and

held only that “[a]n abuse of discretion occurred in ordering an unduly delayed

distributive award[,]” 127 N.C. App. at 412, 414, 489 S.E.2d at 912, 913; and in

Harris, where this Court noted that the trial court, in its discretion on remand, could

find it necessary to hear additional evidence to address the payment schedule for the

distributive award. 84 N.C. App. at 364, 352 S.E.2d at 876.

       In this case, Husband made no showing and no argument regarding how the

distributive payments should be done or over what time period. In fact, his closing

argument was based on the premise that Wife would owe a distributive award to him,

since Rugworks -- a marital asset -- had a negative value, although he acknowledged

that she would be unable to pay a distributive award.7 Yet Wife’s arguments before

the trial court and this Court concede that Husband would be unable to pay the award

within six years, the evidence supported the finding that he would be unable to pay

within six years, and thus the trial court properly ordered the extended payment

period. Wife’s position on appeal is also somewhat different than her position at trial,

where she argued that if Husband was required to pay over 15 years, the payments

would be about $2,000.00 per month:

                    I just wanted to point out that if you had it paid out
              over six years, the present value of that, even though
              I’m asking for 376, is actually $288,000.00. If it’s paid out

       7 “And so what I would ask the Court to do is to find that the value of the business has a
net value in negative numbers and that it’s just impossible to distribute, because she doesn’t
have the money to make it up.”

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                                  Opinion of the Court



             over 15 years, I’m asking for 376, at a discount rate of 4.5
             percent, present day is 194,388. So I get that he -- he
             can’t write a check. I get that. So -- but there -- and I’m
             -- I’ll be glad to hand these up to the Court, if the Court
             would like to see them. . . .
                      ....
                      . . . . So the fact of the matter is, is that 15-year
             payment results in a payment of about two grand a month.
             I mean, you can just divide it or you can run an interest
             rate.       We all know how to do that and amortize
             whatever is owed.

      Thus, both parties agreed that Husband would be unable to pay the

distributive award immediately or even within six years, so an extended payment

schedule was necessary. The trial court found as much, although the finding of fact

is somewhat cursory. We have already determined that we must vacate the order

and remand for the trial court to make findings of fact and a new order regarding the

proper interest rate and addressing the Husband’s ability to pay the resulting

distributive payments, which may well change the time period over which the

payments are ordered. As in Harris, on remand the trial court may “rely upon the

original record and its findings of fact and conclusions of law relating to the

identification and valuation of the marital and separate property, which we

specifically affirm[,]” but has the discretion to allow additional evidence on remand

“to the extent that it finds the taking of additional evidence necessary to the

determination of the question of the distributive award[.]” 84 N.C. App. at 364, 352

S.E.2d at 876. We also “recognize, however, that the trial court may, depending upon



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                                      Opinion of the Court



its findings upon remand with respect to a distributive award, conclude that it is

necessary to modify the manner in which it has distributed the parties’ marital

property and we specifically confirm that any such decision is committed to the sound

discretion of the trial court.” Id.

                                         Conclusion

       Accordingly, while we conclude that the trial court properly classified

Husband’s interest in Rugworks as marital property and that the valuation is

supported by the evidence, we also find that the court’s order does not properly set

out the distributive award amount. Accordingly, we reverse the court’s order and

remand so that the trial court may enter an order clearly establishing the term of

payment, interest rate, and monthly payments for the distributional award and

making it clear that Husband will be permitted to prepay the remaining balance of

the award due prior to expiration of the full term.

       AFFIRMED IN PART; REVERSED AND REMANDED IN PART.

       Judges McCULLOUGH and ZACHARY concur.




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