                IN THE COURT OF APPEALS OF NORTH CAROLINA

                                    No. COA19-442

                                  Filed: 2 June 2020

Iredell County, No. 16 CVD 3040

SARAH RICHTER, Plaintiff,

             v.

ALLEN RICHTER, Defendant.


      Appeal by plaintiff from order entered 29 November 2018 by Judge Edward L.

Hedrick, IV in District Court, Iredell County. Heard in the Court of Appeals 30

October 2019.


      Pope McMillan, P.A., by Clark D. Tew, for plaintiff-appellant.

      Lake Norman Law Firm, by Adam G. Breeding, for defendant-appellee.


      STROUD, Judge.


      At issue is whether the trial court erred in classifying proceeds from a life

insurance policy on the life of Husband’s former wife, paid to Husband during his

marriage to Wife, as a gift to Husband and thus his separate property. Based upon

this classification of the life insurance proceeds, the trial court also classified other

assets acquired with the proceeds as Husband’s separate property. Where Husband

did not own the life insurance policy and paid no premiums for the policy during the

parties’ marriage, the trial court did not err by classifying the proceeds as a gift to
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                                    Opinion of the Court



Husband. The trial court’s findings of fact are supported by the evidence and those

findings support the trial court’s conclusion of law classifying the disputed assets as

Husband’s separate property, so we affirm the trial court’s order.

                                   I.     Background

      The parties married on 16 April 2011. Husband had been previously married

to Jeanne Richter with whom he had two children. Husband and Wife had one child

in 2012. During the parties’ marriage, Jeanne Richter passed away, and proceeds

from her life insurance policy in the amount of $500,603.68 were paid to Husband

(“life insurance proceeds”). Wife filed a complaint in December 2016 with claims for

child custody and support, divorce from bed and board, postseparation support and

alimony, and counsel fees. Because the parties had not yet separated, Wife also noted

her intent to file for equitable distribution after their separation.

      On 10 February 2017, the parties separated. Husband then filed his answer

and counterclaims for custody, child support, and equitable distribution. On 18 April

2017, Wife filed an amended complaint including a claim for equitable distribution.

Both parties sought distribution of their marital property.

      Husband listed the following items as his separate property on his equitable

distribution affidavit based upon his claim that they were purchased with the life

insurance proceeds: real property in Mooresville (“Fieldstone house”), a Prudential

Alliance Account, a Prudential Retirement B Annuity, and a Prudential IRA



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(collectively, “the disputed assets”). The life insurance proceeds from his former wife

were initially deposited into the Prudential Alliance Account. Prior to the parties’

separation, Husband transferred money from the Alliance Account to establish the

IRA and the Retirement Annuity Account. For purposes of clarity and because these

were the accounts the trial court classified, we will refer to these accounts

respectively as the Alliance Account, the IRA, and the Annuity Account.

         In a pretrial order for equitable distribution, the parties listed the Fieldstone

house under Schedule E, which was defined as “items as to which there is

disagreement as to whether the item is martial property or a marital debt.” Wife

alleged the real property was “purchased with comingled funds” and should be

classified as marital; Husband alleged it should be classified as separate. The IRA

and Annuity Account were also listed on Schedule E, with Wife alleging they should

be classified as marital and Husband alleging they were his separate property. The

Alliance Account was listed on Schedule H, “Items agreed by parties as Husband’s

separate property” because “Husband acquired during marriage from deceased ex-

wife.”

         The equitable distribution claims were heard before the Honorable Edward L.

Hedrick, IV on 26 and 28 September, and 1 October 2018 in District Court, Iredell

County.     The trial court found the Alliance Account, the IRA, and the Annuity

Account were established entirely from the life insurance proceeds and were therefore



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the separate property of Husband. The trial court classified the Fieldstone house as

part marital and part Husband’s separate property. Husband purchased the home

with the life insurance proceeds, but the parties made improvements to the house

during the marriage which increased the value. Wife timely appealed.

                   II.     Classification of Life Insurance Proceeds

      Wife argues the trial court erred in classifying the life insurance proceeds and

property acquired with the life insurance proceeds during the marriage as Husband’s

separate property.       Husband disagrees with Wife’s framing of the issue as

classification of the life insurance “proceeds” since some of the proceeds had been

transferred to other accounts and contends the parties stipulated in the pretrial order

that the Alliance Account was his separate property, and since the other assets came

from the Alliance Account, this stipulation resolved the classification of all of the

disputed assets, including the Fieldstone house, the IRA, and the Annuity Account.

Husband’s argument is logically based upon the evidence and theories presented by

Wife at trial, but the pretrial order’s stipulation is not so broad as he claims. And

although Wife’s evidence at trial focused primarily on whether Husband had

converted separate funds from the life insurance proceeds to marital property by

comingling assets, Wife is correct that the issue on appeal is “not whether the

purportedly separate property of the Defendant was, through his actions or




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intentions, converted into marital property . . . but whether or not the Life Insurance

Proceeds were the Defendant’s separate property to begin with.”

A.    Standard of Review

                    “Pursuant to N.C. Gen. Stat. § 50-20 [ (2017) ],
             equitable distribution is a three-step process requiring the
             trial court to ‘(1) determine what is marital [and divisible]
             property; (2) find the net value of the property; and (3)
             make an equitable distribution of that property.’” Under
             North Carolina law, marital property is “all real and
             personal 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 or
             divisible property[.]” Separate property is that acquired by
             a spouse before marriage, or acquired by devise, descent, or
             gift during the marriage. Generally, divisible property
             refers to certain property received after the date of
             separation but prior to distribution.

Crago v. Crago, ___ N.C. App. ___, ___, 834 S.E.2d 700, 704 (2019) (alterations in

original) (citations omitted), review denied, ___ N.C. ___, 838 S.E.2d 181 (2020).

      Wife challenges some of the trial court’s findings of fact and the conclusion of

law classifying the assets acquired with the life insurance proceeds.

             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

omitted).


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B.    Effect of Stipulation Regarding Alliance Account

      Both parties devote much of their briefs to a dispute regarding the meaning

and effect of the stipulation in the pretrial order regarding the classification of the

Alliance Account as Husband’s separate property. Husband contends this stipulation

covers not only the Alliance Account but also the Fieldstone house, the IRA, and the

Annuity Account, since funds from the Alliance Account were used during the

marriage to acquire each of these assets. Wife contends the stipulation does not apply

to any asset other than the Alliance Account, but she also argues that the trial court

improperly relied upon the stipulation in classifying the other disputed assets, based

upon the trial court’s statement in Finding of Fact 30, “This finding is consistent with

the parties’ stipulation regarding the funds remaining in the Alliance Account

pursuant to Section H of the Pretrial Equitable Distribution Order.” Both parties

assign far more importance to the stipulation than it deserves, and, instead of

simplifying the issues, their arguments regarding the stipulation have made the one

classification issue presented on appeal more complex.

      In the parties’ equitable distribution affidavits, both clearly identified each of

the disputed assets individually—the Alliance Account, the IRA, the Annuity

Account, and the Fieldstone house—and stated their contentions regarding the value,

classification, and desired distribution for each asset. Although the “life insurance

proceeds” are mentioned as the source of the assets, the life insurance proceeds



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themselves had been received in April 2014, and Husband used the proceeds to

acquire or establish the disputed assets. Likewise, in the pretrial order, the parties

stipulated that “Husband’s Prudential Alliance account” should be classified as the

separate property of Husband. The pretrial order also listed the other disputed assets

as individual assets and included the parties’ contentions regarding each one. “It is

well-established that stipulations in a pretrial order are binding upon the parties and

upon the trial court.” Clemons v. Clemons, ___ N.C. App. ___, ___, 828 S.E.2d 501,

505 (2019). Husband argues that Wife stipulated that all property acquired with

funds originally in the Alliance Account—the entire life insurance proceeds—would

be his separate property. Thus, he argues that there is no need to consider the

classification of the Fieldstone house, the IRA, and Annuity Account—all would be

his separate property because they flowed from the Alliance Account and this was

stipulated to be his separate property.      However, the stipulation regarding the

Alliance Account was a stipulation only to the classification and value of that

particular account as of the date of separation. Neither the pretrial order nor the

trial court’s equitable distribution order classified the life insurance proceeds as a

discrete asset existing on the date of separation; this is appropriate, since Husband

received the life insurance proceeds in April 2014 but the parties separated on 10

February 2017. The trial court is required to classify and value property existing as

of the date of separation. Robinson v. Robinson, 210 N.C. App. 319, 323, 707 S.E.2d



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785, 789 (2011). Both the pretrial order and equitable distribution order addressed

the various assets existing as of the date of separation, including those acquired with

the life insurance proceeds. Husband is correct that Wife is bound by the stipulation

as to the classification of the Alliance Account as listed on the pretrial order. But the

other accounts and Fieldstone house were clearly listed separately on the pretrial

order and the parties did not agree on the classification of those assets.          The

stipulation regarding the Alliance Account did not require the trial court to classify

all of the disputed assets as Husband’s separate property and does not prevent Wife’s

challenge to the trial court’s classification of the Fieldstone house, the IRA, and

Annuity Account. The stipulation only applies to the Alliance Account, which the

trial court properly classified as Husband’s separate property based upon the

stipulation.

      Wife argues the trial court improperly relied upon the stipulation as part of its

classification of the disputed assets. We will address the classification issue in more

detail below, but upon consideration of all of the findings in context, the trial court

did not classify the disputed assets based upon the stipulation regarding the Alliance

Account. The trial court simply noted the classification of the other disputed assets

as separate property (or partially separate, as to the Fieldstone house) was consistent

with the stipulation but there is no indication the trial court relied upon the

stipulation to classify any asset other than the Alliance Account.



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C.    Findings of Fact

      Wife challenges several findings of fact regarding the life insurance proceeds

and properties acquired with the proceeds. The findings address the source of the

insurance proceeds and then the acquisition of other properties with the proceeds.

The first finding challenged, Finding 30, includes both findings of fact regarding

Husband’s receipt of the insurance proceeds and conclusions of law regarding the

classification as separate property.    We will first address the factual portion of

Finding of Fact 30, as most of the other findings and conclusions relevant to the issues

on appeal rely upon these factual findings. The trial court found as follows:

             30. Before Defendant was married to the Plaintiff, he was
             married to Jeanne K. Richter. With Jeanne Richter, the
             Defendant had two children, now aged 15 and 13. On or
             about August 27, 2013 Jeanne Richter executed a will
             acknowledging that she was divorced and leaving all of her
             property to the children of Defendant and Jeanne Richter.
             On or about March 28, 2014, Jeanne Richter appointed the
             Defendant her attorney in fact. On March 31, 2014 Jeanne
             Richter died. Defendant was the beneficiary of a life
             insurance policy on her life and as a result of her death, the
             Defendant received $500,603.88 on or about April 9, 2014
             which was disbursed to a Prudential Alliance Account.
             These funds were acquired during the marriage and some
             of the funds as well as items purchased with the funds
             existed on the date of separation. They were not acquired
             by devise (by will) or by descent (Defendant was not related
             to Jeanne Richter at the time of her death).

      The portion of Finding of Fact 30 quoted above includes findings of fact, and

these are supported by competent evidence. Indeed, the basic facts as Husband’s



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prior marriage and divorce, the date of Mrs. Richter’s death, and Husband’s receipt

of the insurance proceeds are not disputed. It is also undisputed that the insurance

proceeds were not acquired by will or descent. The dispute is whether the trial court

erred in classifying the life insurance proceeds as a gift under North Carolina General

Statute § 50-20(b)(2).

        Wife also challenges Findings of Fact 31, 32, 33, 39, 40, 48, 49, and 50. But the

basis for her challenge to each of these findings is the same as to Finding 30. Findings

31 through 33 address the marital and separate contributions to the Fieldstone

house, based upon the prior finding that Husband used his separate funds from the

insurance proceeds to purchase the house.1 Findings 39 and 40 address the IRA and

Annuity Account, which were established entirely with funds from the insurance

proceeds. Findings 48, 49, and 50 include listings of the classifications and values of

all the parties’ property, including the disputed assets previously addressed in the

prior findings. Thus, because the factual findings of Finding 30 are supported by

competent evidence, the remaining findings challenged by Wife are also supported by

the evidence.

D.      Classification of Property




1 The trial court held the Fieldstone house was partially separate and partially marital, based upon
marital contributions to renovation of the house. Wife challenges the findings of fact and classification
of the Fieldstone house only as to the separate component based upon Husband’s purchase of the house
with the life insurance proceeds.

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      The remainder of Finding of Fact 30 is actually a conclusion of law, as it

addresses classification of the assets acquired with the life insurance proceeds. We

review the conclusion of law de novo. Robbins v. Robbins, 240 N.C. App. 386, 396,

770 S.E.2d 723, 729 (2015) (“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.” (quoting Hunt

v. Hunt, 112 N.C. App. 722, 729, 436 S.E.2d 856, 861 (1993))). “While findings of fact

by the trial court in a non-jury case are conclusive on appeal if there is evidence to

support those findings, conclusions of law are reviewable de novo.” Id. at 395, 770

S.E.2d at 728 (citing Lee v. Lee, 167 N.C. App. 250, 253, 605 S.E.2d 222, 224 (2004)).

      North Carolina General Statute § 50-20 defines “separate property” in

pertinent part as follows:

               “Separate property” means all real and personal property
               acquired by a spouse before marriage or acquired by a
               spouse by devise, descent, or gift during the course of the
               marriage. . . . Property acquired in exchange for separate
               property shall remain separate property regardless of
               whether the title is in the name of the husband or wife or
               both and shall not be considered to be marital property
               unless a contrary intention is expressly stated in the
               conveyance. The increase in value of separate property and
               the income derived from separate property shall be
               considered separate property.

N.C. Gen. Stat. § 50-20(b)(2) (2019).




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      The remainder of Finding of Fact 30 addresses the source of the funds in the

IRA and Annuity Account and for the purchase of the Fieldstone house and includes

the trial court’s conclusion of law as to classification of the disputed assets. The trial

court concluded that the insurance proceeds were a gift to Husband, as follows:

             30. . . . However, these funds [the life insurance proceeds]
             were acquired by the Defendant by gift. Although the
             actual trigger for the transfer may have been a contractual
             obligation of Prudential to Jeanne Richter; Defendant’s
             position as the beneficiary of the contract was without
             consideration paid by Plaintiff or Defendant to Jeanne
             Richter or to Prudential. This $500,603.68 was received by
             Defendant during his marriage to the Plaintiff from a third
             party without consideration of the Plaintiff or Defendant
             and is therefore a gift and is therefore Defendant’s separate
             property. This finding is consistent with the parties’
             stipulation regarding the funds remaining in the Alliance
             Account pursuant to Section H of the Pretrial Equitable
             Distribution Order.

      Because this portion of Finding 30 applies legal analysis to the facts and draws

the conclusion that the insurance proceeds should be classified as a gift to Husband

and thus his separate property under North Carolina General Statute § 50-20(b)(2)

we review this conclusion de novo. Blair v. Blair, 260 N.C. App. 474, 478, 818 S.E.2d

413, 417 (2018) (“[T]he labels ‘findings of fact’ and ‘conclusions of law’ employed by

the trial court in a written order do not determine the nature of our review. If the

trial court labels as a finding of fact what is in substance a conclusion of law, we

review that ‘finding’ de novo.” (quoting Westmoreland v. High Point Healthcare Inc.,

218 N.C. App. 76, 79, 721 S.E.2d 712, 716 (2012))).


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      This Court has very recently addressed the issue of classification of life

insurance proceeds on the former spouse of a party in Crago, ___ N.C. App. ___, 834

S.E.2d 700. Although the life insurance policy at issue here is different from Crago

because there was no marital contribution to the premiums and neither party owned

the policy, this Court’s analysis of the question helps highlight the factors relevant to

the classification of insurance proceeds.

      In Crago, the defendant-wife was married previously to Mr. Heintz and they

had two children. Id. at ___, 834 S.E.2d at 703. In 2004, defendant-wife and Mr.

Heintz took out a $1,000,000 life insurance policy on his life, naming defendant-wife

as beneficiary.   Id. at ___, 834 S.E.2d at 703.          Defendant-wife and Mr. Heintz

separated and later divorced. Id. at ___, 834 S.E.2d at 703. In 2007, Defendant-wife

married plaintiff-husband, Mr. Crago. Id. at ___, 834 S.E.2d at 703. The defendant-

wife continued to pay premiums on the life insurance policy on Mr. Heintz during her

marriage to Mr. Crago. Id. at ___, 834 S.E.2d at 703. She used marital funds to pay

the premiums on the life insurance policy. Id. at ___, 834 S.E.2d at 703. In 2015, Mr.

Heintz died, and defendant-wife received the life insurance proceeds. Id. at ___, 834

S.E.2d at 703. In 2016, she and plaintiff-husband separated. Id. at ___, 834 S.E.2d

at 703. In their equitable distribution order, the trial court determined the life

insurance proceeds were marital property, and this Court affirmed. Id. at ___, 834

S.E.2d at 710.



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      The Crago Court first rejected an “analytic” approach to the classification of

the insurance proceeds. Id. at ___, 834 S.E.2d at 704. The defendant-wife argued the

analytic approach should be used based upon the fact that the insurance proceeds

were intended for the benefit of the minor children of her marriage to Mr. Heintz. Id.

at ___, 834 S.E.2d at 704-05. The Court determined the “mechanistic” approach must

be used:

                   North Carolina courts have adopted two different
             approaches for determining what is marital and separate
             property: the “mechanistic” approach and the “analytic”
             approach. In Johnson v. Johnson, our Supreme Court
             described the mechanistic approach as:
                   literal and looks to the general statutory
                   definitions of marital and separate property
                   and concludes that since the award was
                   acquired during the marriage and does not
                   fall into the definition of separate property or
                   into any enumerated exception to the
                   definition of marital property, it must be
                   marital property.
             In contrast, “[t]he analytic approach asks what the award
             was intended to replace,” focusing on the purpose of the
             compensation rather than its statutory definition.
                   In support of her argument the trial court erred by
             not applying the analytic approach, defendant cites several
             cases concerning classification of personal injury
             settlements and disability benefits. However, defendant
             also acknowledges North Carolina courts have never
             applied this approach in the context of life insurance
             proceeds. Nevertheless, she urges us to adopt the analytic
             approach in this case, based on “important public policy
             considerations” surrounding whether life insurance
             proceeds intended to benefit a spouse’s children from
             another marriage should be considered marital property.
             Furthermore, she argues Foster is distinguishable from the


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             present case and therefore should not be binding on this
             Court.
                    In Foster, the husband and wife had purchased a life
             insurance policy on their children during their marriage.
             After the parties separated, the husband alone paid the
             premiums for the policy. During the separation period, one
             of the children passed away and the life insurance proceeds
             were paid and placed in a trust account. In divorce
             proceedings, the wife claimed the life insurance proceeds
             were a marital asset because some of the policy premiums
             had been paid for with marital funds. We disagreed,
             holding that because the claim for death benefits did not
             arise until after separation, when their son passed away,
             the policy proceeds were the husband’s separate property.
             In making our ruling, we noted that, pursuant to N.C. Gen.
             Stat. § 50-20, “in order for property to be considered
             marital property it must be ‘acquired’ before the date of
             separation and must be ‘owned’ at the date of separation.”
                    Defendant      argues    the    present    case     is
             distinguishable from Foster because that case concerned a
             life insurance policy on the lives of the parties’ own
             children, whereas the policy in dispute here covered the life
             of her ex-husband and was intended to be used to care for
             her children from her prior marriage. However, the
             relevant fact under the mechanistic approach we applied
             in Foster was whether the property was acquired before the
             date of separation, not who the policy covered or what its
             intended purpose was.

Id. at ___, 834 S.E.2d at 704-05 (alteration in original) (citations omitted).

      Here, the trial court stated its rationale as follows:

             Defendant’s position as the beneficiary of the contract was
             without consideration paid by Plaintiff or Defendant to
             Jeanne Richter or to Prudential. This $500,603.68 was
             received by Defendant during his marriage to the Plaintiff
             from a third party without consideration of the Plaintiff or
             Defendant and is therefore a gift and is therefore
             Defendant’s separate property. This finding is consistent


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             with the parties’ stipulation regarding the funds remaining
             in the Alliance Account pursuant to Section H of the
             Pretrial Equitable Distribution Order.

The trial court’s finding of fact that the parties paid no consideration for the insurance

policy is supported by record. There was no evidence any premiums were paid by

Husband during the marriage, so there was no marital financial contribution to the

life insurance. This is an important factual difference between this case, Crago, and

Foster v. Foster, 90 N.C. App. 265, 368 S.E.2d 26 (1988).

      In Crago, this Court rejected the defendant-wife’s argument that the life

insurance proceeds should be classified as partially separate based upon the source

of funds for the premiums. Crago ___ N.C. App. at ___, 834 S.E.2d at 705. She argued

that some of the funds in the account she used to pay the premiums were her separate

property, so the proceeds should be classified as part separate and part marital using

the source-of-funds approach. Id. at ___, 834 S.E.2d at 706. But the Court rejected

this approach because the defendant-wife had failed to trace the funds in the account

from which she paid the premiums and thus did not prove she had paid any

premiums, particularly the “last life insurance premium,” with her separate funds.

Id. at ___, 834 S.E.2d at 706.   Since all of the premiums paid during the marriage

were from marital funds, this Court affirmed the trial court’s rejection of the source-

of-funds approach to classification of the insurance proceeds. Id. at ___, 834 S.E.2d

at 706 (“Accordingly, the trial court’s finding that the account ending in 3207 was



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marital, and thus the funds used to pay the last life insurance premium were marital,

was not an abuse of discretion.”).

       The analysis of the source-of-funds issue in Crago and its reliance upon Foster

and McIver v. McIver, 92 N.C. App. 116, 124, 374 S.E.2d 144, 149 (1988), shows that

the holding was based not just upon the fact that the insurance proceeds were

received during the marriage and owned on the date of separation, but also on the

fact that the “last insurance premium” was paid with marital funds. Crago, ___ N.C.

App. at ___, 834 S.E.2d at 706; see McIver, 92 N.C. App. at 124, 374 S.E.2d at 149-50

(“North Carolina has adopted the ‘source of funds’ rule in determining whether

property is marital or separate. Under the source of funds analysis, property is

‘acquired’ as it is paid for, and thus may include both marital and separate ownership

interests. Under the rule, property acquired with separate funds prior to marriage

remains separate, and is not converted to marital property merely because it was

purchased in anticipation of marriage.” (citation omitted)). Here, Husband did not

pay for the life insurance policy at all. This factual difference in the payment of

premiums and policy ownership between this case, Crago, and Foster is essential to

the classification issue.

       In this case, no insurance premiums on the former Mrs. Richter’s life were paid

from marital funds or by Husband during the marriage. The trial court found that

Husband received the life insurance proceeds “from a third party without



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consideration of the Plaintiff or Defendant.” Husband was the beneficiary of the

policy but not the owner, and he did not pay premiums on the policy during the

marriage, so there was no marital contribution to the acquisition or maintenance of

the policy, as in Crago and Foster.

      This Court also addressed the source of funds in Foster, 90 N.C. App. 265, 368

S.E.2d 26. It is easy to overlook the portion of Foster which addresses the cash value

of the policy as of the date of separation, which was only $20.00, but this part of the

analysis is important. In Foster, a portion of the policy value was classified as marital

based upon the payment of premiums during the marriage, but as of the date of

separation, the only value attributable to the marriage was the cash value. Id. The

insurance policy on the child’s life had a cash value of $20.00 as of the date of

separation. Id. The insured child died after the parties’ separation, and the husband

was the beneficiary of the policy and had continued to pay premiums after the date

of separation. Id. The Foster Court noted the fact that the right to collect under the

policy vested only upon the child’s death, after the date of separation, but did not

classify the policy as entirely separate. Id. at 268, 368 S.E.2d at 28. Instead, Foster

held that the insurance proceeds had a dual classification. Id. The $20.00 cash value

was classified as marital, based upon the value of the policy as of the date of

separation; the $20,000 proceeds for the child’s accidental death were classified as

husband’s separate property based upon the vesting of the benefits after separation



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and the husband’s payment of premiums on the policy after separation. Id. The

Foster Court based this analysis on a comparison to the vesting of stock options:

                    In Hall v. Hall, 88 N.C. App. 297, 363 S.E.2d 189
             (1987), this Court held that stock options which were
             vested prior to separation were marital property but those
             which had not vested prior to separation were separate
             property. In the present case, at the time of separation
             there were no vested rights under the insurance policy on
             the life of Richie M. Foster. The rights only vested at the
             death of Richie M. Foster, and until then plaintiff, as owner
             of the policy, could have cancelled the policy or changed the
             beneficiary. At the time of separation, the cash value of the
             insurance policies was marital property since the
             premiums to that point had been paid for with marital
             assets. The premiums after separation were paid for with
             plaintiff’s assets and therefore the proceeds from the
             insurance policy were separate property of plaintiff.

Id.

      Therefore, although life insurance does not fit neatly into the methods of

classification used for other assets such as real estate, and life insurance policies of

different types will present different factual issues, it is clear that our Courts have

applied the same legal analysis to the classification of life insurance policies as other

assets. In Foster, the vested cash value of the whole life policy as of the date of

separation was classified as marital, id.; a term life insurance policy normally has no

cash value. In Crago, this Court affirmed the trial court’s determination that the

premiums paid during the marriage were paid from marital funds and classified the

proceeds as marital based upon a source-of-funds approach. ___ N.C. App. ___, 834



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                                        Opinion of the Court



S.E.2d 700. Although Crago does not address whether the life insurance policy at

issue was a term policy with no cash value, a whole life policy with a cash value, or

some other form of policy, Crago rejected classification as separate property of the

wife based upon a source-of-funds approach because defendant-wife failed to show

premiums were paid with her separate funds.2 See id.

       This case is different from both Foster and Crago because there was absolutely

no marital contribution to the life insurance policy. It was not an asset purchased by

either party, either during the marriage or after separation. Husband’s former wife

owned and paid for the life insurance policy until her death. Although no prior North

Carolina case has ever characterized life insurance proceeds as a gift for purposes of

equitable distribution, no case has ever addressed insurance proceeds owned and paid

for by a third party but received during the marriage by one of the spouses. Thus, we

will rely upon cases classifying gifts from third parties during the marriage to review

the trial court’s conclusion the proceeds were a gift and thus Husband’s separate

property.

       Wife agrees we should rely upon cases regarding gifts from a third party but

argues the trial court erred in classifying the life insurance proceeds as a gift because

Husband failed to present evidence of “donative intent” by Husband’s former wife.



2 Based upon the facts and analysis in Crago, the life insurance policy was apparently a term policy.
See Crago v. Crago, ___ N.C. App. ___, 834 S.E.2d 700. There was no mention of any cash value for
the policy. See id.

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                                    Opinion of the Court



She contends this case does not present an issue of first impression, as Husband

argues, because “Appellant is actually asking this Court to apply its usual and

customary gift analysis for an asset; the lack of case law specifically discussing this

one asset type does not a case of first impression make.” We agree we can apply the

“usual and customary gift analysis” but that analysis is more straightforward for

some assets than others. As discussed earlier, life insurance policies may be classified

differently depending upon the type of policy, policy ownership, payment of

premiums, vesting of the right to proceeds, and the relationship of the insured to the

beneficiary.    And no prior case in North Carolina has addressed life insurance

proceeds from a policy on the life of a third party where the beneficiary-spouse paid

no consideration for the policy.

      Under the gift analysis discussed in Burnett v. Burnett, 122 N.C. App. 712, 471

S.E.2d 649 (1996), Husband had the burden of showing that the life insurance

proceeds were his separate property. The Burnett Court discussed several factors

which may show donative intent, and these factors may vary based upon the

particular type of property in question:

                      The party claiming a certain classification has the
               burden of showing, by the preponderance of the evidence,
               that the property is within the claimed classification. Thus
               a party claiming property acquired during the marriage to
               be separate, on the basis that it was a gift, has the burden
               of showing that the “alleged donor intended to transfer
               ownership of the property without receiving any
               consideration in return.” . . .


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                                   Opinion of the Court



                    “The evidence most relevant in determining
             donative intent [or the lack of donative intent] is the
             donor’s own testimony.” Other evidence relevant to
             donative intent includes the testimony of the alleged donee,
             documents surrounding the transaction, whether a gift tax
             return was filed, and whether an excise tax was paid.
             Transfer documents stating that the property is a gift or
             characterizing the consideration as love and affection is
             strong evidence of donative intent. On the other hand,
             transfer documents indicating receipt of consideration is
             prima facie evidence that the recited consideration was
             indeed paid. A mere recital of consideration, however, does
             not compel a finding that consideration was received, if
             other evidence reveals that no consideration was in fact
             received. Bargain sales, or those where some small
             consideration is received in exchange for the transfer, if
             accompanied with donative intent, are treated as partial
             gifts.

Burnett, 122 N.C. App. at 714-15, 471 S.E.2d at 651-52 (second alteration in original)

(footnote omitted) (citations omitted).

      Wife argues Husband failed to present evidence of “donative intent” citing to

several cases addressing gifts of various types of property in different factual settings.

For example, in Berens v. Berens, this Court held that the parties’ contributions to

their children’s 529 accounts were not “gifts” to the children, noting that

                    “[i]n order to constitute a valid gift, there must be
             present two essential elements: 1) donative intent; and 2)
             actual or constructive delivery.” “These two elements act
             in concert, as the present intention to make a gift must be
             accompanied by the delivery, which delivery must divest
             the donor of all right, title, and control over the property
             given.”

260 N.C. App. 467, 469-70, 818 S.E.2d 155, 157-58 (2018) (citation omitted) (quoting


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                                    Opinion of the Court



Courts v. Annie Penn Mem’l Hosp., Inc., 111 N.C. App. 134, 138, 431 S.E.2d 864, 866

(1993)). The Berens Court explained:

                    Applying this settled property law principle, the
             parties’ contributions to their 529 Savings Plans were not
             gifts. In their briefs, both parties discuss various tax
             implications of 529 Savings Plan contributions at length.
             But the treatment of these plans for tax purposes does not
             control the determination of ownership under the equitable
             distribution statute. Instead, we look to whether the
             parties delivered an ownership interest in those funds to
             their children, thereby divesting themselves of that
             interest.
                    They did not.

Berens, 260 N.C. App. at 470, 818 S.E.2d at 158 (citation omitted).

      As recognized by Berens, treatment of property for tax purposes or in another

legal context may not control its classification for purposes of equitable distribution.

Id. Indeed, classifying property based upon marital contribution instead of title or

other legal principles is one of the fundamental principles of the equitable

distribution statute. Hill v. Hill, 229 N.C. App. 511, 518, 748 S.E.2d 352, 358 (2013)

(“One of the purposes of the Equitable Distribution Act was ‘to alleviate the

unfairness of the common law [title theory] rule’ and to base property distribution

upon ‘the idea that marriage is a partnership enterprise to which both spouses make

vital contributions . . . [.]’” (first and second alterations in original) (quoting Friend–

Novorska v. Novorska, 131 N.C. App. 508, 510, 507 S.E.2d 900, 902 (1998))).

      In Plymouth Pallet Co. v. Wood, this Court stated the elements of a gift between



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                                        Opinion of the Court



living persons:

               The essential elements of a gift inter vivos are: (1) the
               intent by the donor to give the donee the property in
               question so as to divest himself immediately of all right,
               title and control therein; and (2) the delivery, actual or
               constructive, of the property to the donee.

51 N.C. App. 702, 704, 277 S.E.2d 462, 464 (1981).

       Some of the factors noted in prior cases dealing with gifts of real estate or stock

simply do not exist in a case dealing with life insurance. One obvious difference is

that life insurance proceeds are not “delivered” to the donee until after the donor’s

death; it is not a “gift inter vivos.”3 In equitable distribution cases in particular, where

one spouse claims property was a gift, the analysis normally focuses on whether

consideration was paid for the asset. For example, in cases addressing deeds to real

estate to one or both spouses from a third party, courts have noted “documents

surrounding the transaction, whether a gift tax return was filed, and whether an

excise tax was paid.” Burnett, 122 N.C. App. at 715, 471 S.E.2d at 651. All of the

factors noted in Burnett address the issue of consideration for the transfer of real

property. Excise taxes are based upon the purchase price for land. N.C. Gen. Stat. §

105-228.30 (2019); see Patterson v. Wachovia Bank & Tr. Co., N.A., 68 N.C. App. 609,

612-13, 315 S.E.2d 781, 783 (1984) (“Under the provisions of G.S. 105-228.28, et seq.,

every person who deeds real estate away for a consideration must pay the county an


3Ownership of a life insurance policy could be given or transferred during the insured’s life, but we
are discussing payment of life insurance proceeds upon death of the insured.

                                               - 24 -
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                                   Opinion of the Court



excise tax based on the consideration involved, but no tax is required of those who

give property away. Yet, though the evidence shows that the property was worth over

$90,000, and the plaintiff Ross Coble, the only living person with personal knowledge

as to the consideration involved, if there was any, is the one who had the deeds

eventually recorded, no excise stamps were ever affixed to the deeds by the

grantors.”). Gift tax returns are filed for gifts as defined by the applicable tax laws,

but neither party here has made any argument based upon the treatment of the life

insurance policy proceeds for tax purposes. In the cases addressing whether property

is a gift, absence of consideration gives rise to an inference of donative intent, and

thus a gift. See Joyce v. Joyce, 180 N.C. App. 647, 651, 637 S.E.2d 908, 911 (2006)

(finding the transfer of property supported by adequate consideration from a father

to son was not a gift). Payment of consideration gives rise to the opposite inference.

See id.

      Wife contends that Husband’s evidence regarding the lack of consideration and

the circumstances of his prior marriage and the insurance policy on Mrs. Richter’s

life was not sufficient to show Mrs. Richter’s “donative intent.” She argues Husband

“failed to meet his burden of providing any material evidence that would establish or

even hint at the origin, procuring circumstances and causes, or consideration (or lack

thereof) for his status as Jeanne Richter’s life insurance beneficiary.” She claims,

“Defendant’s own testimony as to the various components of the Life Insurance



                                          - 25 -
                                 RICHTER V. RICHTER

                                  Opinion of the Court



Proceeds was plainly silent on the purpose or intent of his status as a beneficiary,

and largely in agreement with the Plaintiff’s in that it confirmed his receipt of the

Life Insurance Proceeds during his marriage, and confirmed their existence as of the

date of separation.” Wife is correct that Husband’s testimony at trial focused more

on the tracing of the life insurance funds to the IRA, the Annuity Account, and the

Fieldstone house, as part of his argument that these assets were his separate

property because the life insurance proceeds themselves were his separate property.

But Husband’s evidence was responding to Wife’s contentions regarding classification

of the disputed assets.

      At trial, Wife did not contend that Mrs. Richter made a gift of the life insurance

proceeds to both of the parties or that there was any marital contribution to the life

insurance policy. Wife’s arguments and evidence at trial addressed tracing of the

funds and comingling of marital and separate funds. Her arguments at trial—until

her closing argument—treated the life insurance proceeds as Husband’s separate

property when received but she contended he had commingled the insurance proceeds

with marital assets; Husband responded by showing evidence the proceeds were not

commingled with marital assets, except as to the Fieldstone house.

      Wife acknowledged at trial she had stipulated that the remaining funds in the

Alliance account were Husband’s separate property because the funds came from the

life insurance proceeds but she did not stipulate to the classification of the other



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                                    Opinion of the Court



accounts because she did not know if any marital contributions were made to those

accounts. Regarding the stipulation on Schedule H of the pretrial order, Wife testified

the funds in the Alliance Account as of the date of separation were from the insurance

proceeds:

             Q: So you have stipulated that his Alliance account is his
             separate property?

             A. That is the balance that is left as of the date of
             separation. He has used funds out of that account, and I
             believe there was money left over as of the date of
             separation. I’m not sure of the balance now. But yes, that
             part of it, that balance of the date of separation, is separate.

She then testified that she did not know whether marital funds had been contributed

to the IRA and Annuity Account, although they were initially established with funds

from the life insurance proceeds.

      Both parties have presented a slightly different argument on appeal than they

did before the trial court. This change is reflected in the parties’ briefs, which devote

a large part of their arguments to the stipulations instead of to the evidence. As we

determined above, the stipulation regarding the Alliance Account did not entirely

resolve the classification issues arising from the insurance proceeds, but the parties’

equitable distribution affidavits and the pretrial order also present the classification

issue as a tracing issue, not based upon the origin of the life insurance funds. Our

Courts have long held that parties may not change horses on appeal to gain a better

mount:


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                                   RICHTER V. RICHTER

                                     Opinion of the Court



                The issues before the trial court, however, were set out in
                a pretrial order to which plaintiff freely consented while
                represented by competent counsel, and plaintiff may not
                now take an inconsistent position on appeal. “The theory
                upon which a case is tried in the lower court must prevail
                in considering the appeal and interpreting the record and
                determining the validity of the exceptions.” Parrish v.
                Bryant, 237 N.C. 256, 259, 74 S.E.2d 726, 728 (1953); see
                also Weil v. Herring, 207 N.C. 6, 10, 175 S.E. 836, 838
                (1934) (“the law does not permit parties to swap horses
                between courts in order to get a better mount in the
                Supreme Court[ ]”), and In re Peirce, 53 N.C. App. 373, 382,
                281 S.E.2d 198, 204 (1981) (where respondents stipulated
                to the use of “recording machines in lieu of a court
                reporter,” they waived on appeal any objection about the
                quality of the recording equipment used in the trial court).

Inman v. Inman, 136 N.C. App. 707, 714-15, 525 S.E.2d 820, 824-25 (2000) (alteration

in original).

       Neither party has entirely swapped horses on appeal, although both have at

least changed the saddles on their horses. At trial, Wife’s testified she agreed the life

insurance proceeds should be classified as Husband’s separate property but by the

time of her closing argument, she attempted to avoid the stipulation and her own

testimony. For the first time, she argued that none of the disputed assets should be

classified as Husband’s separate property because he had failed to show “donative

intent” by Mrs. Richter, going so far as to claim that the trial court was not “bound

by the pretrial order” and requesting the trial court to classify all of the disputed

assets as fully marital. She argued:

                      Now, what does that include? Well, it includes the


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                                       RICHTER V. RICHTER

                                        Opinion of the Court



               Fieldstone property. It includes the [IRA]. It includes the
               annuity. It includes the Ford Escape. And even though,
               Judge, even though it’s listed on the Schedule, I think it
               was I,[4] the remainder of that Alliance account, I think,
               was listed there as a stipulation of separate property. I
               think that the evidence -- the Court isn’t bound by that
               Pretrial Order, if during the course of the proceedings,
               evidence is offered that contradicts the Pretrial Order.

       As discussed above, Husband’s evidence did rely heavily on the stipulation that

the Alliance Account was his separate property because it contained life insurance

proceeds and all of the proceeds were initially in that account. Even though both

parties have changed their theories or arguments on appeal to some extent, there was

evidence from both Husband and Wife regarding the source of the life insurance

proceeds and the circumstances under which he received them.                         Wife testified

Husband and Mrs. Richter had previously shared 50-50 custody of their two sons but

during her terminal illness, as her condition worsened, she became unable to care for

the children, so they spent more time with Husband and Wife. Shortly before her

death, Mrs. Richter agreed for Husband to have full custody of their sons and she was

seeing them only on weekends and not overnight. On 27 August 2013, Mrs. Richter




4 It was Schedule H, and the trial court was bound by the pretrial order. “It is well-established that
stipulations in a pretrial order are binding upon the parties and upon the trial court. Clemons, ___
N.C. App. at ___, 828 S.E.2d at 505. The trial court may not ex mero motu modify or eliminate
stipulations after completion of the trial without giving the parties “any notice or opportunity to
respond to the modification.” Plomaritis v. Plomaritis, 222 N.C. App. 94, 107, 730 S.E.2d 784, 793
(2012).




                                               - 29 -
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                                  Opinion of the Court



executed her Last Will and Testament in which she appointed Husband as her

Executor. She left all her assets to her sons in trust and appointed Husband as her

trustee and Wife as her alternate trustee. She also executed a Power of Attorney

appointing Husband as her attorney-in-fact on 28 March 2014. Mrs. Richter’s two

sons were also the beneficiaries of her IRA accounts.

      The trial court may draw reasonable inferences from the evidence, and based

upon the circumstances of Mrs. Richter’s death and Husband’s position as sole

custodian of their two children upon her death, the trial court’s findings and

conclusion that the life insurance proceeds should be classified as a gift to Husband

are supported by the evidence.

                    When a trial by jury is waived, and where different
             reasonable inferences can be drawn from the evidence, the
             determination of which reasonable inferences shall be
             drawn is for the trial judge.
                    In Main Realty Co. v. Blackstone Valley Gas & E.
             Co., 59 R.I. 29, 193 A. 879, 112 A.L.R. 744, the court said:
             “In reaching his conclusions, the trial justice had the
             benefit of seeing and hearing the witnesses. He also was
             entitled to consider all the evidence and to draw therefrom
             such inferences as were reasonable and proper under the
             circumstances, even though another different inference,
             equally reasonable, might also be drawn therefrom.”

Elec. Motor & Repair Co. v. Morris & Assocs., Inc., 2 N.C. App. 72, 75, 162 S.E.2d

611, 613-14 (1968) (citation omitted).

      Perhaps Wife could have argued at trial Mrs. Richter intended to benefit both

her and Husband by the life insurance since at the time of her death, the parties were


                                         - 30 -
                                  RICHTER V. RICHTER

                                   Opinion of the Court



together and caring for her two sons. But she did not make this argument. Instead,

she argues on appeal that Husband should have presented more specific or detailed

testimony about Mrs. Richter’s “donative intent” in making him the beneficiary of her

life insurance policy. Yet as in most cases in which there is a dispute regarding

whether an asset was a gift to one of the spouses, the trial court may look to the

circumstances of the case and may infer the donative intent from a transfer made

without consideration.    See Burnett, 122 N.C. App. at 715, 471 S.E.2d at 651.

Husband was the sole beneficiary of the life insurance policy, which supports the trial

court’s conclusion that the former Mrs. Richter did not intend to make a gift of the

proceeds to the marriage or to Wife. As simply stated in Burnett, “a party claiming

property acquired during the marriage to be separate, on the basis that it was a gift,

has the burden of showing that the ‘alleged donor intended to transfer ownership of

the property without receiving any consideration in return.’” 122 N.C. App. at 714,

471 S.E.2d at 651 (quoting Brett R. Turner, Equitable Distribution of Property § 5.16

at 195 (2d ed. 1994)). Although this particular question was not the primary focus of

the evidence presented by either party at trial, Husband’s evidence supported the

trial court’s findings of fact and those findings support the trial court’s conclusion of

law as to classification of the disputed assets. In fact, Wife’s evidence tended to

support the trial court’s findings and classification as well.

                                  III.     Conclusion



                                          - 31 -
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                                  Opinion of the Court



      Because the trial court’s findings are supported by the evidence and those

findings support the trial court’s conclusion of law classifying the disputed assets as

Husband’s separate property, we affirm the trial court’s order.

      AFFIRMED.

      Judges ZACHARY and MURPHY concur.




                                         - 32 -
