Court Opinion

ID: 4301471
Source: CourtListenerOpinion
Date Created: 2018-08-07 12:08:01.087529+00
Date Added: 2024-06-11T12:44:26.569843
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                    No. COA17-585

                                 Filed: 7 August 2018

 Caldwell County, No. 11 CVD 1390

 DAWN S. BLAIR, Plaintiff,

                     v.

 EVERETTE LACY BLAIR, Defendant.

      Appeal by plaintiff from order and judgment entered 4 November 2016 by

Judge Sherri W. Elliott in District Court, Caldwell County. Heard in the Court of

Appeals 29 November 2017.

      Wesley E. Starnes, for plaintiff-appellant.

      Wilson, Lackey & Rohr, P.C., by David S. Lackey, for defendant-appellee.

      STROUD, Judge.

      Plaintiff appeals order and judgment regarding equitable distribution. We

affirm the trial court’s classification and valuation of the defendant’s interest in a

partnership with his father, but reverse the classification of the post-separation

distributions from the partnership to defendant and remand for entry of a new order
                                              BLAIR V. BLAIR

                                              Opinion of the Court

which classifies these post-separation distributions as divisible property and orders

a new distribution.

                                                I.        Background

          Plaintiff Dawn Blair (“Wife”) and Defendant Everette Blair (“Husband”) were

married on 28 February 1994 and separated on 31 August 2011. On 6 October 2011,

Wife filed a complaint with claims against Husband for post-separation support,

alimony, equitable distribution, and attorney fees.1 On 16 November 2011, Husband

filed an answer and counterclaim for equitable distribution. Wife and Husband both

alleged they were entitled to a greater than one-half distribution of marital property

based upon statutory factors under North Carolina General Statute § 50-20(c).

          Trial of equitable distribution was held on 16 October, 10 December, and 12

December of 2014; and the 24th and 25th of August 2015. The issues on appeal all

are related to the classification, valuation, and distribution of Blair Iron and Metal

(“the Business”), a partnership between Husband and Joe Blair, his father. The

equitable distribution judgment was entered on 4 November 2016, and Wife filed

notice of appeal.

                                        II.          Petition for Certiorari

          Husband filed a petition for certiorari, requesting to assert issues on appeal

also arising out of the classification and valuation of the Business. Husband avers

1   Wife’s claim for alimony was dismissed and is not a subject of this appeal.

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                                         Opinion of the Court

that he failed to file notice of his cross-appeal under N.C. R. App. P. 3(c)(3) due to

excusable neglect, as his counsel did not realize a notice of appeal was required for

the issues he wished to present on appeal, which were listed in the record on appeal

as his proposed issues. Husband states in his petition that the issues he wished to

present were (1) whether evidence from Ms. Fonvielle regarding date of marriage

value of the Business should have been excluded because it was not disclosed in

discovery; (2) whether Ms. Fonvielle’s valuation of the Business should have been

excluded for various reasons; and (3) whether the trial court erred by excluding

Husband’s proposed expert witness, Mr. Prestwood, regarding valuation of the

Business.2 Husband states in his petition that there are “no attachments to this

Petition because everything required for this Court to consider[,” as to whether to

issue Writ appears in the Record.

        From our review of the transcript and record, the record does not include

everything required for us to consider Husband’s proposed issues. All three of these

issues are based primarily upon Ms. Fonvielle’s valuation and the information upon

which she based her evaluation. But Ms. Fonvielle was appointed as the expert to do

the business valuation by a consent order which is not in our record. The trial court

ruled that Mr. Prestwood could not testify based upon that consent order:

        2 Husband listed seven proposed issues in the Record on Appeal. The three issues addressed
in his petition for certiorari encompass most of the issues in the Record on Appeal, although not worded
exactly the same. The remaining proposed issues generally relate to determination of the marital
interest in the Business, and we have addressed these issues based upon Wife’s appeal.

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                                  Opinion of the Court

                    THE COURT:          In looking at the consent order of
              September the 5th, 2012, um, and remembering the
             discussions that surrounded the appointment of an expert
             to value Blair Iron & Metal, specifically that consent order
             does say that the parties requested the Court to appoint an
             expert, and it was the Court’s appointment of the expert
             upon the request, joint request, of the plaintiff and
             defendant, um, and so I am going to disallow the testimony
             of Mr. Prestwood as the Court had the expert appointed to
             value this business. Mr. Lackey, I understand you weren’t
             involved then, but Mr. Blair as represented by counsel, um,
             and that’s the Court’s ruling.

                   MR. BEACH:           Thank you, Your Honor.

      Without the consent order appointing Ms. Fonvielle, we would be unable to

review this ruling by the trial court. We would also be unable to determine the exact

scope and terms of Ms. Fonvielle’s valuation set out in that order, so we would be

unable to review Husband’s other proposed issues. We also note that Husband did

not object to the introduction of Ms. Fonvielle’s report as evidence at trial and that

his arguments attacking her valuation go to weight and credibility of the evidence,

not admissibility. We therefore deny Husband’s petition for certiorari to address his

proposed issues.

                               III.   Equitable Distribution

      Wife raises seven issues on appeal and challenges many findings of fact,

although some findings of fact Wife challenges are mixed with conclusions of law. To

make matters more confusing, Wife’s brief addresses only four issues in detail, and

for the remaining issues she simply notes that the issue is “the same issue” as

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                                  Opinion of the Court

addressed in the argument for another issue but “because of the complex and mixed

nature of the issues, it is submitted again here to make clear the nature of the

challenges.” So according to Wife’s brief, issues I, II and VI are really “the same

issue[;]” III, IV, and V are “the same issue[;]” and VII stands alone. We will attempt

to sort out these “complex and mixed” issues in some rational manner but would

encourage appellants to organize issues in a more orderly fashion. For example, if

three issues are “the same issue,” then they should be presented together as one issue.

Furthermore, although Wife’s brief mentions many findings of fact in the issues and

the headings of the arguments contend that some findings are not supported by the

evidence, the substance of her brief does not challenge the findings of fact as

unsupported by the evidence.      Wife’s actual issues arise from the trial court’s

conclusions of law -- which at times are labeled as findings of fact -- and thus we

address the substance of Wife’s arguments which is the trial court’s legal conclusions.

A.    Standard of Review

      Standards of review guide the Court’s consideration of all appeals, so they are

also useful in determining an orderly manner for presentation of issues.

Unfortunately, Wife’s brief states several standards of review for each argument,

since the issues in each are mixed. If the findings of fact upon which the challenged

conclusions of law are not supported by the evidence, the conclusions themselves

must fail. See generally Peltzer v. Peltzer, 222 N.C. App. 784, 786, 732 S.E.2d 357,

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                                  Opinion of the Court

359 (2012). If the findings are supported by the evidence, then we review de novo the

trial court’s conclusions of law based on those findings.            See generally id;

Westmoreland v. High Point Healthcare Inc., 218 N.C. App. 76, 79, 721 S.E.2d 712,

716 (2012). Restated,

             [t]he standard of review on appeal from a judgment entered
             after a non-jury trial is whether there is competent
             evidence to support the trial court’s findings of fact and
             whether the findings support the conclusions of law and
             ensuing judgment. The trial court’s findings of fact are
             binding on appeal as long as competent evidence supports
             them, despite the existence of evidence to the contrary.
             The trial court’s findings need only be supported by
             substantial evidence to be binding on appeal. We have
             defined substantial evidence as such relevant evidence as
             a reasonable mind might accept as adequate to support a
             conclusion.

Peltzer, 222 N.C. App. at 786, 732 S.E.2d at 359 (citations, quotation marks, and

brackets omitted). Also,

             [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.

Westmoreland, 218 N.C. App. at 79, 721 S.E.2d at 716 (citations omitted).

      Furthermore, classification of property is a conclusion of law which we review

de novo:

                    Because the classification of property in an equitable
             distribution proceeding requires the application of legal
             principles, this determination is most appropriately

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                                   Opinion of the Court

              considered a conclusion of law. The conclusion that
              property is either marital, separate or non-marital, must
              be supported by written findings of fact. Appropriate
              findings of fact include, but are not limited to, (1) the date
              the property was acquired, (2) who acquired the property,
              (3) the date of the marriage, (4) the date of separation, and
              (5) how the property was acquired (i.e., by gift, bequest, or
              purchase).

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

see generally Westmoreland, 218 N.C. App. at 79, 721 S.E.2d at 716.

      Finally, we review the distribution of the marital property for clear abuse of

discretion:

                   As to the actual distribution ordered by the
                   trial court, when reviewing an equitable
                   distribution order, the standard of review is
                   limited to a determination of whether there
                   was a clear abuse of discretion. A trial court
                   may be reversed for abuse of discretion only
                   upon a showing that its actions are manifestly
                   unsupported by reason.
              The trial court’s unchallenged findings of fact are
              presumed to be supported by competent evidence.

Peltzer, 222 N.C. App. at 787, 732 S.E.2d at 359-60 (citations, quotation marks, and

brackets omitted).

      Again, because Wife’s actual issues are objections to the trial court’s

conclusions of law, and those conclusions are mixed in with the findings of fact in the

order, we assume that Wife listed the findings as part of her issues on appeal because

she had difficulty separating the findings from the conclusions. We have had the

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                                       BLAIR V. BLAIR

                                       Opinion of the Court

same problem. We will simply start at the beginning of the order and address Wife’s

challenges to the conclusions of law as they appear in the order.

B.     Partnership Percentages

       Evidence relevant to the issues on appeal was presented at the three days of

hearing in 2014 and two days in 2015.               Almost all of the substantive evidence

regarding the Business was presented in 2014. The Business was originally known

as Blair Auto and Machine and was a sole proprietorship of Joe Blair.                      At its

inception, the Business did primarily car repair and repair of specialized machinery

parts. The trial court’s findings about the formation and existence of the partnership

between Husband and his father are not challenged on appeal, although the

percentage interest of Husband is an issue.3 Some findings regarding the formation

of the business are uncontested:

                     12.    In December 1993 the Defendant, Plaintiff,
               Joe Blair and May Blair had several discussions concerning
               the Defendant quitting his job and going into business with
               Joe Blair.

                     13.    The parties were quite informal regarding the
               formation of a partnership. The idea was discussed at two
               meetings where all four were present. In addition, the
               Plaintiff and Defendant had some discussions over a One
               to two month period. Also, the Defendant and his father
               had several discussions regarding forming a partnership.

                      ....

3 The trial court found that Wife was not a partner in the Business, and she does not contest that
finding on appeal, although the transcript shows that it was a “theory” she advocated at trial.

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                                  BLAIR V. BLAIR

                                  Opinion of the Court

                 15.   The Defendant was the primary manager and
          also the day to day operations manager of the partnership
          he had formed with his father.

                16.     The purpose of the partnership was to
          maintain the business Joe Blair operated and further
          develop a recyclable material business as a wholesaler.

               18.4 The Defendant quit his employment at Burns
          Wood Products as of February 11, 1994. . . .

                 19.   No paper writing was ever drawn concerning
          the operation and interests of the partnership. The
          Defendant did not “buy into” the partnership; he just began
          working and managing the partnership’s business. All
          capital, machinery, equipment, buildings, vehicles etc.
          were Mr. Joe Blair’s at the formation of the partnership.

                20.     Defendant’s partnership interest was gift to
          him alone from his father, and it was made before the
          parties’ date of marriage.

                 21.    No partnership documents were filed with the
          Secretary of State nor any other government entity except
          for tax records and some records regarding the purchase of
          equipment. A special account was opened at First Union
          not in the name of the partnership but titled “Joe and
          Everette Blair Special Account.”

                22.   Tax records for 1994 indicate the partnership
          was formed on January 1, 1994.

                23.   The partnership between Joe Blair,
          Defendant’s father, and Everette Blair, Defendant, was
          formed on January, 1, 1994.

                 24.  The tax records indicate the partnership’s
          profits and liabilities were allocated at 70% to the

4   Trial court skipped finding number 17.

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                                       Opinion of the Court

               Defendant and 30% to Joe Blair. These percentages of
               profit and liabilities were maintained from 1994 through
               and including tax year 2000.

                     25.   In tax year 2001, the company name of Blair
               Auto and Machine was changed to Blair Iron and Metal.
               The tax records from 2001 through 2013 represent the
               company name as Blair Iron and Metal.

                      26.   In tax year 2001, the records show the
               partnership’s profits and liabilities changed for Everette
               Blair from 70% to 60%. The tax records show the change of
               the partnership’s profits and liabilities for Joe Blair
               changed from 30% to 40%. See Plaintiff’s Exhibit #10.

                     27.     From tax year 2002 until tax year 2013, the
               partners listed for Blair Iron and Metal were Joe Blair and
               Everette Blair. The percentage of profits and liabilities
               remained consistent for each tax year as Everette Blair
               having a 60% and Joe Blair having a 40%. See Plaintiff’s
               Exhibits #17 - #28.

       Plaintiff challenges these “findings of fact” regarding the partnership

percentages:

                      33.    Even though many of the partnership tax
               returns show that the Defendant received 60% of the
               profits, the partnership was between the Defendant and
               his father, Joe Blair, with 50% ownership by the Defendant
               and a 50% ownership interest by Joe Blair. Mr. Joe Blair
               routinely allowed the Defendant to take more than 50% of
               the profits because the Defendant had a young family,
               including a step-daughter by the Plaintiff, to support. The
               generosity of the Defendant’s father and mother for that
               matter is further demonstrated by the fact that the parties’
               real estate was a gift to them from the Defendant’s
               parents.5

5Finding 33 is supported by the evidence, and Wife does not contend otherwise, but rather challenges
the conclusion of law regarding the percentages of ownership.

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                                    Opinion of the Court

                     ....

                    61. The Court finds the partnership interest of the
               Defendant on the date of separation was 50%.

Wife also challenges Findings 64 and 65, regarding Husband’s 50% partnership

interest and the basic math which results from applying a 50% interest to the values

determined.

      Findings of fact 26 and 27, which are not challenged, also addressed the income

tax returns and the partner’s percentages of interest on the returns. The tax returns

of the partnership were admitted as evidence, and as the finding states, the tax

returns showed Husband’s partnership interest as sixty percent. Despite repeatedly

filing tax returns “under penalty of perjury” which set forth a sixty percent interest

for Husband, Husband testified that the business was actually a fifty-fifty

partnership:

                     Q.     Mr. Blair, do you -- did you and your father
               have an agreement as to your percentage ownership of the
               partnership?       Were     you    fifty/fifty, forty/sixty,
               seventy/thirty? Was there an agreement about that?

                     A.     Yes.

                     Q.     What was the agreement?

                     A.     We were equal partners, fifty/fifty.

                      Q.    Can you explain to us why, as the tax returns
               will show over the years, you almost always took something
               more than fifty percent of the distributions of the

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                                  Opinion of the Court

             partnership’s profits?

                    A.     Yes. The whole, or main purpose, of our
             joining as a partnership was to help to provide for me a
             means of living and income to support a family, which I was
             beginning and already had children. Uh, in the early years,
             especially, there was not enough income, profit, to barely
             support one person, let alone two. And it was always the
             intent, uh, of--of us both that that was the primary purpose
             of the business was to provide a living for me, as well as he,
             uh, as it would provide. The, uh, the amounts through the
             years have always swayed in my favor, as far as the draws
             or pays or whatever you want to call them, uh, because I
             always took the larger percentage. I had a family to raise
             and needed more income. Uh, the -- as far as the tax
             returns and those percentages are shown, those were just
             what the tax people told us we needed to do, because I was
             taking the majority (inaudible), you know, I don’t know if
             we just kind of followed along with what we were told we
             should do.

      Although the tax returns are substantial evidence of the partnership

percentages, they are not dispositive in this context. The evidence is conflicting, but

the credibility and weight of the evidence, which includes the tax returns and

testimony, are evaluated by the trial court. See In re Whisnant, 71 N.C. App. 439,

441, 322 S.E.2d 434, 435 (1984) (“[W]hen a trial judge sits as both judge and juror, as

he or she does in a non-jury proceeding, it is that judge’s duty to weigh and consider

all competent evidence, and pass upon the credibility of the witnesses, the weight to

be given their testimony and the reasonable inferences to be drawn therefrom.”

(citation and quotation marks omitted)).

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                                   BLAIR V. BLAIR

                                   Opinion of the Court

      In Davis v. Davis, this Court addressed the sufficiency of the evidence in an

action seeking the dissolution of an alleged partnership. 58 N.C. App. 25, 26, 293
S.E.2d 268, 269 (1982). The defendant denied the existence of a partnership based

upon there being no written partnership agreement and his contention that the

parties “never had a meeting of the minds on a verbal partnership agreement.” Id.

at 27, 293 S.E.2d at 269 (quotation marks omitted). This Court noted the evidence

regarding the formation of a partnership, including the partnership tax returns filed

by the parties:

                    Plaintiff's evidence clearly shows that the parties
             discussed his coming into the business which led to their
             subsequent engagement together in business transactions.
             Plaintiff understood their oral agreement to provide that
             he would own 30% of the business, but William stated that
             the terms of their agreement were that initially he would
             get thirty percent of the net profits of the business after all
             expenses. In addition, there is evidence that William
             considered plaintiff as management because he could not
             trust an employee. The evidence that plaintiff received a
             share of the profits of the business therefore is prima facie
             evidence that he is a partner because there is no other
             evidence that the share of the profits paid to plaintiff was
             considered employee’s wages.
                    Further, the filing of a partnership tax return is
             significant evidence of the existence of a partnership.
             Under the State and Federal income tax laws, a business
             partnership return may only be filed on behalf of an
             enterprise entered to carry on a business. There is
             evidence in the present case that William prepared the tax
             return for the business indicating himself and plaintiff as
             co-owners. This constitutes a significant admission by
             William against his interest in denying the existence of a
             partnership.

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                                  BLAIR V. BLAIR

                                  Opinion of the Court

                   Although William testified that he and plaintiff
             never agreed on the terms of a partnership, the evidence of
             the acts and declarations of the parties was sufficient for
             the jury to infer that a partnership existed in which
             William and plaintiff were the owners in 70% and 30%
             shares. Thus, the trial judge did not err in denying
             defendants’ motions for directed verdict and for judgment
             notwithstanding the verdict.

Id. at 30–31, 293 S.E.2d at 271–72 (citations, quotation marks, and brackets omitted).

      Although Davis was a business dispute decided by a jury, it is instructive here

because this Court noted the evidence of the income tax returns was “a significant

admission by [the defendant] against interest” in denying the formation of a

partnership, and arguably, by extension, the returns would also be significant

evidence of the partners’ percentages of interest. Id. at 31, 293 S.E.2d at 272. But

the tax returns were not dispositive, because the jury had the option to accept either

the income tax returns as supporting the existence of a partnership or the defendant’s

testimony there was no partnership, despite the tax returns. See id. at 31-32, 293

S.E.2d at 272. In Davis, the jury ultimately found the tax returns and the plaintiff

more credible and decided there was a partnership in which plaintiff was a 30%

partner. See id. at 31, 293 S.E.2d at 272.

      Here, the trial court found Husband’s testimony that his interest in the

partnership was only 50% to be credible and rejected the evidence of the tax returns

based upon Husband’s testimony that the tax returns “just kind of followed along

with what we were told we should do” by “the tax people[.]”         “In an equitable

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                                         Opinion of the Court

distribution case, the trial court is the fact-finder. Fact-finders have a right to believe

all, none, or some of a witness’ testimony.” Zurosky v. Shaffer, 236 N.C. App. 219,

240, 763 S.E.2d 755, 768 (2014) (citations omitted). Wife’s argument on the trial

court’s determination that Husband’s partnership interest was 50% is overruled.

C.      Valuation of the Business

        Wife also challenges several findings of fact regarding the trial court’s

valuation of the business as of the date of separation. We first summarize the

relevant findings which are not challenged on appeal. The trial court found the value

of the business as of the date of marriage was $10,000, based upon the estimate of

the expert witness on valuation; there was no other evidence of value as of the date

on marriage presented, since Husband’s valuation was simply “more than” $10,000,

and Wife had only “a ‘guess[.]’” The trial court noted that the parties entered into a

consent order on 5 September 2012 appointing Betsy H. Fonvielle, CPA,6 as an expert

witness to conduct an appraisal of the Business.7 The trial court also noted Ms.

Fonvielle’s qualifications, accreditation, and experience as an expert witness in

6 The CPA’s name is spelled in different ways throughout in our record. The transcript notes it as
“Fonville” while the trial court spells it “Fonvielle.” Ms. Fonvielle’s own letterhead is spelled as the
trial court spelled it. We will use the trial court’s spelling in our opinion but some of our quotes will
use the “Fonville” spelling because that is how her name was spelled in that document.

7The consent order is not in our record, so the only information we have regarding the terms of Ms.
Fonvielle’s evaluation is from her report, some emails and letters, and her trial testimony.

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                                 Opinion of the Court

business evaluation.   Several findings, not challenged on appeal, addressed the

valuation process and methodology:

                    43.    Ms. Fonvielle used several factors in her
            valuation of the partnership on the date of marriage as
            follows:
                           a.     The tax records indicate the property
            initially placed in the partnership was one 14” shear listed
            as depreciable property placed in service as having a value
            of $1,200. Also listed was a Chevy truck placed in service
            having a value of $19,000 and used 80% as business
            purposes. Finally, listed was a 1991 Buick placed in service
            having a value of $10,000 and used for business purposes
            68%. The business depreciative value was $7400 for the
            1983 Chevy truck and $6800 for the 1991 Buick. The
            partnership listed no other assets. See Plaintiff’s Exhibit
            #7.
                           b.     The taxable income for Blair Auto and
            Machine for tax year 1994 was $20,434.00. The
            partnership sales were $46,747.00. Inventory was listed as
            zero as of January 1, 1994. See Plaintiff’s Exhibit #7.
                           c.     A special account was set up at First
            Union Bank in the name of Joe Blair and Everette Blair
            and showed a balance of $867.94 as of February, 1994. The
            statement indicates the previous balance was zero.
                           d.     The business did use some tools which
            had been accumulated previously by Joe Blair such as
            turning lathes, drill presses, grinders, hand tools, milling
            machine, and a cable crane. Some of these machines and
            tools are still used in the business.

                  ....

                   46.     Over the first three to six years of the
            partnership, the company increased its focus toward
            collecting scrap metal for recycling instead of equipment
            and car repair. It developed facilities to include a small
            office building, drive-on scales, grading a large area of its
            2.5 acres for storage and sorting metals.

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                     Opinion of the Court

      47.   The business purchased metal for recycling
from the public from 1994 until the parties’ separation.

      48.    The business also placed containers at
various plants, including local metal and fabricating
businesses, to recycle metal from their scrap. Sometimes
the business contracted to purchase the scrap from these
plants and sometimes the plants do not charge in an effort
to simply get rid of their scrap.

      49.    The Defendant’s business operations from the
formation of the partnership until the date of separation
were six days per week, having six working employees and
the business being opened to the public for sales, all of
which was intended to increase business profitability. The
Defendant reinvested heavily in equipment as displayed on
Exhibit G in Plaintiff’s Exhibit #1 referenced hereto and
incorporated hereby by reference.

        50.   The costs of equipment is listed Exhibit G
reflects as value of $613,541.00. The Court recognizes this
is not an estimate of the fair market value of the equipment
on that day; however, it does reflect the heavy
reinvestment undertaken by the partners up until date of
separation.

       51.    Upon entering into an engagement agreement
with the parties, Ms. Fonvielle gathered financial data
from the partnership tax returns including a list of assets
requested of documents reflecting liabilities of the
partnership, and bank statements of the partnership. She
undertook a site visit to the company, interviewed the
Defendant regarding the history of the operations and
profitability of the company, and she interviewed the
Plaintiff regarding the history of the operations and
profitability of the company.

      52.   Mrs. Fonvielle found some of the financial
information incomplete.    The balance sheets of the

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                           Opinion of the Court

      company did not balance. While requested, neither the
      Defendant nor the Plaintiff provided any documentation of
      the amount of inventory on the date of separation.
      However, both parties did provide estimates based upon
      their recollection during interviews and Court testimony.
      Mrs. Fonvielle did consider these amounts and compared
      the amounts to industry wide data in determining her
      estimate of value.

             53.    At the request of the Defendant, Ms. Fonvielle
      again valued the company as of· December 31, 2013. At
      that time she examined further tax records, journals of
      income and expenses, and bank statements of the
      company. She interviewed the Plaintiff and the Defendant
      regarding business operations and profitability since her
      first evaluation. Ms. Fonvielle did a similar comparison of
      the economic forecast, industry data, and regional
      competition as in her first analysis.

            54.    Ms. Fonvielle used three different accounting
      valuation methods in determining the value of the
      partnership for both points in time.

            55.   She used the Net Asset Approach, the
      Capitalized Earnings Approach, and the Direct Market
      Data Approach. An Asset valuation of the partnership was
      not performed. See Plaintiff’s Exhibit #1.

            56.    Ms. Fonvielle further discounted the
      business due to the partnership being a family owned
      business and its lack of liquidity by 10%.

             57.   Ms. Fonvielle did not discount or considered
      how accrued, but unpaid rent to Mr. and Mrs. Joe Blair by
      the partnership impacted the value of Blair by the
      partnership impacted the value of Blair Iron and Metal on
      either the date of separation value or December 13, 2013
      valuation date.

But Wife does challenge finding 58:

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                                  Opinion of the Court

                   58.    Ms. Fonvielle appraised the value of Blair
             Iron and Metal on the date of separation as Five Hundred
             Forty Thousand Dollars ($540,000.00) with Defendant’s
             50% interest in Blair Iron and Metal as being $270,000.00.
             Ms. Fonvielle’s appraisal was based on consideration of the
             three approaches to determining value: the net asset
             approach, the capitalized earnings approach, and the direct
             market data approach.

      Finding 58 first simply recites Ms. Fonvielle’s valuation as of the date of

separation as $540,000; it is not a finding of fact but only a recitation of evidence.

The trial court did not find the same value as Ms. Fonvielle but instead found a

different value in Finding 60, which Wife did not challenge: “Giving full weight to

2009 earnings and applying the result to the mathematical calculations shown in Ms.

Fonvielle’s report, the Court finds that the fair market value of Defendant’s interest

in Blair Iron and Metal as of the date of separation was $232,183.00.” The remainder

of Finding 58 also notes the valuation methods Ms. Fonvielle used; the evidence

shows that she did use these methods, although the trial court explained in

unchallenged Finding 59 why it did not agree with Ms. Fonvielle’s value in Finding

58:

                    59.    Ms. Fonvielle’s appraised values are
             overstated because in her capitalized earnings approach to
             value, Ms. Fonvielle completely disregarded Blair Iron and
             Metal’s unusually low earnings in 2009 while giving full
             weight to its unusually high earnings in 2008. The Court
             finds that if Blair Iron & Metal’s unusually high earnings
             in 2008 are given full weight, then its unusually low
             earnings in 2009 must also be given full weight in
             determining fair market value.

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                                   BLAIR V. BLAIR

                                  Opinion of the Court

      The trial court went on to make these unchallenged findings:

                   62.    The value of the partnership of Blair Iron and
             Metal on the date of separation was Four Hundred Sixty-
             four Thousand Three Hundred Sixty-seven Dollars
             ($464,367.00).

                   63.   The value of Defendant’s 50% interest in Blair
             Iron and Metal on the date of separation was Two Hundred
             Thirty-two Thousand One Hundred Eighty-three Dollars
             ($232,183.00).

      Wife also challenges other findings of fact regarding valuation, but those

findings again address the trial court’s determination, which we have already

addressed, that Husband had a 50% interest in the Business. This argument is

overruled.

D.    Classification of Appreciation during Marriage

      Wife contends the increase in the value of the Business during the marriage

was active and thus marital, so the trial court erred in characterizing one-half of the

increase in value since the date of marriage as passive appreciation, and thus

Husband’s separate property. Wife challenges Finding 66: “The increase in value

during the marriage of Defendant’s 50% interest in Blair Iron and Metal is composed

of active appreciation and passive appreciation.” Wife next notes several findings of

fact but does not argue they are unsupported by the evidence.           Instead, Wife

challenges the conclusions of law mixed into these “findings” as not supported by the

findings or the law; these findings are:

                                           - 20 -
                     BLAIR V. BLAIR

                     Opinion of the Court

       67.   The Court finds that not all of the increase in
Defendant’s interest in Blair Iron and Metal was
attributable to active appreciation due to Defendant’s
efforts. Defendant’s father worked in the business along
with Defendant. He contributed machinery and equipment
to the business. The business operated on property owned
by Defendant’s parents without having to pay any rent.
Defendant’s father made some of the equipment used in the
business. Furthermore, he used his expertise as a
mechanic to repair and maintain the equipment and
machinery used in the business, saving the business from
having to pay a third party for such repairs and
maintenance and/or purchase new machinery and
equipment. The active efforts of a third party, Defendant’s
father, contributed to the increase in the value of
Defendant’s interest in Blair Iron and Metal during the
marriage.

       68.    Market conditions also contributed to the
increase in the value of Defendant’s interest in Blair Iron
and Metal during the marriage. In early 1995 Blair Iron
and Metal was receiving approximately $3.50 per CW for
the scrap metals it sold. In late 2008 and early 2009, it was
receiving approximately $6.25 per CW. In 2011, the year
of the parties’ separation, it was receiving $16.00 and
$17.00 per CW for scrap metals. During the marriage the
price Blair Iron and Metal received for the scrap metal it
sold increased more than 450%. This is purely market-
driven appreciation in the price of Blair Iron and Metal’s
product that has nothing to do with Defendant’s efforts.

       69.   At least one-half (1/2) of the increase in the
value of Defendant’s interest in Blair Iron and Metal
during the marriage was attributable to factors other than
active appreciation due to Defendant’s efforts.

       70.   Fifty percent (50%) of the increase in value of
Blair Iron and Metal from the date of marriage, February
28, 1994, to the date of separation, August 31, 2011, was
due to the active appreciation in the business by the

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                                       BLAIR V. BLAIR

                                       Opinion of the Court

               martial efforts of the Plaintiff and Defendant, and Fifty
               percent (50%) of the increase in value of Blair Iron and
               Metal from the date of marriage, February 28, 1994, to the
               date of separation, August 31, 2011, was due to passive
               appreciation through efforts of Joe Blair and market
               conditions.

                      71.     The marital interest in Defendant’s interest
               in Blair Iron and Metal as of the date of separation was 1/2
               ($227,183.00) = $113,592.00.

       Husband initially acquired his interest in the Business from his father as a gift

just prior to the marriage, and the trial court valued the Business at $10,000 at that

time.8 During the marriage, Husband worked in the Business and it appreciated in

value. Wife contends that Husband failed to rebut the presumption that the increase

in the value of the Business during the marriage was marital property and challenges

the trial court’s allocation of appreciation during the marriage as half passive because

it wrongfully relied upon “the efforts of [Husband’s] father” and “market conditions[.]”

(Quotation marks omitted).

       Wife correctly notes that based upon the findings that the Business increased

in value during the marriage, there is a presumption that the appreciation is active

and therefore marital, and the burden of proof was on Husband to rebut that

presumption and show that the increase was passive:

                     When marital efforts actively increase the value of
               separate property, the increase in value is marital property

8   Husband acquired his interest in the business on 1 January 1994, although he did not quit his
other job and work with the business full-time until 11 February 1994. The parties were married on
28 February 1994.

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                                  BLAIR V. BLAIR

                                 Opinion of the Court

            and is subject to distribution. To demonstrate active
            appreciation of separate property, there must be a showing
            of the (1) value of asset at time of acquisition, (2) value of
            asset at date of separation, (3) difference between the two.
            Any increase is presumptively marital property unless it is
            shown to be the result of passive appreciation.
                   In light of the remedial nature of the statute
                   and the policies on which it is based, we
                   interpret its provision concerning the
                   classification of the increase in value of
                   separate property as referring only to passive
                   appreciation of separate property, such as
                   that due to inflation, and not to active
                   appreciation resulting from the contributions,
                   monetary or otherwise by one or both of the
                   spouses.
            In order for the court to value active appreciation of
            separate property and distribute the increase as marital
            property, the party seeking distribution of the property
            must offer credible evidence showing the amount and
            nature of the increase.

Conway v. Conway, 131 N.C. App. 609, 615–16, 508 S.E.2d 812, 817–18 (1998)

(emphasis added) (citations and quotation marks omitted).

      Wife argues that Husband’s father’s work in the Business should not be

considered as passive appreciation since he is a partner, but appreciation from

contributions by a business partner of a spouse can be considered as passive

appreciation. See generally Lawing v. Lawing, 81 N.C. App. 159, 344 S.E.2d 100

(1986). In Lawing, the defendant-husband owed 48% of the shares in a corporation,

“Lawings, Inc. (‘LINC’),” while the plaintiff-wife owned 6%, and husband’s brother

owned the remaining shares. 81 N.C. App. at 161, 344 S.E.2d at 103. Some of the

                                        - 23 -
                                  BLAIR V. BLAIR

                                  Opinion of the Court

husband’s shares were inherited from his father and were his separate property. See

id. at 174, 344 S.E.2d at 110. LINC increased in value substantially during the

marriage.    See id. The plaintiff-wife argued on appeal the trial court erred by

treating all of the appreciation in the husband’s separate shares of LINC as his

separate property, and this Court agreed:

                    This Court has recently addressed questions of this
             type in applying G.S. 50–20(b)(2), under which inherited
             property is separate property and increases in value of
             separate property are also separate property. In each case
             we have held that increases in value remained separate
             property only to the extent that the increases were passive,
             as opposed to active appreciation resulting from the
             contributions of the parties during the marriage. McLeod
             v. McLeod, supra; Phillips v. Phillips, supra; Wade v. Wade,
             supra. . . . . [W]e hold that the Wade-Phillips-McLeod rule
             applies here.

Id. at 174-75, 344 S.E.2d at 110. Here the trial court used the approach in Lawing to

value the appreciation during the marriage. See id. But Wife contends that the

evidence was not sufficient to support the trial court’s determination that half of the

appreciation was active and half was passive, so the presumption the increase was

marital should apply.

      However, Lawing specifically approved consideration of the efforts of a third

party who is active in the business as a factor in the passive appreciation in value

during the marriage:

             Plaintiff urges that we apply McLeod and Phillips to the
             entire appreciation in value. She relies on her evidence

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                     BLAIR V. BLAIR

                     Opinion of the Court

that she and defendant ran the corporation, defendant’s
statements that Plato did not have a real share in business
decisions, and defendant’s dominance in handling business
finances. She contends that this total control by the parties
means the entire appreciation should have been designated
marital property. Plato testified however that he had an
equal share in running the business, and defendant’s later
statements agree with Plato. On this record the court could
properly find that some part of the appreciation in value
was due to the efforts of Plato Lawing. For the purposes of
evaluating the contributions to the marital economy for
equitable distribution, we see no difference between
“passive” increases in separate property (interest,
inflation) and “active” increases brought about by the labor
of third parties for whom neither spouse has responsibility.
The court therefore correctly rejected plaintiff’s contention
that she was entitled to marital treatment of the entire
increase in value of the inherited stock.
       Nevertheless it would be contrary to the spirit of the
Equitable Distribution Act and our decisions in McLeod
and Phillips to hold that simply because a third party
worked with plaintiff and defendant in a closely-held
corporation, all increase in value automatically is
exempted from treatment as marital property. Although
the owner of separate shares was treated as the sole owner
in Phillips, the presence of some minimal (2%) third party
involvement did not preclude treatment of corporate
appreciation during the marriage as marital property.
Other states have generally recognized “active”
appreciation of fractional interests in corporations as
marital property, even though the underlying shareholder
interest was separate property.
       Here the entire appreciation in value of the
inherited shares was clearly identified for the trial court.
The portion of the appreciation attributable to the active
efforts of the parties was property “acquired” during the
marriage. It therefore was presumably marital in nature.
The only evidence regarding the appreciation was that
sketchy evidence discussed above: that evidence did not
rebut the presumption of marital property, but only

                            - 25 -
                                   BLAIR V. BLAIR

                                   Opinion of the Court

             plaintiff’s claim to the entire appreciation.
                    We therefore hold that the court erred in ruling that
             the entire appreciation in value of these separate shares
             was separate property. We remand for a determination of
             the proportion of the appreciation that may properly be
             classified as marital property. The court should make
             findings as to the value of the shares at the time of the
             inheritance and as of the date of valuation. It then should
             determine what proportion of that increase was due to
             funds, talent or labor that were contributed by the marital
             community, as opposed to passive increases due to interest
             and rising land value of land owned at inheritance, and the
             efforts of Plato. We recognize that we cannot require
             mathematical precision in making this determination.
             Nevertheless, the trial court must make a reasoned
             valuation, identifying to the extent possible the factors it
             considered.

Id. at 175-76, 344 S.E.2d at 111–12 (citations and headings omitted).

      Here, the trial court followed exactly the process directed by Lawing. See

generally id. The trial court’s findings show it made a “reasoned valuation” of the

contribution of Husband’s father to the appreciation in the Business. Id. at 176, 344

S.E.2d at 112. The law “cannot require mathematical precision in making” the

allocation of passive and active appreciation during the marriage, but it is sufficient

for the trial court to “make a reasoned valuation, identifying to the extent possible

the factors it considered.” Id. Specifically, the trial court noted that Joe started the

business, which was operated on Joe’s land. Joe had a “reputation in the community

of being able to ‘fix’ or ‘make’ anything relating to machines, machinery, automobiles,

engines, and/or motors.” In addition, the trial court found

                                          - 26 -
                                  BLAIR V. BLAIR

                                  Opinion of the Court

             Defendant’s father worked in the business along with
             Defendant. He contributed machinery and equipment to
             the business. The business operated on property owned by
             Defendant’s parents without having to pay any rent.
             Defendant’s father made some of the equipment used in the
             business. Furthermore, he used his expertise as a
             mechanic to repair and maintain the equipment and
             machinery used in the business, saving the business from
             having to pay a third party for such repairs and
             maintenance and/or purchase new machinery and
             equipment.

The trial court did not err in concluding that “[t]he active efforts of a third party,

Defendant’s father, contributed to the increase in the value of Defendant’s interest in

Blair Iron and Metal during the marriage.”

      Wife also argues the trial court erred in considering changes in market

conditions as a cause of the passive appreciation. Wife claims that although market

conditions can be a proper consideration, “defendant merely offered that the rate of

compensation for certain scrap materials had changed. The impact of these changes

on the value of the business was never explained.” (Citation omitted). Wife then

notes that other factors could also contribute to appreciation, such as Husband’s

decision to switch the focus of the Business to scrap metal and the types of scrap

metal he obtained.

      We have reviewed the trial testimony regarding the Business, the change to a

scrap metal business from auto repair, changes in the prices and markets for scrap

metal, and the expert valuation of the Business, and Husband offered sufficient

                                         - 27 -
                                            BLAIR V. BLAIR

                                            Opinion of the Court

evidence for the trial court to consider market conditions. Again, the law does not

“require mathematical precision” in determining exactly how much the changes in

market conditions contributed to the increase in value of the Business. Id. The trial

court was well within its discretion to consider the evidence of changes in market

conditions as contributing to the passive appreciation in the business during the

marriage.

E.      Post-Separation Distributions to Husband

        Wife’s remaining issues challenge the trial court’s findings of fact and

conclusions of law regarding post-separation distributions from the Business to

Husband.9 In finding 77, the trial court found distributions from the Business to each

partner for these years:

     Year:                               Husband’s distributions:           Joe’s distributions

     2009                                82,100

     2010                                87,950

     2011                                111,226                            174,220

     2012                                65,300                             31,700

     2013                                39,900                             81,000

        9    These issues are separated into Issues I, II and VI in Wife’s brief.

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                                    BLAIR V. BLAIR

                                    Opinion of the Court

Wife challenges these findings:

                      76.    As of the date of separation, Joe Blair was 72
               years of age and in declining health. He can no longer
               handle the physical labor portion of the business. He has
               had bypass surgery and spinal degeneration, among other
               health problems. Many times he uses a wheelchair. He still
               works and does as much as he can to help with his former
               job duties. As a result, the equipment necessary to the
               company’s operations declined. Competition in the scrap
               metal business increased, with some of Blair Iron and
               Metal’s competitors being bought by conglomerates. Blair
               Iron and Metal could no longer compete on price to
               purchase scrap metal from the public, and came to rely
               solely on its industrial and commercial customers as
               sources of scrap metal. It lost some of those customers as
               well. Blair Iron and Metal’s location on a rural road, as
               opposed to its main competitors being located on U.S.
               Highway 321, a major highway, also contributed to its
               inability to compete in purchasing scrap metal from the
               public. In addition, after the date of separation the market
               price of scrap metal declined from $16.00 and $17.00 per
               CW to $13.50 per CW.

                     ....

                      78.    The post separation withdrawals were
               compensation for Defendant’s active management efforts of
               Blair Iron and Metal and other daily management services
               and are the Defendant’s separate property, not divisible
               property.

      Wife argues that “[a]t best, the funds distributed after the date of separation

would only partially represent salary for [Husband]; a portion would be a return on

investment.”     Because one-half of Husband’s share of the Business is martial

                                           - 29 -
                                   BLAIR V. BLAIR

                                   Opinion of the Court

property, the same percentage of distributions after the date of separation

representing the partnership’s return on investment would be divisible property. See

N.C. Gen. Stat. § 50-20(b)(4)(c) (2015) (defining divisible property as “[p]assive

income from marital property received after the date of separation, including, but not

limited to, interest and dividends.”).

      Wife notes that Ms. Fonvielle presented evidence regarding the nature of the

post-separation distributions to Husband:

                    Q. All right. Well, let’s go through it then. How
             would you characterize it, Ms. Fonville, as far as their
             distributions ---- . . . . compared to the revenue of the
             company?
                    ....

                   A.     Um, well, the – the distributions are
             substantial, uh, but, you know, the business is making
             money. It’s more than, uh, a salary that they would be paid
             for the work they did, but then they’ve invested in the
             company, so some of it’s, um paying them for their efforts
             and some of it[’]s return on their investment in the
             company.

                    ....

                    THE COURT:          Could you repeat that? You said
             some of the – you – when looking at the distributions on
             page 15, that some of the distribution portion, you’re saying
             you’re – they – you’re looking at that significant, yes, but
             they were paying it some as salary, some as a – as a return
             on their investment? Is that how you characterized the
             distributions? Is that what you were ----

                    THE WITNESS: I-I – well, as a partnership,
             they’re not allowed to pay themselves a wage, so.

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                                  BLAIR V. BLAIR

                                 Opinion of the Court

                   THE COURT:          Correct.

                   THE WITNESS: So nothing shows up on the
             return, but obviously ----

                   THE COURT:          Correct.

                  THE WITNESS:         ---- they would want to receive
             compensation.

                   THE COURT:          Okay.

                   THE WITNESS: So the total distribution, some of
             that would account for, um ----

                   THE COURT:          A so-called salary.

                   THE WITNESS: ---- a so-called salary.

                   THE COURT:          Okay.

                   THE WITNESS:        And then the rest would be
             return on investment.

      Husband’s only response to Wife’s argument regarding post-separation

distributions is that she waived this issue by not raising it before the trial court

because it was not listed in the pretrial order. Husband argues “[t]he only issue of

post-separation partnership income that she claimed as divisible property was rental

income from the parties’ rental property. (R p 106)[.]” Husband contends that Wife

cannot raise this issue on appeal because she “stipulated in the pre-trial order that

there were no issues to be determined by the Court other than those listed, thereby

                                        - 31 -
                                   BLAIR V. BLAIR

                                   Opinion of the Court

effectively stipulating that there was no issue for the trial court to determine with

regard to post-separation distributions.”

      We first note that the pre-trial order makes little mention of the Business or

any related issues. And even if we assume for purposes of Husband’s argument that

Wife could have waived this issue by failing to list it in a pretrial order, Husband’s

reliance upon the pretrial order here is inexplicable. This trial started with no

pretrial order and all of the substantive evidence regarding the Business was

presented before the pretrial order was entered. The first three days of the trial were

in 2014 and evidence regarding the Business was presented on these dates. On the

third day of the trial, 9 December 2014, the trial court realized that there was no

pretrial order in the file and admonished the parties for the lack of a pretrial order:

                    THE COURT:          And the other thing, I-I need to
             verify. There is no pretrial order in this file.

                    MR. JENNINGS: That is correct ----

                    THE COURT:           So ----

                    MR. JENNINGS: ---- and I discussed that with you
             before we, um, before we started the ----

                    THE COURT:         And I understand about the
             business, but there’s not anything with any of the other
             assets, but there is no reason that there’s not a pretrial
             order in this file.

                    MR. JENNINGS: And ----

                    THE COURT:           That needs to get done, because

                                          - 32 -
                     BLAIR V. BLAIR

                     Opinion of the Court

I’m not hearing anything on any blender pop pan car or any
other item on any affidavit without a pretrial order.

      MR. JENNINGS:        Okay.

      THE COURT:           Okay?

      MR. JENNINGS: Yes, ma’am.

      THE COURT:            I understand the business,
because both of them listed it as unknown. I’ve got that.
But I should still have a pretrial order with regards to all
other assets and any other debts that they contend, and
that needs to get done ----

      MR. JENNINGS: We did ----

      THE COURT: ---- because it’s been ordered to be
done moons ago.

      MR. JENNINGS: Excuse me. I understand.

      THE COURT:           I must have missed it, because
otherwise I would probably already dismissed the case for
non-compliance with the Court’s orders, but I’m in it now
and I hadn’t done it. But, I want a pretrial order ----

      MR. JENNINGS: Yes, ma’am.

      THE COURT:       ---- with every other item
other than this business that’s in contention.

       MR. JENNINGS: If I’m not mistaken, we did that
before we started classification as far as put together a
pretrial order ----

      THE COURT:           Okay.

     MR. JENNINGS: ---- and had it available for Mr.
Lackey. Um, he doesn’t have it and Mr. Lackey and I, um,

                            - 33 -
                                  BLAIR V. BLAIR

                                  Opinion of the Court

             I don’t know if you remember this, but I do because I know
             that I thought it was a real important point and I stuck it
             up there in the brain, uh, but, for whatever reason, I think
             we were ready, but you were saying that we were ready to
             go on this classification issue ----

                    THE COURT:          Yes.

                   MR. JENNINGS: ---- (inaudible) let’s get going
             (inaudible).

                  THE COURT:            Well, that was because that - I
             mean ----

                    MR. JENNINGS: And I understand.

                    THE COURT:          ---- it needed to be done.

                   MR. JENNINGS: I hear you and I’ll have - what
             I’m saying is that work’s been done on my part.

                    THE COURT:          Okay.

                    MR. JENNINGS: And I’ll get with Mr. Lackey and
             we’ll shore up what we need to.

(Emphasis added). The pretrial order was actually entered on 24 August 2015, prior

to beginning the two days of the trial in 2015. During these two days, evidence

regarding personal property was presented—not the substantive evidence about the

Business or post-separation distributions from the Business. The pretrial order was

in compliance with the trial court’s instructions above: it addressed “every other item

other than this business that’s in contention.” Husband cannot rely upon waiver

where the pretrial order was entered after presentation of all of the evidence on the

                                         - 34 -
                                   BLAIR V. BLAIR

                                   Opinion of the Court

Business, including distributions from the Business to the partners, and where the

trial court directed that the pretrial order was to address only the items in contention

other than the Business.

      Thus turning back to Wife’s argument, she contends the trial court erred by

classifying all of the post-separation distributions as Husband’s separate property

because these payments are at least in part return on investment. Wife may be

correct. In Montague v. Montague, the husband and wife formed a limited liability

company to own and operate a commercial building. 238 N.C. App. 61, 64, 767 S.E.2d
71, 74 (2014).   The trial court treated two post-separation distributions to the

Husband as his separate property, characterizing them as “management fees” for his

active management of the commercial building; this Court reversed and remanded:

                    Wife contends that the trial court erred in treating
             two post-separation distributions made to Husband by the
             LLC as his separate property by characterizing these
             distributions as “management fees” he earned for
             managing the Montague Center after the parties
             separated.     Specifically, the trial court treated as
             Husband’s separate property a $5,010.00 distribution
             made to him in 2009 and a $26,200.00 distribution made to
             him in 2010. The key finding in the judgment with regard
             to these distributions states as follows:

                    48. [Husband] actively manages the
                    commercial property (negotiates all leases,
                    collects rent payments, arranges for any “fit-
                    up” required for a tenant, handles
                    maintenance calls, does the landscaping,
                    touch-up painting) and has done so since prior
                    to the parties’ separation. Plaintiff pays

                                          - 35 -
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                     Opinion of the Court

      himself a management fee for this work in the
      form of a distribution.

       We agree with Wife that our holding in Hill v. Hill,
___ N.C. App. ___, 748 S.E.2d 352 (2013), compels us to
conclude that the trial court should have classified these
distributions as divisible property rather than treating
them as Husband’s separate property. As divisible
property, they must be distributed by the trial court.
Accordingly, we reverse the trial court’s classification of
these distributions and remand the matter, directing the
trial court to reclassify these distributions as divisible
property and to make a distribution of this property.
       In Hill, the parties set up a Subchapter S
corporation as a vehicle for the wife’s speech pathology
practice. The corporate tax returns showed that the wife
took money from her practice in two ways: (1) in the form
of a low salary; and (2) in the form of shareholder
distributions. Evidence was presented that she took
shareholder distributions for the purpose of avoiding
federal taxes for Social Security and Medicare. The trial
court re-characterized the post-separation shareholder
distributions to the wife as salary that she earned and,
therefore, classified them as her separate property. On
appeal, however, our Court reversed, stating that the
parties are bound by their established methods of
operating the corporation. Our Court essentially
determined that since the parties elected to treat a portion
of the money paid to the wife as shareholder distributions,
rather than treating it as salary expenses of the
corporation, these funds were part of the retained earnings
of the corporation. Our Court then held that since the
retained earnings of a Subchapter S corporation, upon
distribution to shareholders, are marital property, the wife
was bound by the treatment of these shareholder
distributions to her as divisible property.
       In the present case, the LLC is taxed as a
partnership. The two distributions to Husband at issue
here are treated on the LLC’s 2009 and 2010 federal tax
returns as withdrawals of partnership capital, and not as

                            - 36 -
                                  BLAIR V. BLAIR

                                  Opinion of the Court

            expenses of the partnership for property management
            services. Therefore, these distributions were part of the
            capital of the LLC and, therefore, belonged to the LLC. Had
            the distributions been treated as “management fees” on the
            federal tax returns, they would have been LLC expenses,
            which would have reduced the LLC’s net income for 2009
            and 2010 by $31,210.00, which potentially would have
            reduced Wife’s personal tax liability.
                   We note that Husband may have, in fact, earned
            these distributions as management fees; however, we are
            compelled by Hill to conclude that Husband, being the
            majority owner and a manager of the LLC, is “bound” by
            the manner in which these post-separation distributions to
            him were characterized on the LLC tax returns.
            Accordingly, we strike the trial court’s finding that
            Husband was paid for his efforts in managing the LLC,
            reverse the portion of the judgment treating the post-
            separation distributions from the LLC to Husband as his
            separate property, and remand the matter to the trial court
            to classify them as divisible property and to distribute this
            property.

Montague, 238 N.C. App. at 64–66, 767 S.E.2d at 74–75 (citations, quotation marks,

and brackets omitted).

      Here, this Business is a partnership, and is required to file Form 1065, the U.S.

Return of Partnership Income.      Form 1065 is filed annually with the Internal

Revenue Service for informational purposes only, in that any profits or losses are

“passed through” to the general partners for taxation. A Schedule K-1 for each

partner is filed with the 1065 to report the partners’ shares of any income, losses,

deductions, credits, and other relevant information.         The partners use the

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                                  BLAIR V. BLAIR

                                  Opinion of the Court

information provided on the Schedule K-1 to prepare their individual income tax

returns.

      In the present case, the Business partnership returns for years 2009-2013,

with accompanying Schedule K-1s, were introduced into evidence as Plaintiff’s

Exhibits 24-28. Partnership distributions to Husband and his father were

characterized on the returns as follows:

                  Self-Employment Earnings               Capital Distributions
                  K-1, Line 1 or 14(A)                   K-1, Line 19
Exhibit Year      Husband          Joe                   Husband        Joe

#24        2009    29,328.00        19,552.00            0             0
#25        2010    93,939.00        62,626.00            0             0
#26        2011   209,180.00       139,453.00            0             0
#27        2012    40,012.00        26,675.00            0             0
#28        2013    47,204.00        31,469.00            0             0

In addition, the returns reflect that no withdrawals or distributions were made from

either Husband’s or Joe’s capital accounts.

      The trial court found the Business made distributions to the Business partners

that varied substantially from the figures reflected on the Business partnership

returns for these years. These figures were taken from Exhibit #5, the Blair Iron and

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                                         BLAIR V. BLAIR

                                         Opinion of the Court

Metal Valuation as of December 31, 2013, prepared by Ms. Fonvielle.10 It is unclear

from the Valuation whether the distributions are income to Husband and Joe, return

of capital, or of another nature. However, the trial court found that the distributions

were income, and thus Husband’s separate property.

       In accord with Hill and Montague, the parties are bound by the

characterization of the distributions on the income tax returns. See Montague, 238

N.C. App. at 64-66, 767 S.E.2d at 74-75. While it is clear that a considerable portion

of the post-separation distributions to Husband was self-employment income on

which Husband was liable for income and self-employment taxes, the remaining

distributions may or may not be a return of capital. Post-separation self-employment

income would properly be classified as Husband’s separate property, and a post-

separation return of capital to Husband would be properly classified as divisible

property which should be distributed by the court. Accordingly, we vacate the trial

court’s classification of the post-separation distributions to Husband as his separate

property and remand for entry of an order classifying the distributions in accord with

the nature of the distributions, with due regard for the classification of the

distributions on the Business’s partnership returns, and distributing them properly.

                                         IV.     Conclusion

10 As mentioned above, we do not have the consent order setting out the scope of Ms. Fonvielle’s
evaluation; we are assuming based upon the testimony that the main purpose of Ms. Fonvielle’s
evaluation was to value the Business and not necessarily to assist the trial court in the classification
of the post-separation distributions to the partners.

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                                          BLAIR V. BLAIR

                                          Opinion of the Court

        We affirm the trial court’s classification and valuation of the Husband’s

interest in a partnership with his father, but reverse the classification and

distribution of the post-separation distributions from the partnership to Husband.

We remand for entry of additional findings concerning the nature of the post-

separation distributions to Husband and the proper classification, valuation, and, if

appropriate, distribution of this property. In addition, the trial court may revise the

overall distribution of the marital and divisible property as needed to equalize the

distribution in response to any changes in classification and valuation.11 On remand,

the trial court may in its sole discretion hold a hearing and receive additional

evidence as needed to address the issues on remand.

        AFFIRMED in part; REVERSED in part; REMANDED.

        Judges ZACHARY and ARROWOOD concur.

        11 The distribution of marital and divisible property on remand shall remain equal, since the
trial court found in the order on appeal that “[n]either party contended in the pre-trial order that other
than an equal division of marital and divisible property is equitable, nor did either party produce
evidence at trial to overcome the presumption that an equal division of marital and divisible property
is equitable” and concluded that an equal distribution of marital and divisible property is equitable.
Appellant has challenged this finding or conclusion on appeal.

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