Court Opinion

ID: 4301472
Source: CourtListenerOpinion
Date Created: 2018-08-07 12:08:02.141757+00
Date Added: 2024-06-11T14:28:51.227687
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                   No. COA17-1189

                                 Filed: 7 August 2018

Mecklenburg County, No. 13 CVD 11484

MICHAEL M. BERENS, Plaintiff,

              v.

MELISSA C. BERENS, Defendant.

        Appeal by defendant from judgment entered 13 April 2017 by Judge Matt J.

Osman in Mecklenburg County District Court. Heard in the Court of Appeals 17 May

2018.

        James, McElroy & Diehl, P.A., by Gina Graham Morris and Caroline T.
        Mitchell, for plaintiff-appellee.

        Wyrick Robbins Yates & Ponton LLP, by Michelle D. Connell, for defendant-
        appellant.

        DIETZ, Judge.

        The central issue in this appeal is how trial courts in equitable distribution

proceedings should classify money in a 529 Savings Plan created and funded during

the marriage. These investment programs permit parents to set aside money for their

children’s college expenses under tax-favorable conditions.

        Defendant Melissa Berens argues that contributions to a 529 Savings Plan are

gifts to the parties’ children and thus are not marital property. Alternatively, Ms.

Berens asks this Court as a policy matter to “carve 529 plans out of the marital estate”
                                 BERENS V. BERENS

                                  Opinion of the Court

through a court-created rule that treats this property differently from other marital

assets.

      As explained below, we reject Ms. Berens’s arguments. The beneficiaries of 529

Savings Plans do not have any ownership or control of the funds; the plan participants

can choose not to spend the money on their child’s education and (after paying a

penalty) spend the money on something else entirely. Thus, contributions to 529

Savings Plans cannot be gifts under property law. Moreover, this Court lacks the

authority to create a “carve out” for 529 Savings Plans in the definition of marital

property. Equitable distribution is a creature of statute and that change must come,

if at all, from the General Assembly. In the meantime, trial courts can and should

consider the intended purpose of these marital funds when determining an

appropriate equitable distribution.

      Ms. Berens also challenges the sufficiency of the trial court’s findings of fact.

As explained below, one the court’s findings is insufficient under our case law and we

therefore vacate and remand the court’s order in part. On remand, the trial court, in

its discretion, may enter a new order based on the existing record or may conduct any

further proceedings that the court deems necessary.

                          Facts and Procedural History

      After more than twenty years of marriage, Michael Berens and Melissa Berens

separated in July 2012 and divorced in December 2014. Both parties hold engineering

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                                   Opinion of the Court

degrees. Mr. Berens is employed and earns more than $300,000 per year. Ms. Berens

is a stay-at-home mom.

        The parties have six children and, during the marriage, created 529 Savings

Plans for several of the children. They funded those 529 Savings Plans with money

Mr. Berens earned during the marriage. The parties designated Ms. Berens as the

plan participant and owner of the 529 Savings Plan accounts.

        In June 2013, Mr. Berens filed a complaint for equitable distribution. After a

hearing in mid-November 2016, the trial court entered an equitable distribution order

in April 2017. The court determined that an unequal division of the property was

equitable and distributed approximately 57% of the marital estate to Ms. Berens,

including the marital home and the 529 Savings Plans. Ms. Berens timely appealed.

                                       Analysis

   I.      Classification of 529 Savings Plans

        The primary issue in this appeal is, somewhat surprisingly, a question of first

impression: in an equitable distribution proceeding, how should courts classify funds

held in a 529 Savings Plan that a married couple created during the marriage for

their child’s educational expenses?

        A 529 Savings Plan gets its name from Section 529 of the Internal Revenue

Code, which permits states to establish “qualified tuition programs.” 26 U.S.C. § 529.

As relevant here, our State’s 529 Savings Plan program permits parents to save

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                                   Opinion of the Court

money under tax-favorable conditions to later be used for their children’s higher

education expenses. See North Carolina’s National College Savings Program,

Program Description (Jan. 23, 2017), 5, 24.

      The issue in this appeal is whether funds that the parties contributed to

several 529 Savings Plans during the marriage are marital property. In an equitable

distribution proceeding, the trial court must classify the parties’ property into one of

three categories—marital, divisible, or separate—and then distribute the parties’

marital and divisible property. N.C. Gen. Stat. § 50-20. The statute defines marital

property as “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.” Id. § 50-20(b)(1). Property that was acquired but then given away to some

third party during the marriage—including a gift to the married couple’s minor

children—is not subject to equitable distribution. See Lawrence v. Lawrence, 100 N.C.

App. 1, 16, 394 S.E.2d 267, 274 (1990).

      Ms. Berens contends that the money contributed to the parties’ 529 Savings

Plans were gifts to the children listed as the plan beneficiaries. Thus, she argues, “the

accounts fall outside the marital estate and the trial court did not have subject-matter

jurisdiction to distribute them.” We disagree.

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       “In order to constitute a valid gift, there must be present two essential

elements: 1) donative intent; and 2) actual or constructive delivery.” Courts v. Annie

Penn Mem’l Hosp., Inc., 111 N.C. App. 134, 138, 431 S.E.2d 864, 866 (1993). “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.” Id.

       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. Id.

       They did not. As Ms. Berens conceded at oral argument, her children have no

ownership rights in the money in the 529 Savings Plans. Our State’s 529 Savings

Plan criteria state that the plan participants “retain[] ownership of and control over

the Account” and their children, as the account beneficiaries, have “no control over

any of the Account assets.” Program Description, at 12. Moreover, parents are under

no obligation to spend the money in a 529 Savings Plan on the educational expenses

of the children listed as the plan beneficiaries. For example, a family with four 529

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                                         Opinion of the Court

Savings Plans, one for each of their four children, could later choose to use all the

money for a single child with particularly high college expenses. Or those same

parents could withdraw all the money, pay a tax penalty, and buy a vacation home.

Whether these are wise decisions, or ones that parents likely would make, is

irrelevant—parents could do so if they wanted, and this is proof that 529 Savings

Plan contributions are not gifts to the plan beneficiaries. See Courts, 111 N.C. App.

at 138, 431 S.E.2d at 866.1 Thus, absent some additional actions by the parents to

restrict the use of the 529 Savings Plan funds, those funds are solely the property of

the parents.

       Because the parties owned the funds in the 529 Savings Plans, the trial court

properly treated those funds as marital property. Indeed, the trial court had no

choice—the parties concede that the 529 Savings Plan accounts consist of money

acquired by the parties during the marriage and, as explained above, the parties, not

their children, own the money in those accounts. Thus, the equitable distribution

statute required the trial court to classify those funds as marital property. N.C. Gen.

Stat. § 50-20(b)(1).

       1   Ms. Berens also argues that “529 plans are constructive trusts held for the benefit of the
children” and thus are not marital property. But the cases on which she relies are inapposite; they
involve situations in which the children hold title to property and the court wrests title from them by
imposition of a constructive trust in order to accomplish an equitable distribution of marital property.
See, e.g., Sharp v. Sharp, 133 N.C. App. 125, 128, 514 S.E.2d 312, 314, rev’d on other grounds, 351
N.C. 37, 519 S.E.2d 523 (1999). Here, by contrast, the parents, not the children, hold title to the
property.

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                                   Opinion of the Court

      Ms. Berens also argues, compellingly, that classifying a 529 Savings Plan as

marital property could have negative policy consequences—most obviously, the risk

that the spouse who receives the 529 Savings Plans through equitable distribution

might be forced to use those funds for purposes other than the children’s educational

expenses. She contends that “[i]f it is in the public interest to promote education, then

529 accounts must be removed and protected from the unrelated, fragile contract of

marriage.”

      But the courts are the wrong forum to make this policy argument. Equitable

distribution is a creature of statutory law that acts as an alternative to the common

law claims and rights that otherwise would govern the parties’ ownership of their

property following a divorce. Lamb v. Lamb, 92 N.C. App. 680, 685, 375 S.E.2d 685,

688 (1989). As a result, this Court has no authority to do as Ms. Berens requests and

“carve 529 plans out of the marital estate for the benefit of the children prior to

distribution of property and debts.” It is for the General Assembly, not this Court, to

define by statute what property is classified as marital and subject to equitable

distribution under this statutory scheme.

      In any event, the courts are far from powerless to address these policy

concerns. After classifying the parties’ property according to law, trial courts have

broad discretion to distribute marital property in an equitable manner. Petty v. Petty,

199 N.C. App. 192, 197, 680 S.E.2d 894, 897–98 (2009). Trial courts can, and should,

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use this discretion to minimize the risk that one spouse is forced to use marital assets

in a 529 Savings Plan for purposes other than the intended beneficiary’s educational

expenses.2 But in classifying property, courts must adhere to the requirements of the

equitable distribution statute. The trial court properly did so in this case when it

classified the parties’ 529 Savings Plans as marital property.

   II.       Trial Court’s Findings of Fact

         Ms. Berens also argues that the trial court’s findings of facts are insufficient to

support the court’s judgment. As explained below, we agree that one of the trial

court’s findings is infirm and we remand for the court to address this issue.

         The equitable distribution statute permits trial courts to order an unequal

division of the parties’ marital property, provided that the court considers the

relevant statutory factors. Peltzer v. Peltzer, 222 N.C. App. 784, 788, 732 S.E.2d 357,

360 (2012). Those factors are enumerated in N.C. Gen. Stat. § 50-20(c).

         When the court orders an unequal division based on these statutory factors,

“the trial court must make findings as to each factor for which evidence was

presented.” Rosario v. Rosario, 139 N.C. App. 258, 261, 533 S.E.2d 274, 276 (2000).

         2Ms. Berens also argues that classifying a 529 Savings Plan as marital property could be
unjust when third parties such as grandparents contributed to the plan as well. Those third-party
contributions, which would be gifts under property law, might impose separate obligations on the use
of the plan funds by the parent. But Ms. Berens concedes that all of the funds in the 529 Savings Plans
in this case came from the parties’ marital assets and, thus, we need not address that question here.

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                                    Opinion of the Court

Most disputes over the Section 50-20(c) factors concern how specific the court must

be in those findings. Id. (collecting cases).

       This case presents a different issue. In its order, the court addressed each of

the twelve statutory factors individually. For the first factor—the income, property,

and liabilities of each party—the court stated that it “declines to make any findings

of fact as there is no evidence to support this distributional factor”:

          139. (1)   The income, property, and liabilities of each party at the
                     time the division of the property is to become effective.

              a.     The Court has considered this factor and declines to
                     make any findings of fact as there is no evidence to
                     support this distributional factor.

       Ms. Berens argues that this finding is plainly wrong because she presented

evidence that she currently had no income and Mr. Berens earned more than

$300,000 per year. Ms. Berens contends that, regardless of whether this evidence was

sufficient to compel an unequal (in this case, a more unequal) division, it was

certainly relevant and thus the trial court erred by finding that there was “no

evidence to support this distributional factor.”

       In his appellee brief, Mr. Berens responds that “[w]hile there may have been

evidence presented at trial that could have supported this factor being a

distributional factor, as the trial court did not find that evidence persuasive, the trial

court was not required to list all evidence considered.”

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                                   Opinion of the Court

      Mr. Berens’s response is a strawman. The flaw in the court’s findings is not the

failure to list all potentially relevant evidence—which is not required—but instead

the court’s statement that there was no evidence to support this factor when, in fact,

there was.

      To be sure, by stating that there was “no evidence to support this distributional

factor” the trial court might have meant that it considered the parties’ evidence but

afforded little or no weight to it. Peltzer, 222 N.C. App. at 788, 732 S.E.2d at 360. But

that is not what the court’s finding states. We therefore vacate in part and remand

the court’s order for new findings on this statutory factor. Ms. Berens also argues that

the court failed to make sufficient findings concerning several other statutory factors,

but our review of the court’s order and the record satisfies us that the court’s findings

on those factors as sufficient and we affirm those findings. Rosario, 139 N.C. App. at

262, 533 S.E.2d at 276.

                                     Conclusion

      We affirm the trial court’s classification of the parties’ property but vacate and

remand the court’s order to address an insufficient finding of fact. On remand, the

trial court, in its discretion, may enter a new order based on the existing record or

may conduct any further proceedings that the court deems necessary.

      AFFIRMED IN PART; VACATED IN PART AND REMANDED.

      Judges TYSON and BERGER concur.

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