Court Draws Comparison To Stock Option Drawn
The future value of timber ready for harvest in the year 2007 is too speculative to be split between a husband and wife, said the state Appeals Court in a ruling that tests the reach of equitable distribution.
The case is Cobb v. Cobb (North Carolina Lawyers Weekly No. NA1232 – 8 pages). The opinion was written by Judge James Wynn, with Judges Gerald Arnold and John B. Lewis Jr. concurring.
The narrow question before the court ‘ whether 130 acres of standing timber is subject to equitable distribution ‘ was one of first impression in North Carolina. The larger question, however, was whether property that cannot be easily valued at present should be classified as marital property.
The Appeals Court said the timber’s value involved too much guesswork to be equitably divided. The court compared the timber to other types of speculative property, such as:
Deferred compensation that has not vested at the time of separation.
Non-exercised stock options.
Non-vested pensions and retirement benefits.
‘The court said the timber was like a non-exercised option,’ said Windsor lawyer Lloyd Smith Jr., who represented the husband. ‘The future value is contingent on events that we can’t accurately predict. All the value might be lost.’
In a second holding, the court said money that the husband paid the wife as ‘living expenses’ following their separation should be treated as an advance against her share of the marital estate. The wife contended the money was a gift that should not be considered in equitable distribution.
Not Vested At Separation
The parties were divorced in 1989 after 25 years of marriage. Two years later an equitable distribution hearing was held in Bertie County District Court.
A dispute arose over timber planted in 1972 on land owned by the husband’s corporation. The timber would be cut in 2007, with projected earnings of up to $174,000.
The trial judge refused to include the timber in the inventory of marital property. The wife appealed.
The Appeals Court cited N.C.G.S. § 50-20(b)(1). That statute says pensions, retirement and other deferred compensation not vested at the time of separation is not considered marital property.
Options which are not exercisable as of the date of separation and which may be lost as a result of events occurring thereafter are, therefore not vested, should be treated as a separate property of the spouse for whom they may, depending upon circumstances, vest at some time in the future,’ the court said, quoting from Hall v. Hall, 88 N.C. App. 297, 363 S.E.2d 189 (1987).
Judge Wynn said the value of the standing timber was too uncertain.
[The husband] may never realize the future value of the timber if, for example, the trees are destroyed by fire or insects, or if [he] decides to sell the property or to not cut the trees at all,’ the court said. ‘We determine that characterizing growing trees as a vested property right is far too speculative.
Advances To Wife
A second issue concerned more than $45,000 in periodic payments from husband to wife following their separation. There was no written agreement regarding this money, which the husband said was intended to pay for his wife’s living expenses.
The court ruled that the funds should count against the wife’s share of marital property. Smith said that was the fair conclusion.
The wife argued the payments were gifts and we argued just as vehemently that they were advances against the estate,’ said Smith. ‘He sent her the money so she could relocate after the separation and pay her separate bills. He was attempting to be fair to her. I think the court recognized that.’
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