Davis Adv. Sh. No. 3
McDavid v. McDavid
THE STATE OF SOUTH CAROLINA
In The Supreme Court
William G. McDavid, Jr., Respondent,
Mildred T. McDavid, Petitioner.
ON WRIT OF CERTIORARI TO THE COURT OF
Appeal From Greenville County
John M. Rucker, Family Court Judge
Opinion No. 24882
Heard November 18, 1998 - Filed January 18, 1999
AFFIRMED IN PART; REVERSED IN PART.
John B. Duggan of Mitchell, Bouton, Duggan, Yokel,
and Childs, of Greer, for respondent.
J.D. Todd, of Leatherwood, Walker, Todd and Mann,
and Kenneth C. Porter, of Porter and Rosenfeld, both
of Greenville, for petitioner.
WALLER, A.J.: We granted certiorari to review the Court of Appeals'
opinion in McDavid v. McDavid, Op. No. 97-UP-277 (S.C. Ct. App. filed April 28,
1997). We affirm in part, reverse in part.
MCDAVID v. MCDAVID
This is a domestic case. Respondent, Husband, was granted a divorce
from Petitioner, Wife. In equitably dividing the couple's property, the family
court, inter alia, excluded from the value of the marital estate $22,400.00 in
assets owned by Wife prior to the marriage. The family court also valued the
equity in the marital residence by using the payoff balance owed as of the date
of filing of the marital litigation. Finally, the family court subtracted
$24,143.50 from the Husband's share of the equitable distribution award,
representing funds allegedly misused by Husband during the marriage.
The Court of Appeals reversed. It held Wife's assets had been transmuted
into marital property such that their value ($22,400,00) should have been
included in the marital estate. The Court of Appeals also held Husband should
not have been penalized for the $24,143.00 he used towards his failing business,
and that Husband was entitled to an equitable share of the increase in the
value of the marital home between the filing of the marital litigation and the
time of trial.
1. Did the Court of Appeals properly hold Wife's premarital assets
should have been included in the marital estate?
2. Did the Court of Appeals properly hold the $24,143.50 used
towards Husband's business during the marriage should not have
been included in the marital estate?
3. Did the Court of Appeals err in holding Husband was entitled to
a share of the increase in the value of the marital residence at the
time of the trial?
1 WIFE'S PREMARITAL PROPERTY
Wife concedes the $22,400 worth of premarital assets she brought into the
marriage (a $10,000 lot on which the marital residence was built, a $10,000
down payment on the home, and $2400 Wife had in a savings account) were
MCDAVID v. MCDAVID
marital property.1 She contends, however, that it was proper for the family
court to take into consideration the value of these assets in equitably dividing
Contrary to Wife's assertion, the family court did not merely "take into
consideration" Wife's $22,400 in assets. Rather, the family court specifically
held Wife should be given credit for these sums. In doing so, the family court
treated the items as non-marital property and excluded them from the value of
the estate. This was error. See S.C.Code Ann. § 20-7-473 (Supp. 1997) ("Marital
property" is generally defined as "all real and personal property which has been
acquired by the parties during the marriage and which is owned as of the date
of filing or commencement of marital litigation. . .").2 We affirm the Court of
Appeals' holding on this issue.
2. HUSBAND'S DISSIPATION OF FUNDS
Husband used $24,143.50 in support of his failing business during the
marriage, without Wife's knowledge. The family court held Husband's
dissipation of these funds constituted marital misconduct. Accordingly, the
court added $24,143.50 to the value of the marital assets, then taxed that
amount against Husband's share. The Court of Appeals reversed, finding
Husband's use of these funds, even if imprudent, did not constitute
"misconduct" warranting a downward adjustment from his share of the marital
assets. We agree.
Under S.C. Code Ann.§ 20-7-472(2) (Supp. 1993), one factor the family
court considers in equitably dividing property is "marital misconduct or fault of
either or both parties, whether or not used as a basis for a divorce as such, if the
misconduct affects or has affected the economic circumstances of the parties, or
1 Non-marital property may be transmuted into marital property if it
becomes so commingled with marital property as to be untraceable, is titled
jointly, or is utilized by parties in support of marriage or in some other manner
so as to evidence intent by parties to make it marital property. Hatfield v.
Hatfield, 327 S.C. 360, 489 SE2d 212 (Ct. App. 1997).
2 Had the parties intended to exclude the value of these items from the
marital estate, they could have done so by written agreement. Johnson v.
Johnson, 296 S.C. 289, 372 S.E.2d 107 (Ct. App. 1988); S.C. Code Ann. §
MCDAVID v. MCDAVID
contributed to the breakup of the marriage."
Very few South Carolina cases have addressed "misconduct" affecting the
economic circumstances of the party. In Peirson v. Calhoun, 308 S.C. 246, 417
S.E.2d 604 (Ct. App. 1992), the Court of Appeals held the husband's drinking
was "misconduct" which caused the breakup of the parties' marriage and
necessarily affected the parties economically inasmuch as the separation
resulted in increased utility costs, home maintenance, and general household
expenses. Accordingly, the Court of Appeals held the increased living expenses
should be attributed to the husband.
Recently, in Smith v. Smith, 327 S.C. 448, 486 S.E.2d 516 (Ct. App.
1997), the wife was granted a divorce on grounds of adultery. The Court of
Appeals held the family court properly considered fault in awarding wife
alimony, where the fault affected the economic circumstances of the parties.
Although the Court did not specifically address how the Husband's adultery had
affected the parties circumstances, there was evidence that Husband had been
having an affair for quite some time and that he had secreted assets for years
in preparation of leaving Wife.3
The most similar case to the one at hand is Roe v. Roe, 3 11 S.C. 471, 429
S.E.2d 830 (Ct. App. 1993). In Roe, the family court found the wife was guilty
of misconduct affecting economic circumstances of marriage due to her
investments in a pizza company. Notably, the court in Roe found the wife had
3The family court specifically noted:
It is clear that from the testimony and the action of [Husband] that
he had contemplated separation from [Wife] extensively and in
advance of the actual date and, in fact, prepared for same,
attempting to better his circumstances. He opened and closed
accounts, transferred money, deleted [W]ife's name from accounts
and took multiple dramatic steps to prepare himself for the
separation. Such actions by [Husband] continued throughout the
separation and during the approximate[ly] five years pending the
actual trial of this case. [Husband] engineered and took substantial
steps to make the tracking of marital assets difficult.
486 S E 2d at 521
MCDAVID v. MCDAVID
"continued to sink money in that hole" both before and after the separation, and
that wife had both misrepresented and failed to disclose to the court which
marital assets she had invested in R & R Pizza subsequent to the parties'
separation. 429 S.E.2d at 833. Accordingly, in Roe there was evidence the wife
had deliberately continued to dissipate marital funds after the parties'
separation and had been less than forthright with the family court regarding
Unlike Roe, there is no evidence in the present case that Husband
intentionally dissipated funds either during the marriage or immediately after
the parties' separation, or that the funds were used for any improper purposes.
On the contrary, the only evidence in the record is that Husband used the funds
either to support his failing business, or to pay household/family expenses.4
Moreover, the funds were spent some two years prior to the parties' separation.
We are aware of no authority holding "poor business decisions," in and of
themselves, justify a downward modification of a party's entitlement to
equitable distribution. On the contrary, courts have generally held one spouse
chargeable only where he/she acts in bad faith with an intent to deprive the
other spouse of marital assets. See Matti v. Matti, 647 So.2d 168 (Fla. App.
1994)(record suggested paramour and wife depleted parties' assets by trickery
or duress); Re Marriage of Olson, 585 N.E.2d 1082 (Ill. App. 1992)(husband held
to have dissipated assets in paying independent contractor, who also happened
to be husband's paramour, for expenses unrelated to business); Davis v. Davis,
573 N.Y.S.2d 162 (N.Y. 1991)(husband's efforts to diminish value of business
and transfer funds without consideration to third parties supported family
court's equitable distribution award in favor of wife); Hollander v. Hollander,
597 A.2d 1012 (Md. 1991)(husband's attempt to transfer practice to daughter
was "obvious" attempt to deceive court concerning practice and its valuation).
However, in cases in which there is no indication of willful misconduct,
courts have generally not penalized a spouse for making poor business
decisions. See, Sien v. Sien, 889 P.2d 1268 (Okla. App. 1997)(equitable
reallocation of marital debt not warranted by husband's capital contribution to
cattle operation where contributions were legitimate investments for the
4 Although Husband did not tell Wife about these expenditures, he testified
he did not do so as he did not want to worry Wife.
MCDAVID v. MCDAVID
intended benefit of both parties and there was no evidence of fraud or malice on
husband's part, even though husband made poor business decisions in ill-fated
enterprise which worked to the detriment of the marital estate); In re Marriage
of Isaacs, 632 N.E.2d 228 (Ill. 1994)(even though wife's transfer of closely held
stocks to employee stock ownership program decreased value of corporation,
wife held not to have dissipated assets as she acted in good faith); Goldman v.
Goldman, 589 A.2d 1358 (N.J. 1991) (husband not chargeable for dissipating
$400,000 in marital funds where he used funds in good faith investing funds in
business which failed).
In accordance with these courts, we hold poor business decisions, in and
of themselves, do not warrant a finding of marital "misconduct," and that there
must be some evidence of willful misconduct, bad faith, intention to dissipate
marital assets, or the like, before a court may alter the equitable distribution
award for such misconduct. As there is no such evidence in this case, we affirm
the Court of Appeals' holding that Husband should not have been charged with
the $24,143.50 spent on his failing business.5
5 Moreover, the Court of Appeals properly relied on Panhorst v. Panhorst,
301 S.C. 100, 390 S.E.2d 376 (Ct. App. 1990) in holding it was error for the
family court to include the $24,143.50 in the marital estate when these funds
were no longer in existence. Panhorst persuasively demonstrates why a spouse
should not be charged in a case such as this:
Given the vicissitudes of life, the parties' fortunes will change over
the years of a marriage. Often the marital estate may have enjoyed
a greater value in the past than it does at the dissolution of the
marriage. It may be affected by changes in the incomes and
earning capacities of the spouses, their spending habits, their
savings and investments, and a host of other factors. By requiring
the estate to be identified as of the date marital litigation is filed,
the Legislature has elected to foreclose the spouses from litigating
every expenditure or transfer of property during the marriage. One
spouse or the other may have spent marital funds foolishly or
selfishly or may have invested them unprofitably. The statute
wisely prevents the other spouse from resurrecting these
transactions at the end of the marriage to gain an advantage in the
equitable distribution. Were it to do otherwise, human greed and
vindictiveness would transform the courts into "auditing agencies
for every marriage that falters."
MCDAVID v. MCDAVID
3. DATE OF VALUATION
The family court valued the marital residence as of the commencement
of the marital litigation. The Court of Appeals held the family court should
have used the payoff balance as of the date of the trial in order to afford
Husband an equitable share of the increased value ($1339.73) of the home.6
This was error.
Initially, as noted above, the family court valued the home as of the date
of the commencement of litigation. In his rehearing petition, Husband raised
no claim that he was entitled to the increased equity in the home at the time of
trial. Rather, he claimed only that the family court erred in valuing the equity
of the home at $36,480.09, rather than $56,480.09 (representing the $20,000.00
credit given to Wife for the down payment and value of the lot). Husband raised
the issue concerning the increased $1339.73 equity for the first time in his brief
to the Court of Appeals. As this matter had not been raised to or ruled on by
the family court, it should not have been considered by the Court of Appeals.
Talley v. South Carolina Higher Educ. Tuition Grants Committee, 289 S.C. 483,
347 S.E.2d 99 (1986); Ebert v. Ebert, 320 S.C. 331, 465 S.E.2d 121 (Ct. App.
Absent evidence Husband contributed to the payments on the mortgage
between the time of separation and the time of trial, he is not entitled to share
in the increased equity. Accordingly, we reverse the Court of Appeals' holding
on this issue.7
6 The increased equity stems from a reduction in the mortgage balance due
to Wife's mortgage payments between the time of filing, and the time of trial.
Wife made all payments on the mortgage between Husband's departure and the
date of the hearing in August, 1995.
7We concur with the Court of Appeals' opinion in Smith v. Smith, 294 S.C.
194, 363 S.E.2d 404 (Ct. App. 1987) that both parties may be entitled to share
in any appreciation in marital assets which occurs after the parties separate but
before the parties divorce. However, an increase in equity due to Wife's
payment of the mortgage is simply not the type of appreciation envisioned by
Smith. Moreover, the case cited by the Court of Appeals is simply inapplicable.
In Cannon v. Cannon, 321 S.C. 44, 467 S.E.2d 132 (Ct. App. 1996), the court
awarded the wife a "special equity" in non-marital property acquired by the
Husband with marital funds (funds which a restraining order prohibited
MCDAVID v. MCDAVID
The judgment below is
AFFIRMED IN PART, REVERSED IN PART.
FINNEY, C.J., TOAL, MOORE, and BURNETT, JJ., concur.
Husband from using) after the filing of the marital litigation. Cannon is