THE STATE OF SOUTH CAROLINA

In The Supreme Court

William G. McDavid, Jr., Respondent,

v.

Mildred T. McDavid, Petitioner.

ON WRIT OF CERTIORARI TO THE COURT OF

APPEALS

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.

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FACTS

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.

ISSUES

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

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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

the property.

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

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. §

20-7-473(4).

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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

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

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"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

these funds.

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

he did not do so as he did not want to worry Wife.

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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

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."

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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.

1995).

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

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

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The judgment below is

AFFIRMED IN PART, REVERSED IN PART.

FINNEY, C.J., TOAL, MOORE, and BURNETT, JJ., concur.

inapposite.

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