Buncombe County No. 99 CVD 3572.

McGEE, Judge.

Anita Louise Draper (plaintiff) filed a complaint against James K. Draper (defendant) on 5 August 1999 that included claims for an unequal division of marital property and interim distribution of defendant's retirement benefits. Defendant filed an answer and counterclaim for equitable distribution dated 14 September 1999. An equitable distribution hearing was held on 1 October 2001 and the trial court entered a judgment of equitable distribution on 27 November 2001. Plaintiff appeals.

The evidence in the transcript and record tended to show the parties were married on 11 August 1973, separated on 30 October 1998, and divorced by entry of a judgment of divorce on 23 March 2000. Defendant was a member of the United States Air Force from October 1977 until his retirement on 1 November 1997. Defendant was receiving military retirement and disability benefits in the amount of $1,194.00 per month as of the date of separation. Defendant and plaintiff testified that forty percent of defendant's monthly benefits were military disability benefits. Defendant also stated that after taxes and excluding his disability benefits, he received approximately $550 a month net retirement benefits. The trial court found that plaintiff offered no evidence of the date of separation value or the present value of defendant's benefits and therefore declined to distribute the retirement plan as part of equitable distribution.

Plaintiff testified that she lived in the marital home for approximately three months immediately following separation and moved out in January 1999. Plaintiff's check for the mortgage payment in January 1999 was returned for insufficient funds and plaintiff took no action to cover the check. Defendant testified that he took possession of the house in February 1999. Defendant stated that he made the delinquent mortgage payment for January 1999 and continued making mortgage payments of $1,080 until the house was sold on 28 February 2000. Defendant also testified that the parties did not receive any proceeds from the sale of the house but were required to pay closing costs of $5,908.55. This amount consisted of a $5,303.11 debt for a heat pump air conditioning unit that had been installed in July 1998 and additional standard closing costs. Defendant stated that he paid this amount without contribution from plaintiff after obtaining a loan through the VA Credit Union. The trial court found a negative value in the home of $5,909 due to the closing costs. Defendant also testified that he paid $993.63 in outstanding expenses for telephone, power, and cable bills incurred by plaintiff for her own personal benefit during her post-separation possession of the home. The trial court found that the parties did not have an agreement that defendant would make the January 1999 mortgage payment or utility bills on behalf of plaintiff. The trial court classified these payments as an advancement in the amount of $934.40 against plaintiff's share of the marital estate.

Plaintiff testified that the parties had a debt at the Pentagon Federal Credit Union on the date of separation of $9,000. Plaintiff also testified that there was approximately $1,100 owed on a Pentagon Federal Credit Union Mastercard as of the date of separation. Defendant testified that he paid $920 in 1999 for the parties' 1998 federal income tax liability. The trial court found marital debts consisting of: $9,006 owed to Pentagon Federal Credit Union; $1,105 owed to Pentagon Federal Credit Union; and a $720 1998 federal income tax liability.

Our standard of review is limited to whether the trial court's judgment is supported by the findings of fact and conclusions of law. Knight v. Knight, 76 N.C. App. 395, 396, 333 S.E.2d 331, 332 (1985).

In appellate review of a bench equitable distribution trial, the findings of fact regarding value are conclusive if there is evidence to support them, even if there is also evidence supporting a finding otherwise. The trial court has discretion in distributing marital property, and "the exercise of that discretion will not be disturbed in the absence of clear abuse."

Crutchfield v. Crutchfield, 132 N.C. App. 193, 197, 511 S.E.2d 31, 34 (1999) (citations omitted). The decision of the trial court will not be disturbed unless the decision "`was so arbitrary that it could not have been the result of a reasoned decision.'" Edwards v. Edwards, 152 N.C. App. 185, 187, 566 S.E.2d 847, 849 (quoting White v. White, 312 N.C. 770, 777, 324 S.E.2d 829, 833 (1985)), cert. denied, 356 N.C. 611, 574 S.E.2d 679 (2002). The trial court, as the finder of fact in an equitable distribution trial, is the sole judge of the credibility of the evidence. Grasty v. Grasty, 125 N.C. App. 736, 739, 482 S.E.2d 752, 754, disc. review denied, 346 N.C. 278, 487 S.E.2d 545 (1997).

I.

Plaintiff first argues the trial court erred in failing to value and equitably distribute defendant's retirement benefits. Plaintiff contends that evidence of a present valuation of defendant's retirement benefits was unnecessary and that the trial court should have utilized the fixed percentage valuation method to award her a portion of defendant's retirement benefits. Defendant concedes in his brief, and we agree, that plaintiff is entitled to receive a portion of defendant's retirement benefits because the parties were married throughout his twenty-year military career and the benefits that accrued before separation are marital property. In the Uniformed Services Former Spouses' Protection Act, the United States Congress authorized the states to classify military retirement pay as marital or separate. Armstrong v. Armstrong, 322 N.C. 396, 401, 368 S.E.2d 595, 597-98 (1988). Our General Assembly subsequently enacted N.C. Gen. Stat. § 50-20(b)(1) (2001), which states that marital property includes "vested and nonvested military pensions eligible under the federal Uniformed Services Former Spouses' Protection Act." See George v. George, 115 N.C. App. 387, 388-89, 444 S.E.2d 449, 450 (1994), cert. denied, 342 N.C. 192, 463 S.E.2d 236 (1995); Morris v. Morris, 79 N.C. App. 386, 386-87, 339 S.E.2d 424, 425, disc. review denied, 316 N.C. 733, 345 S.E.2d 390 (1986). The vesting of United States Air Force retirement benefits occurs after an enlisted member completes twenty years of military service. 10 U.S.C.A. § 8914 (1998); cf. George, 115 N.C. App. at 389, 444 S.E.2d at 450.

However, military disability payments "cannot be classified as marital property subject to distribution under state equitable distribution laws." Bishop v. Bishop, 113 N.C. App. 725, 733, 440 S.E.2d 591, 597 (1994) (citations omitted); see Mansell v. Mansell, 490 U.S. 581, 588, 594-95, 104 L.Ed.2d 675, 685, 689 (1989). Military disability payments "must be classified as the retiree's separate property and, as such, treated as a distributional factor." Bishop, 113 N.C. App. at 734, 440 S.E.2d at 597. Where a party receives a combination of military retirement and military disability benefits, the trial court should make a determination of the amount of benefits that are subject to equitable distribution as marital property. While military disability payments may not be distributed as marital property, the trial court must consider the receipt of such payments by a party as a distributional factor when making an equitable distribution between the parties.

Our Courts have employed two methods for dividing retirement benefits in equitable distribution: present value method (immediate offset method) and the fixed percentage method (deferred distribution method). Bishop, 113 N.C. App. at 731-32, 440 S.E.2d at 597. The trial court has the discretion to employ either method, but a valuation of the retirement benefits must be made as of the date of separation. Id. at 732, 440 S.E.2d at 597. Under the fixed percentage method of valuation,

the nonemployee spouse is awarded a percentage of each pension check based on the total portion of benefits attributable to the marriage. The portion of benefits attributable to the marriage is calculated by multiplying the net pension benefits by a fraction, the numerator of which is the period of the employee spouse's participation in the plan during the marriage and the denominator of which is the total period of participation in the plan.

Seifert v. Seifert, 319 N.C. 367, 370, 354 S.E.2d 506, 509, reh'g denied, 319 N.C. 678, 356 S.E.2d 790 (1987). The fixed percentage method can result in a deferral of payments of benefits without unfairly reducing the value of the award. Id. at 370, 354 S.E.2d at 509.

The present value of the pension or retirement benefits is not considered in determining the percentage to which the nonemployee spouse is entitled. Moreover, because the nonemployee spouse receives a percentage of the benefits actually paid to the employee spouse, the nonemployee spouse shares in any growth in the benefits. Yet, the formula gives the nonemployee spouse a percentage only of those benefits attributable to the period of the marriage, and that spouse does not share in benefits based on contributions made after the date of separation.

Id. at 370-71, 354 S.E.2d at 509 (citation omitted).

[S]o long as the trial court properly ascertains the net value of the pension and retirement benefits to determine what division of the property will be equitable, application of the fixed percentage method does not . . . violate the mandate that the court must identify the marital property, ascertain its net value, and then equitably distribute it.

Id. at 371, 354 S.E.2d at 509.

After reviewing the record and transcript, we find that the trial court did not properly exercise its discretion in refusing to award plaintiff a portion of defendant's retirement benefits. Although the trial court found there was insufficient evidence to make an award under the present valuation method, the trial court erred by not considering an award under the fixed percentage method. It is undisputed that the parties were married throughout defendant's entire twenty-year military career and that defendant's retirement and disability benefits had vested and were being paid at the rate of $1,149.00 per month as of the date of separation. Both plaintiff and defendant testified that forty percent of defendant's monthly benefits was disability benefits. This testimony provided sufficient evidence of valuation of defendant's retirement benefits to permit the trial court to make a deferred distribution award to plaintiff.

Plaintiff and defendant were married during defendant's entire twenty-year participation in the plan. Thus, one hundred percent of the retirement benefits earned by defendant are attributable to the marriage under the fixed percentage method of valuation. While defendant receives benefits of $1,149.00 per month, only sixty percent of this amount constitutes defendant's retirement benefits and is classifiable as marital property. Accordingly, $689.40 of defendant's monthly benefits are retirement benefits and subject to equitable distribution.

The evidence in the transcript and record were sufficient to allow the trial court to value defendant's monthly retirement benefits and make a deferred distribution award of those monthly benefits to plaintiff. We hold that the trial court abused its discretion in failing to value and distribute defendant's military retirement benefits as part of an equitable distribution. We reverse the equitable distribution order of the trial court on this issue and remand with instructions to value defendant's military retirement benefits under the fixed percentage method and distribute the military retirement benefits as part of equitable distribution.

II.

Plaintiff next argues the trial court erred in finding and concluding that the $5,909.00 in closing costs for the sale of the former marital residence that were paid by defendant constituted a negative value in the residence. Plaintiff also argues the trial court should have valued the marital residence as of the date of separation.

A marital debt is "one incurred during the marriage and before the date of separation by either spouse or both spouses for the joint benefit of the parties." Huguelet v. Huguelet, 113 N.C. App. 533, 536, 439 S.E.2d 208, 210, disc. review denied, 336 N.C. 605, 447 S.E.2d 392 (1994). The party claiming that a debt is marital bears the burden of showing the amount of the debt on the date of separation and that the debt was incurred during the marriage for the joint benefit of the husband and wife. Riggs v. Riggs, 124 N.C. App. 647, 652, 478 S.E.2d 211, 214 (1996), disc. review denied, 345 N.C. 755, 485 S.E.2d 297 (1997). "[A]ny debt incurred by one or both of the spouses after the date of separation to pay off a marital debt existing on the date of separation is properly classified as a marital debt." Huguelet, 113 N.C. App. at 536, 439 S.E.2d at 210. Payments made to reduce debt owed on the marital residence after separation constitute separate property and must be credited to the payor. See Hendricks v. Hendricks, 96 N.C. App. 462, 467, 386 S.E.2d 84, 87 (1989), cert. denied, 326 N.C. 264, 389 S.E.2d 113 (1990); McLean v. McLean, 88 N.C. App. 285, 292-93, 363 S.E.2d 95, 100 (1987); Hunt v. Hunt, 85 N.C. App. 484, 491, 355 S.E.2d 519, 523 (1987).

The evidence in the transcript and record show that the parties sold the marital residence on 28 February 2000. Not only were there no proceeds from the sale of the residence, and therefore no asset subject to distribution after the sale, but the sales transaction resulted in an obligation of the parties of $5,908.55 at closing. The amount of $5,303.11 of these expenses was debt remaining on the heat pump installed before the date of separation for the benefit of both parties and therefore was a marital debt. Defendant paid the remaining balance on the heat pump after separation to eliminate the remaining debt on the residence and complete the sale of the marital residence. The debt incurred by defendant to pay off the debt for the heat pump upon sale of the residence was a marital debt. See Huguelet, 113 N.C. App. at 536, 439 S.E.2d at 210. Defendant was therefore entitled to a credit for payment of that marital debt. See Hendricks, 96 N.C. App. at 467, 386 S.E.2d at 87. The trial court did not abuse its discretion by giving defendant credit for payment of the outstanding debt on the heat pump against plaintiff's share of the marital estate.

The trial court also did not abuse its discretion by crediting defendant's payment of the standard closing costs on the sale of the former marital home against plaintiff's share of the marital estate. There was sufficient evidence in the transcript and record to support the decision of the trial court to credit these costs to defendant.

While it was error for the trial court not to value the marital residence as of the date of separation, see N.C. Gen. Stat. § 50-21(b) (2001); Mishler v. Mishler, 90 N.C. App. 72, 77, 367 S.E.2d 385, 388, disc. review denied, 323 N.C. 174, 373 S.E.2d 111 (1988), plaintiff has failed to demonstrate that she was prejudiced as a result. The trial court found that defendant used his post-separation income to pay $5,303 of the marital debt remaining on the heat pump at the time the residence was sold. It also found that "[t]he $5,909 closing costs paid by Defendant at closing on the sale of the former marital home constitutes a negative value in the home." Whether or not the negative valuation was a value as of the date of separation, failure to place a specific monetary value on the asset was not prejudicial to either party because the asset had already been sold by the parties prior to distribution of the marital property. The trial court correctly considered defendant's payments of the closing costs in distributing the marital property and plaintiff has failed to demonstrate that she was prejudiced as a result. This assignment of error is overruled.

III.

Plaintiff next argues the trial court erred in concluding that there were marital debts of (1) $9,006.00 owed to Pentagon Credit Union, (2) $1,105.00 owed on a Pentagon Credit Union Mastercard, and (3) $720 owed to the Internal Revenue Service (IRS). Since there is insufficient evidence in the transcript and record to support the trial court's findings of fact, we agree that the trial court erred in concluding that the $9,006.00 owed to Pentagon Credit Union and the $1,105.00 owed on a Pentagon Credit Union Mastercard were marital debts. The transcript and record show that plaintiff testified to the amount of the debt owed to the Pentagon Credit Union and on the credit card as of the date of separation. While defendant included this amount in his equitable distribution affidavit and stated in his brief that he entered the credit card receipts into evidence for consideration by the trial court, the transcript and record fail to show any evidence regarding the type of purchases charged to the credit card and whom they benefitted. The record also contains an exhibit showing that the outstanding balance owed to the Pentagon Credit Union was $9,006.20 as of the date of separation.

While there is evidence in the transcript and record supporting the amounts owed to Pentagon Credit Union and on a Pentagon Credit Union Mastercard, there is no evidence supporting the finding that these debts were incurred for the joint benefit of the parties during the marriage. Riggs, 124 N.C. App. at 652, 478 S.E.2d at 214. Accordingly, the trial court erred in concluding that these were marital debts and we reverse the determination of the trial court as to these debts. We note that under N.C.G.S. § 50-20(c)(1), the trial court "shall consider . . . [t]he . . . liabilities of each party at the time the division of property is to become effective." "If the debt is separate, it is a factor to be considered under G.S. § 50-20(c)(1)." Edwards v. Edwards, 110 N.C. App. 1, 13, 428 S.E.2d 834, 839, cert. denied, 335 N.C. 172, 436 S.E.2d 374 (1993). On remand, the trial court shall, pursuant to N.C.G.S. § 50-20(c)(1), consider these separate debts as a distributional factor.

We hold that the trial court did not err in finding that the amount owed to the IRS was marital debt. Defendant offered testimony regarding the parties' debt for joint 1998 tax liability to the IRS and the record contains a copy of the parties' 1998 joint income tax return showing a tax liability of $920. The transcript and record show there was sufficient evidence to support the trial court's findings and plaintiff has failed to demonstrate that the trial court abused its discretion in classifying the $720 tax liability as marital debt. This assignment of error is overruled.

IV.

Plaintiff argues the trial court erred in finding that she received advances of $3,298 from defendant against her share of the marital estate. Plaintiff contends the January 1999 mortgage payment and utility bills paid by defendant were separate debts and therefore not subject to equitable distribution.

Debt incurred by the parties after separation is not subject to equitable distribution. See Harrington v. Harrington, 110 N.C. App. 782, 783, 431 S.E.2d 240, 241 (1993). "[M]ortgage payments made after separation entirely consisting of the separate property of the payor defendant should be credited to him at least to the extent that the payments decreased the principal owed on the marital home." Hendricks, 96 N.C. App. at 467, 386 S.E.2d at 87. "A trial court may also give the payor a dollar for dollar credit in the division of the property, or require that the non-payor spouse reimburse the payor for an appropriate amount." Hay v. Hay, 148 N.C. App. 649, 655, 559 S.E.2d 268, 273 (2002).

In the present case, the evidence shows that plaintiff failed to make a mortgage payment and utility payments while occupying the marital residence after separation. The transcript and record show defendant paid these delinquent bills in order to prevent default on the mortgage, to maintain utility services, and to preserve the parties' credit rating. The trial court did not err in crediting defendant for these payments in making its equitable distribution award and plaintiff has failed to show that it abused its discretion in classifying defendant's payments as advances against plaintiff's equitable distribution award.

Plaintiff also argues the trial court erred in concluding the $1,999.79 balance on defendant's Med Cash account was an advancement of plaintiff's award. However, the transcript and record indicate that the trial court actually concluded that the account balance was the subject of a post-separation verbal agreement between the parties and possessed no bearing on equitable distribution. The transcript and record do not indicate that the trial court classified this balance as an advancement against plaintiff's award. This assignment of error is without merit.

In review, we reverse and remand the equitable distribution order in part and remand for entry of a new order consistent with this opinion. The trial court on remand shall equitably distribute the military retirement benefits and again consider defendant's receipt of military disability benefits as a distributional factor. The trial court stated in its order that in being unable to value and distribute defendant's military retirement, defendant was left with a substantial asset, which the trial court considered to be a significant distributional factor in favor of awarding an unequal distribution to plaintiff of the marital estate. With the military retirement benefits to now be equitably distributed and in considering the separate debts of defendant as a distributional factor, the trial court may exercise its discretion in reconsidering its holding that an unequal division of property is equitable.

Affirmed in part; reversed and remanded in part.

Judges McCULLOUGH and LEVINSON concur.

Report per Rule 30(e).