The 2024 Sunshine v. Sunshine decision of the North Carolina Court of Appeals clarified how courts should handle income imputation in divorce cases.
As you are about to read, this decision also explains how courts evaluate business income in alimony cases and how they assess the accustomed standard of living when weighing the reasonable needs of a dependent spouse.
For these reasons, this decision in itself clarifies several common questions and will have future implications on divorce cases across N.C.
Case Background: North Carolina Alimony Appeal and Procedural History
The parties were married for 20 years and separated in 2020. During the marriage, the husband ran a successful packaging business. At the same time, the wife was mostly a stay-at-home parent, later taking a part-time job at a butterfly supply business she operated.
Given those facts, the court found the wife a dependent spouse, while the husband was considered a supporting spouse under North Carolina alimony law. The court also determined marital misconduct, as the husband has admitted to illicit sexual activities.
The initial decision was $6,500 per month, but the final order reduced the alimony amount to $2,513 per month, obliging the husband to pay it for 120 months. What followed was the wife’s appeal, as she found the alimony award insufficient.
Income Imputation in North Carolina Divorce: The Bad Faith Requirement
A central issue on appeal was the trial court’s treatment of the wife’s business income. The court added back $5,060 in labor expenses, finding that the wife could have performed the work herself rather than having an employee she is paying.
However, the Court of Appeals found that income imputation in North Carolina is permitted only if an explicit finding of bad faith is made. These are the cases where one party deliberately depresses their income or shrinks their duty of self-support to affect the final decision amount.
In Sunshine v. Sunshine, the trial court failed to make a specific ad hoc finding but still imputed $5,060, which was improper under the higher instance court. As a result, the decision was remanded, and the trial court will need to determine whether the wife actually acted in bad faith before adjusting the income.
Adjusting unreliable business income for alimony
But the trial court reached an entirely different conclusion in the same case regarding an inventory preorder. The wife had purchased supplies worth $13,399, anticipating a supply chain issue.
In this case, the appellate court held that the adjustment was permissible. The preorder made the 2021 income figure unreliable for alimony calculation, and the court held that correcting that type of distortion was not an improper income imputation.
Accustomed Standard of Living in North Carolina Alimony Cases
Next, the Court of Appeals addressed the trial court’s evaluation of the parties’ accustomed standard of living. This is an important factor under the North Carolina alimony statutes.
The trial court described the couple’s lifestyle as “frugal.” But the evidence showed the opposite. The couple owned a large home, a lake house, multiple vehicles, recreational equipment, and traveled frequently internationally. Given all those facts, the court of appeals found that frugal was not the correct characterisation, and it therefore vacated the findings.
Reasonable Needs and Comparable Housing
N.C. law requires that the alimony should sustain, to the extent possible, the economic standard established during the marriage. In that case, the trial court failed to fully assess the wife’s reasonable needs after divorce, considering the couple’s marital lifestyle.
Therefore, on remand, the trial court must reassess the wife’s current housing and overall expenses and compare them with the marital standard of living.
Legal Significance for North Carolina Family Law
The North Carolina Court of Appeals has vacated and remanded the trial court’s decision for further proceedings. The trial court needs to clarify whether the income was depressed in bad faith and recalculate the alimony amount, taking into full consideration the wife’s reasonable needs based on the parties’ marital lifestyle.
The Sunshine v. Sunshine case is important for family law practitioners and people going through divorce. Therefore, it’s best to work with legal professionals who have direct experience with family law matters in North Carolina, who will give you sound advice and help ensure the court’s decision doesn’t surprise you.
Contact Woodruff Family Law Group today to schedule a consultation.