In Wenninger v. Wenninger, decided May 7, 2024, the North Carolina Court of Appeals held that an equitable distribution judgment was void for lack of a necessary party because the parties in the equitable distribution proceeding stipulated in a pre-trial order that certain items of property were held in a revocable Trust and further stipulated that some of the property held by the Trust was marital property. The court of appeals held that the Trust was a necessary party, even though the trial court refused to distribute the items in the Trust because they were not owned by either party.
I wrote about that opinion here: https://civil.sog.unc.edu/equitable-distribution-stipulation-in-a-pretrial-order-makes-revocable-trust-a-necessary-party/
In the more recent opinion in Face v. Face, decided November 5, 2024, the court of appeals again illustrated the importance of stipulations in pre-trial orders. The appellate court in Face held that a stipulation in the pre-trial order that properties were marital property amounted to a revocation of a revocable Trust. Because the Trust was revoked by the pre-trial order and the properties from the Trust were stipulated to be marital property, the Trust was not a necessary party to the equitable distribution proceeding.
In Wenninger, the pre-trial order specified that property stipulated to be marital was held by a revocable Trust. In Face, the fact that property classified as marital property and distributed by the trial court in an equitable distribution judgment was held by a revocable Trust did not become known to the trial court until defendant filed a Rule 60(b) motion to set aside the judgment after it was entered and notice of appeal had been filed. The Rule 60(b) motion stated that “during the process of preparing materials for use in the pending appeals, … defendant’s counsel became aware for the first time, of the existence of the Trust” and that “the existence of this Trust or its legal effect do not appear to have been brought to the attention of the [Trial] Court.” Defendant’s Rule 60(b) motion argued that because the Trust was not joined as a party, the trial court had no subject matter jurisdiction to enter the equitable distribution judgment concerning property held by the Trust.
The trial court entered an “indicative ruling denying defendant’s Rule 60(b) motion” and the court of appeals reviewed this “indicative ruling” along with other issues raised by defendant’s appeal of the equitable distribution judgment.
Trial court jurisdiction to consider defendant’s Rule 60(b) motion
Pursuant to G.S. 1-294, when an appeal is perfected, the trial court is divested of jurisdiction “upon the judgment appealed from, or upon the matter embraced therein, ….” The loss of jurisdiction will relate back to the time of the filing of the notice of appeal if the appeal is properly perfected. Lowder v. All Star Mills, Inc., 301 N.C. 561, 273 S.E.2d 247 (1981).
So how did the trial court in this case have jurisdiction to rule on defendant’s Rule 60(b) motion?
The court of appeals has held that a trial court can hear a Rule 60(b) motion following appeal and render an ‘advisory’ decision indicating how it would resolve the issue if it had jurisdiction to do so. See Talbert v. Mauney, 80 N.C. App. 477 (1986)(trial court retains ‘limited jurisdiction’ to hear and consider what action it would take on a Rule 60(b) motion were an appeal not pending.”).
The appellate court also explained the procedure in Bell v. Martin, 43 N.C. App. 134, 142, 258 S.E.2d 403, 409 (1979), rev’d on other grounds, 299 N.C. 715 (1980):
“[T]he trial court [should] consider a Rule 60(b) motion filed while the appeal is pending for the limited purpose of indicating, by a proper entry in the record, how it would be inclined to rule on the motion were the appeal not pending. At the time the motion is made in the lower court the movant should notify the appellate court so that it may delay consideration of the appeal until the trial court has considered the 60(b) motion. Upon an indication of favoring the motion, appellant would be in position to move the appellate court to remand to the trial court for judgment on the motion and the proceedings would thereafter continue until a final, appealable judgment is rendered. An indication by the trial court that it would deny the motion would be considered binding on that court and appellant could then request appellate court review of the lower court’s action. This procedure allows the trial court to rule in the first instance on the Rule 60(b) motion and permits the appellate court to review the trial court’s decision on such motion at the same time it considers other assignments of error.”
Trial court advisory denial of the Rule 60(b) motion
In Face, the trial court rejected the defendant’s argument that the Trust was a necessary party. To support the conclusion that it had subject matter jurisdiction to distribute the property at issue, the trial court explained:
“The Trust was not a necessary party to the equitable distribution action, and the Court had subject matter jurisdiction to distribute the Trust’s assets, ….
While “[p]roperty is not part of the marital estate unless it is owned by the parties on the date of separation,”… the Court concludes that the settlors of a revocable trust, like the Trust, retain ownership of the trust res. “[T]he power of revocation is tantamount to ownership of the trust property and of such a nature that it is subject to order of the [C]ourt.” ….
In addition to the provisions of the Trust in which the parties maintained individual control over any real property placed in the Trust, North Carolina’s trust code reinforces the Court’s view that property in a revocable trust remains property of the settlor. Pursuant to N.C.G.S. § 36C-6-602(c), settlors of a revocable trust, like Plaintiff and Defendant, have the power to revoke the trust at any time….
[There is a] distinction between revocable trusts, on the one hand, and irrevocable trusts, on the other. In the case of an irrevocable trust, the trust is a necessary party…. [R]evocable trusts are “will substitutes” and the “rules applicable to wills should, and in fact often do, apply to such trusts.” … By entering into the stipulations concerning the distribution of real property which had been placed in the Trust, the parties were exercising their rights to transfer real property as allowed by the terms of the Trust, and, in essence, … revoked the Trust as allowed by N.C. Gen. Stat. § 36C-6-602(2)(c).”The court of appeals agreed with the trial court
In affirming the trial court’s denial of the Rule 60(b) motion, the court of appeals distinguished the result in Wenninger by explaining that, in that case, the parties stipulated that the Trust held title to the property at issue, making the Trust a necessary party to the equitable distribution proceeding. In Face, the parties stipulated “that the property was titled to them individually and [they] retained complete control of the properties in the Trust.” The court of appeals agreed with the trial court that the stipulation in the pre-trial order manifested “clear and convincing evidence of the settlor’s intent for the property in the Trust to be distributed between the parties as marital property.” Because the pre-trial order revoked the Trust, “the parties as settlors, trustees and beneficiaries retained control of the properties subject to distribution.” As the Trust no longer held legal title to the property after entry of the pre-trial order, the Trust was not a necessary party to the proceeding.