Cable v. Cable
331 S.E.2d 765
N.C. Ct. App.
1985
Check Treatment
*136 PARKER, Judge.

In her sole assignment of error on appeal, plaintiff contends the trial court erred in deciding that the parties’ homeplace was not marital property. Plaintiff does not contend that the 2.3 acre lot itself is not defendant’s separate property. Rather, she contends that because she made substantial contributions to the improvement of defendant’s separate property, that the improvement (the house itself) is marital property. Defendant counters this argument by asserting that under the language of G.S. 50-20(c)(8), the trial judge can consider any improvements made by the plaintiff upon defendant’s separate property, and can award her a greater share of other marital assets because of these improvements, but that plaintiffs improvements on the lot do not change the status of this property or any improvements made thereon as the separate property of defendant. Defendant argues that a declaration that improvements made to separate property during the course of the marriage become marital property would render G.S. 50-20(c)(8) meaningless. We reject defendant’s contention in this regard, and accordingly vacate the judgment from which this appeal was taken.

This Court, in Wade v. Wade, 72 N.C. App. 372, 325 S.E. 2d 260, disc. rev. denied, 313 N.C. 612 (1985), addressed a similar issue. In Wade, the plaintiff husband owned land which was titled solely in his name prior to the marriage. A house was constructed on this land during the marriage with marital funds. The husband asserted that since the unimproved real property was acquired by him prior to the marriage, it would be considered separate in character. Therefore, any improvements to his land, such as the house, merely constituted an increase in the value of the property and must also be considered separate as mandated by G.S. 50-20(b)(2) which provides “[t]he increase in value of separate property . . . shall be considered separate property.”

In rejecting this argument, this Court noted the remedial nature of G.S. 50-20 and held that this provision referred only to “passive” appreciation, such as inflation, and not to “active” appreciation resulting from contributions, monetary or otherwise, by one or both of the spouses. After noting that the house and land are one asset, the Court held that “the real property concerned herein must be characterized as part separate and part *137 marital,” with the land being considered separate property, and the house, which was constructed during the marriage with marital funds, being considered marital property. Id. at 381-382, 325 S.E. 2d at 269.

Therefore, based on Wade, supra, and the decision of this Court in Turner v. Turner, 64 N.C. App. 342, 307 S.E. 2d 407 (1983), which held that equity which accrued during a marriage in a house purchased by the husband prior to the marriage could be marital property, we hold the trial court erred as a matter of law in concluding that plaintiff had no interest in defendant’s equity in the house and lot.

In applying the Equitable Distribution Statute, the trial judge must follow a three step procedure, ie., (i) classification, (ii) evaluation and (iii) distribution. By treating the house and lot as separate property solely because the house built with marital funds was built on land acquired by defendant prior to the marriage, the court erred in classifying the property. Classification must be according to the statutory definitions of separate property and marital property. General Statute 50-20(c)(8) relied on by defendant is a distribution factor. Distribution factors are not applicable at the classification stage. Before the distribution factor argued by defendant can be considered, the property must be properly classified and its net value properly determined. Turner, supra.

Accordingly, the judgment is vacated and the case is remanded for further proceedings not inconsistent with this opinion.

Vacated and remanded.

Judges Arnold and Martin concur.