MURPHY, Chief Judge.
By ch. 794 of the Acts of 1978, now codified as Maryland Code (1984), §§ 8-201 through 8-213 of the Family Law Article, the General Assembly of Maryland enacted the Property Disposition in Annulment and Divorce Law (the Act).
The Act "substantially modified the traditional property rights of the husband and wife in a divorce proceeding...." Deering, supra, 292 Md. at 117, 437 A.2d 883. Although the court in granting a divorce "may not transfer the ownership of personal or real property from 1 party to the other," § 8-202(a)(3), the Act created a statutory scheme whereby the court may grant a monetary adjustment of the equities of the parties concerning marital property, § 8-205(a). A monetary award is reached by a three step process:
The court is governed in the first step by the statute's broad definition of marital property. Section 8-201(e) declares:
In determining the amount and method of payment of an award, the court is obliged to consider each of ten specified factors. The third factor is "the economic circumstances of each party at the time the award is to be made" and the tenth is "any other factor that the court considers necessary or appropriate to consider in order to arrive at a fair and equitable monetary award." § 8-205(a)(1) through (10).
This "new legislative approach to the concept of marriage," Deering, 292 Md. at 122, 437 A.2d 883, should be liberally construed, Harper, supra, 294 Md. at 61, "to adjust the property interests of spouses fairly and equitably upon the dissolution of their marriage, and to give careful consideration to both monetary and nonmonetary contributions by the spouses to the well-being of the family," Bender, supra, 282 Md. at 534-535 n. 7, 386 A.2d 772. What constitutes "marital property" under § 8-201(e) is clearly "not dependent upon the legalistic concept of title." Harper, supra, 294 Md. at 78, 448 A.2d 916. Nor does a determination of what constitutes marital property depend upon the factors enumerated in § 8-205(a). Those factors come into play only with respect to the amount of the award and the method of its payment. What property is marital property and the value of that property must be determined before that step in the scheme is reached. Harper, supra, 294 Md. at 79-80, 448 A.2d 916. We there concluded with respect to which property is marital property that
We recognized, however, that in order to apply this theory, "acquired" as it appears in the statutory definition of "marital property," § 8-201(e) must be construed
The utilization of this definition of the term "acquired," coupled with the application of the source of funds theory, leads not only to the determination of which property is marital property (the first step) but also to the determination of the value of that property (the second step). In Grant, supra, we reiterated the "principles enunciated in Harper governing the method of calculating nonmarital and marital interests and the value of marital property." 300 Md. at 276 n. 9, 477 A.2d 1163. We said:
We illustrated the proper application of these principles with this example:
The Act does not set out how debts of the parties are to be treated with respect to a monetary award. Nor have we had occasion in our past decisions to address the question other than incidentally in the example noted in Grant to illustrate the principles enunciated in Harper. The question of the effect on a monetary award of certain outstanding debts is now before us.
The Circuit Court for Baltimore County issued a decree divorcing Mary E. Schweizer a vinculo matrimonii from Thomas Schweizer. The decree contained an order granting a monetary award to the wife. Neither party was satisfied. The wife thought that the amount awarded should have been greater. The husband believed that no monetary award at all should have been granted. Each appealed. The Court of Special Appeals vacated the decree and remanded the case with direction to the trial court to redetermine the amount of the award under guidelines set out in the appellate court's opinion. Schweizer v. Schweizer, 55 Md.App. 373, 381, 462 A.2d 562 (1983). Again, both the husband and wife were dissatisfied. Both of them thought, albeit for different reasons, that the Court of Special Appeals had erred in its directions to the trial court for the redetermination of the amount of the award. Each sought the issuance of a writ of certiorari. We granted both petitions; they presented a common contention — that the method directed by the intermediate appellate court for the computation of the amount of the monetary award was erroneous.
The trial court found that the husband's assets totaled $1,436,882. They consisted of shares of stock, bonds, mortgages, real properties, notes, interests in partnership ventures and the cash value of life insurance. There being a dispute as to whether some of these assets were marital property, the court made a determination. It found that certain of the shares of stock, notes, mortgages, real properties and life insurance were marital property with a total value of $322,182.
There was evidence indicating that the parties' opulent life style was supported, in large measure, from the proceeds of the husband's loans which were often used to fund marital expenses. Both parties agree that the monies from these loans must be considered in granting a monetary award. They differ, however, as to how they should be considered. Schweizer, 55 Md. App. at 375, 462 A.2d 562. The husband would have the total amount of his debts deducted from the total value of the marital assets in order to ascertain the actual value of the marital property. This would be done in the second step of the process leading to a monetary award under § 8-204, which commands the trial court to determine the value of all marital property. If this formula were applied here, the marital property would have a "negative" value, since the amount of the indebtedness exceeded the value of the marital property. With no marital property of value remaining, there would be no call for the grant of a monetary award, and the third step in the process would not be invoked.
The wife's view is that debts incurred during the marriage have no relevance in the determination of the value of marital property unless the debts specifically encumber that property.
The Court of Special Appeals was not persuaded to follow the view of either the husband or the wife. It looked to Harper v. Harper, supra. Without the benefit of Grant's explication of that case, the Court of Special Appeals construed Harper's source of funds theory, coupled with the definition of "acquired" as the "on-going process of making payment for property," to apply only to the characterization of property as marital or nonmarital. Schweizer, supra, 55 Md. App. at 377, 462 A.2d 562. But, the intermediate appellate court believed that "the source of funds is equally important in determining the value of marital property acquired during the marriage." Id. at 377-378, 462 A.2d 562 (emphasis in original). On this premise the court concluded:
The court observed that
"Therefore," the court asserted, "the value of any marital property represented by outstanding marital debt has not been `acquired' for purposes of an equitable distribution by way of a monetary award." Id. The court emphasized: "To qualify under this rule, however, any unpaid marital debt must be directly traceable to the acquisition of marital property." Id. The reiteration in Grant, supra, 300 Md. at 276-277 n. 9, 477 A.2d 1163, of the principles enunciated in Harper, read with the example given to illustrate those principles, substantiates the belief of the Court of Special Appeals that the source of funds theory applies also to a determination of the value of marital property subject to equitable distribution.
Harper teaches that a "marital debt" is a debt which is directly traceable to the acquisition of marital property. Conversely, a "nonmarital debt" is a debt which is not directly traceable to the acquisition of marital property. That part of marital property which is represented by an outstanding marital debt has not been "acquired" for the purpose of an equitable distribution by way of a monetary award. Therefore, the value of that marital property is adjusted downward by the amount of the marital debt. That is to say, a marital debt is considered under the second step of the process followed in reaching a monetary award, namely the valuation of marital property.
A nonmarital debt may not serve to reduce the value of marital property. It has no function in the second step of the process. But it may be taken into consideration in the third step of the process — the determination of the amount and method of payment of the award. The amount outstanding on a nonmarital debt of a party clearly reflects on that party's economic circumstances at the time the award is to be made. § 8-205(a)(3).
We offer a hypothetical example within the facts of this case. The trial court determined that a parcel of real property known as Betty Bush Lane was marital property and that it had a value of $150,000. Suppose the husband were able to trace $100,000 of his indebtedness directly to the acquisition of Betty Bush Lane. In that event, the value of that property for the purpose of an equitable distribution would be reduced to $50,000. By the same token, the husband's total indebtedness of $440,000 would be reduced by the $100,000 marital debt, leaving him with a nonmarital debt of $340,000. That nonmarital debt may be taken into account by the trial court, under the economic circumstances factor, in its determination of the amount and method of payment of any monetary award granted.
The Court of Special Appeals vacated the decree granting the monetary award "[b]ecause there has been no finding by the chancellor of how much, if any, marital debt exists...." Schweizer, supra, 55 Md. App. at 379, 462 A.2d 562. This was not erroneous. It further remanded the case to the Circuit Court for Baltimore County for proceedings in accord with its opinion. The remand for additional proceedings is, of course, proper, but the proceedings before the trial court must be in accord with the opinion of this Court rather than with the opinion of the Court of Special Appeals. This is so because the opinion of the Court of Special Appeals does not spell out that a nonmarital debt may be considered under factor (3) of § 8-205(a) in the determination of the amount and method of payment of a monetary award.
On remand to the Circuit Court for Baltimore County that court shall (1) find what portion of the husband's indebtedness, if any, is a marital debt, that is, directly traceable to the acquisition of marital property of the parties; (2) redetermine the value of the marital property in the light of any marital debt; and (3) redetermine the amount and method of payment of the monetary award after consideration of the ten factors enumerated in § 8-205(a), including in the consideration of factor (3) the impact of any nonmarital debt on the economic circumstances of the husband.
JUDGMENT OF THE COURT OF SPECIAL APPEALS AFFIRMED EXCEPT AS TO THE DIRECTION TO THE CIRCUIT COURT FOR BALTIMORE COUNTY TO CONDUCT FURTHER PROCEEDINGS IN ACCORD WITH THE OPINION OF THE COURT OF SPECIAL APPEALS;
CASE REMANDED TO THE COURT OF SPECIAL APPEALS WITH DIRECTION TO REMAND TO THE CIRCUIT COURT FOR BALTIMORE COUNTY FOR FURTHER PROCEEDINGS IN ACCORD WITH THE OPINION OF THE COURT OF APPEALS;
COSTS TO BE PAID ONE-HALF BY EACH PARTY.
Furthermore, as the Court of Special Appeals noted, a promissory note deemed to be a marital asset was incorrectly valued at $30,000. The evidence showed, and both parties agreed, that the actual value was $10,000. Schweizer v. Schweizer, 55 Md.App. 373, 375 n. 1, 462 A.2d 562 (1983). Thus, it seems that the value of the marital property, under the trial court's method of computation, should have been $302,882.