How does Equitable Distribution work under North Carolina Divorce Law? How do separating and divorcing couples handle the division of property in divorce if they cannot agree? As a North Carolina Divorce Attorney for the last fourteen years, I have helped hundreds of North Carolina divorce clients divide their assets in a divorce. In order to understand how a Court divides property in a divorce, we have to quickly review the step process set forth in NCGS §
- Identify and Classify Property. The first thing a court must do when dealing with property division in an Equitable Distribution Claim is to identify property as marital, separate or divisible. The nuts and bolts of the process involve each party preparing and serving upon the other party an Equitable Distribution Inventory, wherein each party lists all of the property owned by the parties. Each party would attempt to classify that property, put a value on that property, and suggest a distribution of that property.
The first thing the Court will do is identify all the property listed by the parties as either marital, separate, or divisible. The North Carolina Equitable Distribution Statute defines marital property as “…all real and personal property acquired by either spouse or both spouses during the course of the marriage and before the date of the separation of the parties, and presently owned, except property determined to be separate property or divisible property in accordance with subdivision (2) or (4) of this subsection”. Marital property is property that the court will ultimately value and divide between the parties.
Separate Property is defined as “…all real and personal property acquired by a spouse before marriage or acquired by a spouse by devise, descent, or gift during the course of the marriage. However, property acquired by gift from the other spouse during the course of the marriage shall be considered separate property only if such an intention is stated in the conveyance. Property acquired in exchange for separate property shall remain separate property regardless of whether the title is in the name of the husband or wife or both and shall not be considered to be marital property unless a contrary intention is expressly stated in the conveyance.”
Divisible Property is defined as “…all real and personal property as set forth below:
a. All appreciation and diminution in value of marital property and divisible property of the parties occurring after the date of separation and prior to the date of distribution, except that appreciation or diminution in value which is the result of post separation actions or activities of a spouse shall not be treated as divisible property.
b. All property, property rights, or any portion thereof received after the date of separation but before the date of distribution that was acquired as a result of the efforts of either spouse during the marriage and before the date of separation, including, but not limited to, commissions, bonuses, and contractual rights.
c. Passive income from marital property received after the date of separation, including, but not limited to, interest and dividends.
d. Increases and decreases in marital debt and financing charges and interest related to marital debt.
In summary, the court will focus on “marital” property, and to a lesser extent, “divisible property” which deals largely with the changes in the form or value of marital property after the date of the parties separation. The largest and most important component of the classification stage is identifying marital property, which in simple terms is what property you or your spouse acquired after the date of marriage and before you separated. For identification purposes, it does not matter how the property is titled or who “earned” the asset.
- Valuation of Marital Property. Step two will be valuing the marital property as of the date of separation. The value used by the court will be the fair market value, which is what the property could be sold for as of the date of separation. The court must have credible evidence to use to value to property in the event the parties disagree. Value can be proven by appraisals, market studies, testimony of experts or those with special knowledge of the value, marketing or sales prices of similar items, and other evidence.Separate property does not have to be valued, but it can be and must be if you are asking the court to make an “unequal” distribution. In the event an asset gains or loses value from during the time period between the date of separation and trial or the “date of distribution”, the Court can and will consider the change in the value and classify that change as “divisible property”. If no evidence is offered of such change, the court will simply value and divide the marital property.
- Dividing Marital and Divisible Property. The final step the court will take is to actually divide the marital property (and divisible if applicable). Each party will have asked the court to award each piece of marital property to one party or the other, or to have the property sold. The Court may order the sale of property is their is no other way to equitably divide it. This is often the case with a marital home as the parties will either not have enough liquid assets to equalize the division or their is a mortgage on the property that neither party can refinance into their own name alone. The process can be as simple a spreadsheet with two columns, one for each party. The court will go down the list of marital assets and award each asset to one party or the other. The associated value determined in step two will go with the property award. A running tabulation of value will be maintained for each parties column. After the division is completed, the goal will be to have a division that is as equitable as possible as determined by the number (dollar) value of each parties awarded assets. If the value of each parties award is unequitable after the division, the Court will likely order a “distributional award” meaning the party with the excess value shall make a money payment to the other to equalize the division.As the name suggests, “Equitable Distribution” is designed to be equitable, and in most cases that means equal. Equitable and Equal are not synonymous however, and courts can make an unequal distribution if requested by a party and court finds an unequal division equitable. There are thirteen factors considered by a court for an unequal distribution and they are set out in NCGS 50-20(c). These factors are too numerous to explore in this article, however we have addressed them in other articles. In most cases, courts find an equal distribution to be appropriate.At the end of the proceeding, the Court will have awarded all of the marital and divisible property to one party of the other, and dealt with all of the debts, assets, retirements, real estate, and other property issues in your divorce. Your Divorce Lawyer will work hard to ensure the final order entered in the case deals with every property issue and is specific enough to avoid future problems. The trial and final order are not the “end” in many cases however, as many retirement divisions typically require subsequent orders know as Qualified Domestic Relations Orders, and there are often future obligations that are ordered such as signing deeds or marketing a home. The “case” is never really “over” until the terms of the order have been fully complied with.It is essential to understand that this article provides general information in abridged and simplified form. The process of Equitable Distribution is very complex. Many factors affect how property is treated in a divorce and it requires a thorough understanding of the law of equitable distribution in order to effectively present a case. If you are facing separation or divorce, consult with an experienced Divorce Lawyer and obtain specific legal advice and assistance so that you can protect yourself and your financial future.
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