The one good thing about divorce is that it forces us to expand our vocabulary.
Terms like Equitable Distribution, marital property, divisible property, and asset tracking are not often the subject of witty dinner conversations and I am still waiting for John Grisham to flesh them out in a novel about a young divorce lawyer stealing an Equitable Distribution file but, no luck so far.
However, for those of us facing divorce, these are terms that will become all too familiar as we chart our way ahead. So to make things clearer, let’s look at the law of property division in regard to a North Carolina divorce.
Definition of Marital Property
First, let’s get a handle on some important terms. Chapter 50-13 of the North Carolina General Statutes defines marital property as “all real and personal property acquired by either spouse during the course of the marriage and before the date of separation,” and the property must be “presently owned”.
In short, if you acquired something while married and before you physically split up, it qualifies as marital property.
3 Steps to the Equitable Distribution of Marital Property
In North Carolina Divorces, the property of married couples is divided in a process called “equitable distribution”, which is set forth in NCGS 50-20. The process is divided into three basic steps, identification, valuation, and division, as set out below.
1. Identification and Classification of Marital Property.
The first step in Equitable Distribution, or the division of property in a North Carolina Divorce, is to identify the property of the parties and classify each item of real and personal property as either marital, separate, or divisible.
The first major category is marital property, which we know as what you acquired while married and before you physically separated.
The second major category of property to identify is separate property, which we will not formally define here other than to say that property acquired before marriage, or during the marriage but specifically defined in law as separate, or property clearly acquired after separation is separate property.
The final category of property for classification purposes is divisible, which is a hybrid category of property. It most commonly refers to property acquired after the date of separation but was acquired from marital funds or property. Typical examples of divisible property are items purchased from marital savings after separation.
So why are these classifications important?
Only marital property and divisible property will be included in the marital estate for division. Many Equitable Distributions Cases are litigated over whether or not certain items of property are marital or separate. These classification decisions can have a tremendous financial impact on the final award.
Common problem issues that are difficult to classify include:
- Stocks grants and options
- Co-mingled assets
- Real estate assets and holdings
- Intellectual property
- Revolving debts
- Any many other issues
The laws governing classification are very complicated. This is why it is important to be sure you have an experienced divorce attorney on your side.
2. Valuation of Marital Property
After the Judge decides what is truly “marital property,” that property will be valued by the Court using a “fair market value” approach. Each party will put on evidence as to the value and who should get the asset or debt with the Judge settling any disagreements.
Acceptable evidence may include:
- Prices similar items for sale
- Opinions or valuations
- And any other number of methods so long as they are admissible and assist the Judge in determining a fair market value
3. Division of Marital Property
The final step is the division, whereby the Court will assign each asset to one party or the other, and that asset will carry with it the determined fair market value.
The Judge is required by law to equalize any division unless the Court finds that an unequal division is equitable under the circumstances. NCGS 50-20(c) (1-12) set forth the factors which may justify an unequal distribution.
These factors are:
- The income, property, and liabilities of each party at the time the division of property are to become effective
- Any obligation for support arising out of a prior marriage
- The duration of the marriage and the age and physical and mental health of both parties
- The need of a parent with custody of a child or children of the marriage to occupy or own the marital residence and to use or own its household effects
- The expectation of pension, retirement, or other deferred compensation rights that are not marital property
- Any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having the title, including joint efforts or expenditures and contributions and services, or lack thereof, as a spouse, parent, wage earner or homemaker
- Any direct or indirect contribution made by one spouse to help educate or develop the career potential of the other spouse
- Any direct contribution to an increase in value of the separate property that occurs during the course of the marriage
- The liquid or nonliquid character of all marital property and divisible property
- The difficulty of evaluating any component asset or any interest in a business, corporation, or profession, and the economic desirability of retaining such asset or interest, intact and free from any claim or interference by the other party
- The tax consequences to each party, including those federal and State tax consequences that would have been incurred if the marital and divisible property had been sold or liquidated on the date of valuation. The trial court may, however, in its discretion, consider whether or when such tax consequences are reasonably likely to occur in determining the equitable value deemed appropriate for this factor
- Acts of either party to maintain, preserve, develop, or expand; or to waste, neglect, devalue or convert the marital property or divisible property, or both, during the period after separation of the parties and before the time of distribution
- In the event of the death of either party prior to the entry of any order for the distribution of property made pursuant to this subsection:
- Property passing to the surviving spouse by will or through intestacy due to the death of a spouse.
- Property held as tenants by the entirety or as joint tenants with rights of survivorship passing to the surviving spouse due to the death of a spouse
- Property passing to the surviving spouse from life insurance, individual retirement accounts, pension or profit‑sharing plans, any private or governmental retirement plan or annuity of which the decedent controlled the designation of the beneficiary (excluding any benefits under the federal social security system), or any other retirement accounts or contracts, due to the death of a spouse
- The surviving spouse’s right to claim an “elective share” pursuant to G.S. 30‑3.1 through G.S. 30‑33, unless otherwise waived
- Any other factor which the court finds to be just and proper
Typical Judgments for Equitable Distribution Cases
While these deviation factors are important and come into play in many cases, the vast majority of Equitable Distribution Judgments order an equal division of marital property. It is important to keep in mind that the larger the marital estate, and more often an unequal distribution can occur.
In conclusion, we must advise anyone that is facing the prospect of a division of property in a separation or divorce to consult with an experienced divorce attorney. The information in this article is general for North Carolina residents and for informational purposes only. Many factors that time and space do not allow us to get into can affect how property is classified, valued, and divided. There simply is no substitute for the advice and counsel of a seasoned family law attorney.
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Please feel free to contact us with any questions about marital property or to discuss your North Carolina Equitable Distribution case. Our team can be reached by calling the office at (919) 301-8843 or completing the contact form below.
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