Unless spouses can agree how to divide their marital estate, the court will divide marital and divisible property and debt in accordance with the North Carolina Equitable Distribution Statute (N.C.G.S. §50-20). In doing this, the court’s job is to:
- classify the property as marital property, divisible property or the separate property of one spouse;
- value the marital and divisible property and debts; and
- distribute the marital and divisible property and debts equitably between the parties.
The law of equitable distribution is extremely complex. When dividing your marital estate, you need an experienced divorce attorney in Cary, North Carolina, who understands these complicated financial issues. At Ward Family Law Group, we have the experience you need. We have represented clients in the division of multi-million dollar estates, as well as those who are or whose spouses are shareholders in closely-held businesses. We work closely with business valuators, certified public accountants, certified divorce planners and pension valuation experts to help you obtain the best settlement possible.
What is marital property?
Marital property is any property accumulated during the marriage, regardless of title, including but not limited to, houses, land, cars, boats, bank and investments accounts, stocks and other securities, retirement and pension plans, stock options, other forms of deferred compensation, household furnishings, business interests, intellectual property rights (such as royalties), tax refunds, etc. There is a presumption that any asset accumulated during the marriage is a marital asset, regardless of which spouse holds title to the property. So, even if one spouse contributes $1,000 from his earnings each and every month during the marriage towards a savings account, the money in that savings account as of the date of separation is marital property subject to division between the spouses. This is not the case for marital debt. A party claiming that a debt is marital must show that the debt was incurred during the marriage for the joint benefit of the parties. Thus, if one party incurs debt for non-marital purposes during the marriage and prior to the date of separation, that debt will not be subject to division between the parties. For example, if Husband has a gambling problem and takes out a cash advance against his credit card of $5,000.00 right before the parties separate from each other and gambles it away in Vegas, then more than likely the $5,000 on the credit card will not be marital debt. In contrast, if Husband had charged $5,000 on his credit card to pay for a family vacation to Las Vegas during the marriage, then that $5,000 was for the joint benefit of the parties.
Marital property is valued on the date of separation. Depending on the type of divisible property at issue, divisible property is usually valued on the date of distribution. For example, a house that is marital property will be valued as of the date of separation, but any divisible property associated with the house, such as an increase in the value of the property due to passive market factors, will be determined as of the date the property is to be distributed. Therefore, you may have to have the marital residence appraised as of the date of separation and a date closer to the actual distribution date if that date is substantially later than the date of separation.
What is separate property?
Separate property is any property that either spouse owned prior to marriage or acquired by gift from a third party during the marriage. This includes inheritance that one spouse may receive during the marriage. Unless there is a contrary intent stated in the conveyance, gifts between spouses are considered marital property. Additionally, any property a spouse receives in exchange for separate property remains that party’s separate property. For example, if one spouse owned a motorcycle prior to marriage, and after the marriage traded the motorcycle in for a boat, the boat would still be that spouse’s separate property even though the boat was acquired during the marriage. The court does not have the authority to divide and distribute a spouse’s separate property.
What is divisible property?
Divisible property includes appreciation and diminution in value of marital property 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. For example, if the value of the marital home increases in value by $25,000 from the date of separation until the date the property is distributed and the increase in value is simply due to passive market factors, then the increase in value is divisible property subject to distribution between the parties. However, if the house increases in value due to the post-separation active efforts of one spouse, such as building an addition onto the house, then the increase in value is not divisible property subject to division between the parties.
Divisible property can also include property or property rights received after the date of separation but before the date of distribution that were 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 other contractual rights. An example of this might include a bonus a spouse receives after the date of separation for work he performed during the marriage before the date of separation. Passive income from marital property received after the date of separation is also divisible property subjection to division between the parties. This can include gains, losses, or interest and dividends on investment accounts simply due to passive market factors.
There is a strong presumption that an equal (50/50) division of the property is an equitable, or fair, division of the marital estate. However, a judge may consider various distributional factors and determine that an equal division would not be fair in the case and award one spouse more than 50% of the marital estate. The distributional factors that the Court may consider are:
- Income, property and debts of a party;
- Support obligations from prior marriages;
- Length of marriage and age and health of each party;
- Needs of custodial spouse to own or to possess the marital home and household effects;
- Expectation of retirement benefits which are separate 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 title, including joint efforts or expenditures and contributions and services, or lack thereof, as a spouse, parent, wage earner or homemaker;
- Contributions of one spouse to the education of the other;
- Direct contributions that increase the value of separate property;
- Liquid or non-liquid nature of property;
- Difficulty in valuing an interest in a business;
- Tax consequences resulting from or likely resulting from the liquidation or sale of an asset; and
- Actions taken by either party to preserve or waste marital assets; and
- Other economic factors.
The division of the marital estate can be a complicated process, and it is important that you have an attorney who understands these complex financial issues and can protect your interests.
Frequently asked questions
What role does marital misconduct play in dividing the marital estate?
Generally, marital misconduct, such as adultery, is not relevant at all in the litigation of property rights. The division of property in North Carolina is based upon the economic factors described above.
What are the tax consequences of dividing our marital estate?
Generally, transfers of property between spouses or former spouses incident to a divorce are non-taxable pursuant to Section 1041 of the Internal Revenue Code, so no gain or loss is recognized by either party as a result of such transfer between the two spouses. However, there may be significant tax consequences when funds are transferred from retirement and individual retirement accounts and when marital assets are transferred to third parties.
There can be a number of hidden tax issues that you should consider when determining how to divide your marital estate. It is critical that all property distribution matters be reviewed and analyzed by your attorney and your accountant for potential tax consequences.
My spouse and I are separated and I just settled a personal injury lawsuit for $5 million. Is my spouse entitled to any of that money?
Maybe. Even though you received the personal injury settlement after the date of separation, if the settlement resulted from an injury occurring during the marriage, then the settlement may be “divisible” property subject to distribution between the parties. However, any part of the settlement which represents compensation for non-economic loss (i.e., for pain and suffering and disability) is the injured spouse’s separate property. Compensation for economic loss, such as lost wages, loss of earning capacity during the marriage and reimbursement for medical expenses paid out of marital funds during the marriage would be marital or divisible property subject to division between the parties.
Do I have to give my spouse half of my pension? If so, how does she receive it?
If the pension rights were earned during the marriage and prior to the date of separation, then the pension is marital property and subject to division between the spouses.
There are two ways to deal with the pension. You can value the pension and the spouse who owns the pension can keep the entire pension and the non-owning spouse can receive other marital assets to offset her interest in the pension, or the pension can be divided pursuant to a domestic relations order and the non-owning spouse will receive her share of the pension as a lump sum payment, at the time the spouse owning the pension begins receiving payments under the pension plan, or in some other payment format as permitted by the pension plan’s administrator. If you are the non-owning spouse, make sure that your attorney understands the importance of survivorship rights/options under the pension plan, both pre-retirement and post-retirement. You do not want your interest in the pension to die with your spouse.
I have stock options, but I can’t exercise them yet, so those are not marital assets, right?
Wrong. Stock options are a form of divisible property and are subject to division. It is important that your attorney review the company’s stock option plan/agreement, know how to divide options, understand the tax consequences in dividing these assets, and know what could terminate a person’s right to these options.
Do all of the property issues have to be decided by a judge?
No. As with most family law issues, the property claims can be resolved by negotiation between the parties, mediation or arbitration. It is important that the parties consider ways to resolve, or at least narrow, the disputed issues in an equitable distribution case, because it is very time-consuming and expensive to litigate an equitable distribution case in the court system. The courts encourage parties to resolve their dispute if at all possible. In fact, if you file a claim for equitable distribution in WakeCounty, you are required to participate in some form of alternative dispute resolution, such as mediation or arbitration, and attempt to resolve your claim.