North Carolina Property Division Attorney

Understanding Equitable Distribution in Divorce

During your divorce, the court can divide the property owned by you and your spouse, if you have not voluntarily agreed to a property division earlier. In North Carolina this process is described as "Equitable Distribution of Marital Assets."

Classifying Property in Divorce Proceedings

There are three types of property that must be considered: separate property, marital property, and divisible property.

Defining Separate Property

Separate property includes all property: (1) owned by either spouse before the marriage, (2) acquired during the marriage by one spouse by inheritance or gift from a third party, and (3) acquired after the date of separation with post-separation earnings.

A gift from one spouse to the other during the marriage is generally marital property unless the giver states that it is intended to be separate property at the time of the conveyance. Income from some separate property and property obtained in exchange for separate property can also be classified as separate property.

Identifying Marital Property

Marital property is property acquired during the marriage that does not otherwise qualify as separate property. Marital Property also includes all vested pension and retirement benefits that accrued between the date of marriage and the date of separation.

Understanding Divisible Property

Divisible property includes: (1) post-separation increases and decreases in the value of marital property, (2) property received after the date of separation that was acquired as a result of marital efforts before the date of separation (e.g., bonuses for work performed during the marriage), (3) passive income generated by marital property and received after the date of separation, and (4) post-separation changes in marital debt.

In many ways divisible property is treated the same as marital property; both are presumed to be divided equally. One difference is that divisible property is valued by the court as of the time of the trial, not on the date of separation, as marital property is. The category of divisible property applies only to actions filed on or after October 1, 1997. You should point out to your attorney any significant changes in the value of possible divisible property, which includes assets and debts, that you anticipate could occur before the time of trial of your property division case.

Factors Influencing Equitable Distribution

Equitable distribution can take place before or after a final divorce judgment, so long as you have preserved your rights before the divorce judgment. The court will divide marital and divisible property between the parties. While there is no precise formula for dividing the property, there is a strong tendency in North Carolina to divide the property or its equivalent value equally.

There are thirteen (13) statutory factors the court must consider in deciding whether an equal division is appropriate in your case. These factors are:

• The income, property, and debts of each party.
• Support obligations from prior marriages.
• The length of the marriage and the age and health of each party.
• The needs of one spouse to own or to possess the marital homeplace and household effects.
• Each party’s expectation of separate retirement benefits.
• Efforts made by each spouse to acquire property.
• Contributions of one spouse to the education or earning potential of the other.
• Contributions that increased the value of separate property.
• The liquid or non-liquid nature of property.
• Any difficulty in valuing interests in a business.
• Tax consequences.
• Actions taken by either party to preserve or waste marital assets.
• Other similar factors relevant to distributing the estate fairly.

If you have any assets (bank accounts, cash, etc.) that your spouse might take, remove, or otherwise conceal, you should advise your attorney immediately so that protective actions can be taken. We may advise you to immediately withdraw at least one-half of any liquid funds to protect your interest. Also, a court has the power to enter an injunction to prevent the removal or disappearance of any assets.

Although relevant to an action for alimony, marital misconduct such as adultery is not considered in the settlement of property rights. If you and your spouse can agree, and if your agreement is reasonable, it will be approved by the court. If you cannot agree, the court will divide the property.

Tax Implications of Property Division

A division of marital and divisible property is a nontaxable event. Generally, if property is transferred between spouses under an agreement or court order, it will neither be taxed as income nor allowed as a deduction.

There may be tax consequences, however, when funds are transferred from retirement plans and Individual Retirement Accounts and when marital assets are sold to third parties. Timing on the sale of a marital residence can have significant tax consequences affecting your non-recognition of gain on the sale. Property that has increased in value significantly since it was acquired may carry heavy tax liabilities for the party who takes it by settlement or court order.

All property distribution matters should be analyzed for tax consequences by your CPA or tax advisor before you sign a separation agreement or go to court. We are not qualified as tax advisors.

For a Consultation on Divorce Property Division, Call Us at (919) 348-2317.