Property Division by Equitable Distribution in Divorce in NC
So your marriage has ended and you are headed towards a divorce. You have lots of questions about who will get the house, how the bills will get paid, and whether you get to keep your retirement. In North Carolina, this process is called “equitable distribution.”
What is Equitable Distribution?
Equitable distribution is the process by which your marital property and debts are divided in a divorce. Property means the house, the cars, the bank accounts, the furniture, and all of the other assets. If the asset or debt is marital, then it gets divided between the two of you. If the asset or debt is separate, then it stays with the person it belongs to and does not get divided between the two of you. Your debts and property may get divided by the court, or by consent. If you are able to agree on how to divide your property, you may have an attorney draft a separation agreement, or a consent order signed by a judge. If you need the court to divide your assets, you must file a claim for equitable distribution BEFORE you get divorced. Whether you work out a division of property by consent or through the court system, dividing your debts and property in a divorce is a 4 step process.
- List all the property and all the debts that you and your spouse have,
- Determine if each one is marital or separate (more about that below),
- Value each item as of the date you and your spouse separated, and now
- Distribute each item to either you or your spouse, usually on an equal 50/50 basis.
What does Marital Property mean? What is Separate Property?
Marital property is the property that has to be divided between you and your spouse in a divorce. North Carolina is a “source of funds” state. That means that the court cares more about where the money came from to buy the property than how the property is titled. So, for example, if during the marriage, you bought a car, and it’s titled in your name, that does not mean it’s your separate property. If you bought it, or made payments on it, with money you earned during the marriage, then it’s a marital asset and gets added to the list of items to be divided between the two of you. Benefits that you earned during the marriage but have not received yet, such as bonuses, commissions, pensions, or stock options are also marital property.
Separate property is property that does not belong to both you and your spouse. For example, if you inherited the item, it’s probably your separate property and you get to keep it. If you can prove that bought an item with funds you inherited, you probably keep it. There are exceptions to this rule, for example, if you mixed inherited funds with marital funds to the point that you can’t trace the inherited funds, so talk to an attorney to be sure.
If you owned the item before you got married and did not use any funds earned during the marriage to make improvements, or pay down a loan on the item, it’s probably your separate property and you get to keep it. Again, there are exceptions to this rule, for example, if you deliberately titled the inherited item in the name of your spouse, so you have to talk to a family law attorney to be sure.
Some assets can be both marital and separate. For example, if you owned a house prior to marriage, and then improved it and paid down the mortgage during the marriage, then the asset is both marital and separate. The value of the house as of the date of marriage is your separate asset. The increase in value during the marriage due to funds earned during the marriage being spent on the house is a marital asset that gets divided between the two of you.
Another example of an asset that is often both marital and separate is a retirement account. For example, if you started a retirement account before you got married, contributed to it before the marriage and during the marriage, then it’s both separate and martial. To determine how much is marital, we would use a fraction, with the top number being the number of months that you were married and contributing to the plan, and the bottom number being the total number of months you had the plan. The resulting fraction is the marital portion, which is called the coverture fraction. So if you had the retirement account for, say 15 years (180 months), and you were married for 8.5 of those years (102 months), the marital portion is 102/180 or 78%. So 78% of your retirement account is marital and gets divided between the two of you, and 22% is your separate asset.
How are debts divided in a Divorce?
If the debt was incurred during the marriage and was used for the benefit of the marriage, it’s a marital debt, even if it’s only in your name. So, the mortgage on the marital home, the loan on the cars, car, credit cards in either name, medical bills, are all probably martial debts to be divided between the two of you. Credit card expenses for clothes, vacations, repairs, normal living expenses are probably marital. Again, there are some exceptions, for example, you have student loans, and you left your wife the minute you graduated. She never got the benefit of your new degree and the money you can now earn because of that education. In that case, the debt did not benefit the marriage and it’s your separate debt. If your wife has gambling debts, or ran up the credit cards paying for hotels and gifts for her lover, then that did not benefit the marriage; so it’s a separate debt.
How is the property valued?
For each item on your list, you have to assign a value. The value is the amount the property would sell for on the open market. The value is not the purchase price, or what it would cost to replace it item. The value is what it would sell for on eBay or at a yard sale to a stranger. The value of an account, like a bank account or retirement account is the value on the account statement on the date of separation.
Debts are valued based on the statement or invoice closest to the date of separation.
What if the value changed after separation?
Values often change after the date of separation. Stock values fluctuate, payments on debts reduce the balance, investment accounts earn interest, and cars depreciate. Those changes are called divisible property and get taken into account when the entire list is distributed.
What about taxes when dividing property in a divorce?
Transferring a marital asset from both of you to one of you is not a taxable event. But some assets, for example retirement accounts, cannot be cashed out without tax consequences and penalties. Selling your house may have tax consequences, or other costs, such as a realtor’s fee. These costs need to be factored into the value of each item depending on how the item is distributed.
What is an inventory affidavit?
You need to start with a list of all of your property and assets. That list is called an inventory affidavit. An inventory affidavit is a form or a spreadsheet with all the information about your property and debts. The affidavit will list of all the assets and debts, with a value as of the date of separation, and any changes in value since the date of separation. Each item will need to be marked separate or marital, and indicate whether you keep the item or your spouse keeps the item. If the total value of what you are keeping is bigger than the total value of what your ex is keeping, you need to pay your ex half the difference to get to a 50/50 distribution. If his total is bigger, he needs to pay you half the difference.
Can we just sell everything and split the proceeds?
Under North Carolina law, selling an asset is only ordered as the last resort. The court tries to adjust the list of assets and debts in your column and the assets and debts in your ex’s column until it’s as equally divided as possible.
Does the court always divide the marital property equally, 50/50?
Most of the time, the marital estate is divided equally. But in some cases, an equal division would not be fair. North Carolina law lists 12 factors that the court can consider in deciding to distribute more of the marital estate to one spouse than the other. They are listed in section (c) of the statute.
For example, if you have medical issues that prevent you from working, the court may award you more than 50% of the total value of the property. Or if you have a high income and your employer contributes to your retirement account, but your spouse is unemployed, the court might give your spouse more than 50% of the marital estate.
I got divorced, but we still have property in joint names. How do I get my ex’s name off the house, car, etc.?
If you did not file a claim for equitable distribution before you got divorced, you can’t file that claim after the divorce was entered. If you still have property titled in both names, and that property needs to be divided you can file a petition with the clerk of court where you live, or where you ex lives and ask the court to either divide the property or sell it.
After I got divorced, I was told I am entitled to half my ex- husband’s retirement. How do I make a claim for his retirement?
If you did not file a claim with the court for equitable distribution to have the court divide the property and debts from the marriage before you got divorced, you can’t file that claim after the divorce was entered. You have given up your right to his retirement.
If you have a separation agreement or a court order that awards you a portion of your ex spouse’s retirement funds, you typically have to have a special court order, called a Qualified Domestic Relations Order, or QDRO, signed by a judge for those funds to be distributed to you.
What is a QDRO?
Retirement accounts or pension plans are typically managed by a plan administrator, such as Fidelity, or BB&T. If you have been awarded a portion of your spouse’s retirement account in a court order or separation agreement, you need a special court order authorizing the plan administrator to transfer those funds to you. Some plan have forms you can file out, but you probably need an attorney to fill out the forms, file the claim with the court and get a judge to sign the QDRO if you want to make sure you get your share.
If you have questions about how to divide your assets and debts in a divorce, the attorneys at Averett Family Law are happy to meet with you. Just call the office to schedule a consultation.