DIVIDING PROPERTY BY EQUITABLE DISTRIBUTION IN NC
Property Division by
Equitable Distribution
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 of dividing up marital assets and bills 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” includes the house, the cars, the bank accounts, the furniture, and all of the other assets. If the asset or debt is part of the marriage, 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 is not split. You and your spouse may come to an agreement on how to divide the property and debts owed; if you are unable to agree, the court will make the decision for you. If you are able to come to an agreement 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 four-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;
- Distribute each item to either you or your spouse, usually on an equal 50/50 basis.
What does marital property mean?
What does separate property mean?
Marital property is the property that was purchased with marital funds and generally must be divided between you and your spouse in a divorce. North Carolina is a “source of funds” state. That means 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. If you inherited the item or owned it outright before your marriage, it’s probably your separate property and you get to keep it. There are exceptions to every rule, so you may wish to speak with an attorney.
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. Valuing the asset may be tricky, especially if you have not kept good records.
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.
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.
How is your 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 about taxes when dividing a 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.
Can't we just sell everything and split the proceeds?
Does the court always divide marital property equally? 50/50
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. Learn about inventory affidavits.
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.