The law as it relates to property distribution is as intricate as it is vast. Even in the most amicable of divorces, the division of property, assets, and liabilities can be one of the more complex tasks. An already difficult situation can be further complicated by a lack of understanding surrounding the legal process. The attorneys at Hatcher Law Group have considerable knowledge of this area of the law and significant experience representing clients in family financial matters, including property division.
What is Equitable Distribution?
Property distribution, commonly known as “equitable distribution” in North Carolina, is the process of identifying, classifying, evaluating and distributing property. This process can be one of the most challenging areas of family law and it forces lawyers and judges to confront difficult and diverse issues. Hence, the process of equitable distribution takes organization, patience, time, problem solving skills, and the involvement of other competent professionals such as appraisers and accountants.
You and your spouse are not required to go through this process if you are considering separation or divorce. If spouses can reach an agreement as to how their property will be divided, then the court’s intervention is not necessary and a claim for equitable distribution does not need to be initiated. However, it is extremely beneficial to have the provisions of your agreement incorporated into a Separation and Property Settlement Agreement, which is a contract that represents a final and often non-modifiable resolution to the distribution of property interests between spouses. Nevertheless, it is worth noting that, even if you are fortunate enough to be able to come to a resolution of property issues with your spouse, it is strongly recommended that you seek the representation of a family law attorney to prepare the Separation and Property Settlement Agreement. When an amicable resolution is not possible, the process known as equitable distribution comes into play.
The Elements of Equitable Distribution
Certain criteria must be met before you can proceed with the equitable distribution process. Furthermore, there are certain elements that define what the court’s role should be in the equitable distribution process and when a claim for equitable distribution is considered timely filed.
- First, only married spouses may file a claim for equitable distribution. If a valid marriage does not exist, there can be no claim for equitable distribution by either party.
- Next, the spouses must be separated. In North Carolina, this means only spouses who are living separate and apart from each other may file a claim.
- Third, the court must determine what property is considered marital property and divisible property; and provide for an equitable distribution of the marital and divisible property between the parties.
- Finally, except for certain limited exceptions, an absolute divorce within North Carolina “shall destroy the right of a spouse to equitable distribution … unless the right is asserted prior to judgment of absolute divorce.” N.C.G.S. 50-11 (e), (f). This simply means a party must have at least a pending claim for equitable distribution filed with the court before the court grants an absolute divorce. Otherwise, you lose your right to file the claim and all marital and divisible property will be distributed according to the spouse who has title.
Identification and Classification, Valuation, and Distribution
Equitable Distribution can be broken down into a three-step process:
- Identification and Classification – Attempting to categorize property interests into either separate property, marital property, or divisible property.
- Valuation – Assigning a value for the asset or debt as of the date of separation and the date it is distributed.
- Distribution – Assigning the asset or debt to a particular spouse.
There is a presumption in North Carolina that everything received during the course of marriage is marital property. Unless you can prove otherwise, the courts will presume that everything incurred, obtained, earned, and received during the course of marriage is marital property, and thus, is subject to equitable distribution. However, this does not mean that marital property will be divided equally. Rather, this means that you and your spouse’s marital property is subject to division based on what the court deems to be fair.
You can have a separate property interest in essentially three ways: 1) All property interests obtained prior to marriage are considered separate property; 2) You receive an inheritance; 3) A gift is given directly to you.
If you receive an inheritance during the course of the marriage, this is your separate property. Although this separate property concept is easy to apply during the equitable distribution process, the separate property concept surrounding gifts is not. In order for you to successfully claim a gift as your separate property, you must prove, by documentary evidence, testimony or otherwise, that the gift was given by the donor solely to you. Otherwise, the presumption is that the gift was a gift to the marriage. As a side note, even gifts given by one spouse to another are usually considered gifts to the marriage because they were bought with the marital money, and thus, represent marital property.
North Carolina will use the source of funds approach to determine if a piece of property is marital, separate, or both. This is called “tracing.” For example, if a spouse enters a marriage owning his or her own car, that car is considered separate property. However, if the spouse sells the car and uses the proceeds for a down payment on a new car that is financed, the new car will have both separate and marital components. The separate money used as the down payment can be “traced” back to the spouse’s separate property and will remain separate. The financed portion of the car will be marital property assuming the spouse uses marital money to make the monthly payments. This can become very complex with the passage of time and if there is real property involved. Using your separate money toward a home that is titled jointly can be considered a gift to the marriage thus losing the separate property component no matter how well you can trace the money. It is important to keep good records and to speak with your attorney about your specific situation.
Divisible property is the term for passive increases and decreases in the value of marital property and debts after the date of separation. There is usually a long period between the date of separation and the date the property is actually distributed following a settlement or trial. Therefore, the court has to assign those fluctuations in value to one party. For example, if you have a 401(k) on the date of separation and neither you or your spouse are contributing to it, the value will fluctuate based on the market while you are discussing settlement or preparing for trial. Therefore, when the 401(k) is distributed to a party, it will have a different value than it did on the date of separation. The difference in the value on the date of separation and the present value is called divisible property which the court must also distribute.
Equitable Distribution Process after Filing a Claim
Once a claim for equitable distribution is filed, the Local Rules for Mecklenburg County set out a schedule for the next steps and deadlines. Family Court will schedule an Initial Pretrial Conference. At the Initial Pretrial Conference, the court gives the parties deadlines for events in their case such as completing mediation and discovery as well as the presentation of expert reports. The court will also assign the trial term for the final equitable distribution trial if one is available. Ten days before this Initial Pretrial Conference, the parties’ Equitable Distribution Affidavits should be filed and the parties should exchange supporting documents. After the Initial Pretrial Conference, the parties will attempt mediation either privately or through a judicial settlement conference with a judge not assigned to their case. If the case is not resolved at that point, the court will schedule a Final Pretrial Conference where the parties and their attorneys meet with the court to discuss any outstanding discovery issues and to determine if the matter is ready for trial. The final step is a trial before the assigned judge after which he or she will give a ruling. The judge will assign one attorney to prepare the written order incorporating the court’s ruling. Then, the final version of the order (or competing versions if the parties or their attorneys cannot agree) is submitted to the court for signature.
When the property interests of the parties have been properly identified, classified, and valued, the court will determine how the property will be distributed. The list below includes some of the factors the court may utilize in making its determination. This list is not inclusive because, as you will note, the last distributional factor is really not an affirmative factor at all. Rather, it is a place where you and your attorney can decide if there are additional distributional factors that weigh in your favor.
- The income, property and liabilities of each party at the time the division of property is 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 non-vested pension, retirement, or other deferred compensation rights, which is 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.
- Any direct contributions 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 separate property which occurs during the course of the marriage.
- The liquid or non-liquid character of all marital property.
- The difficulty of evaluating any components of assets 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.
- Acts of either party to maintain, preserve, develop, or expand; or to waste, neglect, devalue or convert such marital property, during the period after separation 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 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.
It is important to note that although marital misconduct is a factor the court may consider in determining the amount and duration of a post-separation support or alimony award, it does not affect in any way a person’s right to equitable distribution or the disposition thereof, unless it results in a financial impact on the parties. For example, if one spouse gambles away the parties’ savings, the court may consider that spouse’s actions as a factor.
In most cases, your attorney may have made a claim for reimbursement of attorney’s fees when the equitable distribution claim was filed. The court will only award reimbursement of attorney’s fees in an equitable distribution claim if there are verified acts by the opposing party as to waste, neglect, or devalue of marital property. As always, this determination is in the discretion of the court.
Experienced Equitable Distribution Attorneys
When spouses decide to go their separate ways, it is important to know how the property acquired before, during, and after marriage will be divided. Regardless of your financial circumstances, it is wise for anyone going through a divorce to consult an attorney with experience in family financial matters and the intricate details that often accompany these matters. At Hatcher Law Group, our attorneys have substantial experience handling property distribution issues, including those involving substantial assets or when a business is part of the marital estate. We approach each situation based on the individual circumstances of our clients whether through out of court negotiation or litigation. Please contact us today to schedule a consultation.