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In North Carolina, the division of marital property by a court as a result of separation and divorce is governed by equitable distribution law.
Equitable distribution reflects the idea that marriage is a partnership enterprise to which both spouses make vital contributions and which entitles the homemaker spouse to a share of the property acquired during the relationship.
-White v. White, 312 N.C. 770, 324 S.E.2d 829 (N.C., 1985)
There are typically four steps that the court follows in an equitable distribution case: identify, classify, value, and distribute.
First, the court must know what property exists. All assets and debts owned by one or both of the parties on the date of separation should be considered.
The next step for the court is to determine if the property is marital, which is subject to equitable distribution, or separate, which is not.
“Separate property” is all real and personal property acquired by a spouse before marriage or acquired by a spouse by inheritance or gift during the marriage. Separate property exchanged for other property remains separate property regardless of how the new property is titled. Separate property is not subject to distribution by a court; it remains the property of the spouse that acquired it.
“Marital property” is all presently owned real and personal property acquired by either or both spouses during the marriage and before the date of the separation, except property determined to be separate property.
Next the court must determine the fair market value of the property. Some property, like a bank account, may be easy to value based on statements on or about the date of separation. Other assets, such as real estate, pensions, and collections, may be a little more complicated and require the assistance of appraisers.
“Fair market value has been defined as ‘the price which a willing buyer would pay to purchase the asset on the open market from a willing seller, with neither party being under any compulsion to complete the transaction.’ ”
-Hill v. Hill, 748 S.E.2d 352 (N.C. App., 2013)
Finally, the court divides the marital property amongst the spouses. The statute says that the division shall be equal unless the the court determines that an equal division is not equitable.
equitable [ek-wi-tuh-buh l] adjective. Characterized by equity or fairness; just and right; fair; reasonable.
In determining whether equal is equitable, the court must consider the following factors:
(1) The income, property, and liabilities of each party at the time the division of property is to become effective.
(2) Any obligation for support arising out of a prior marriage.
(3) The duration of the marriage and the age and physical and mental health of both parties.
(4) 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.
(5) The expectation of pension, retirement, or other deferred compensation rights that are not marital property.
(6) 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.
(7) Any direct or indirect contribution made by one spouse to help educate or develop the career potential of the other spouse.
(8) Any direct contribution to an increase in value of separate property which occurs during the course of the marriage.
(9) The liquid or nonliquid character of all marital property and divisible property.
(10) The difficulty of evaluating any component asset 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.
(11) The tax consequences to each party, including those federal and State tax consequences that would have been incurred if the marital and divisible property had been sold or liquidated on the date of valuation. The trial court may, however, in its discretion, consider whether or when such tax consequences are reasonably likely to occur in determining the equitable value deemed appropriate for this factor.
(11a) Acts of either party to maintain, preserve, develop, or expand; or to waste, neglect, devalue or convert the marital property or divisible property, or both, during the period after separation of the parties and before the time of distribution.
(11b) 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:
a. Property passing to the surviving spouse by will or through intestacy due to the death of a spouse.
b. 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.
c. 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.
d. 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.
(12) Any other factor which the court finds to be just and proper.
Generally, in-kind distribution is suitable – distribution of a car, or a house, or a portion of a retirement account. There are times when in-kind distribution is inappropriate or doesn’t accommodate an equal or equitable split. In these situations, a court may order one spouse to pay the other a distributive award to effect the determined split.
Equitable distribution may be determined before or after a judgment of divorce. But the claim must be raised prior entry of a judgment of divorce in order to preserve the court’s ability to make a determination after divorce.
Contact our firm today if you have questions about property distribution or if you think you may need assistance with an equitable distribution claim.