After your divorce, the court will 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." There are three
types of property that must be considered:
Separate Property
includes all property owned by either spouse before
the marriage, property acquired during the marriage
by one spouse by inheritance or gift from a third
party and property acquired after the date of separation
with postseparation earnings. A gift from one spouse
to the other during the marriage is marital property
unless the donor states at the time of the conveyance
that it is intended to be separate property. Separate
property also includes income from some separate
property and property obtained in exchange for separate
property.
Marital Property
includes property presently owned that was acquired
during the marriage except property found to be "Separate
Property." "Marital Property" includes
all vested pension and retirement benefits accrued
between the date of marriage and the date of separation.
As you might imagine, the law of equitable distribution
is extremely
complex
and
this
brief
description is
an oversimplification.
Divisible Property
includes post separation increases and decreases
in the value of marital property, property received
after the date of separation that was acquired as
a result of the marital efforts of either spouse
before the date of separation, passive income generated
by marital property and received after the date of
separation, and post-separation increases in marital
debt. In many ways “Divisible Property” is
treated the same as the treatment of “Marital
Property”: both are presumed to be divided
equally. One difference is that “Divisible
Property” is valued by the court at the time
of the trial, not on the date of separation as is “Marital
Property.” 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. “Divisible Property” is subject
to an “interim distribution” by the court
that might be one way to deal with anticipated changes
in the value of assets or changes in your debts incurred
during the marriage.
Equitable distribution can take place before or after
a final divorce judgment if you have preserved your
rights before the divorce judgment. The court will
divide marital property 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:
Income, property and debts of a party;
Support obligations from prior marriages;
Length of marriage and age and health of each
party;
Needs of custodial spouse to own or to possess
the marital homeplace and household effects;
Expectation of retirement benefits which are
separate property;
Efforts made by each spouse to acquire property;
Contributions of one spouse to the education
of the other;
Contributions that increase the value of separate
property;
Liquid or non-liquid nature of property;
Difficulty in valuing interest in a business;
Tax consequences;
Actions taken by either party to preserve
or waste marital assets;
Other factors.
If you have
any assets (bank accounts, cash, etc.) that your
spouse might take, remove or otherwise conceal, you
should advise us 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.
Marital misconduct such as adultery is not considered
in the settlement of property rights as in an action
for alimony. 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.
Basically, a division of marital property 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.
