North Carolina Property Division During Divorce
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
- Marital Property
- Divisible Property
Types of Property
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 of Marital Assets
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.
How The Division of Property Affects Taxes
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.