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Our firm’s founder Attorney Charles Montgomery has over 40 years of proven, award-winning legal experience.
The process for division of property in North Carolina is known as "Equitable Distribution.” There are three classifications of property in North Carolina that must be considered:
The distinctions between the three are significant, as property deemed as separate is not subject to property division in North Carolina.
Types of Property
Typically, one thinks of real estate, personal items, and intangibles such as income or benefits when considering the nature of marital property to be divided. In matters of property division, the court treats debts in much the same way it does assets. Debts will be categorized as marital, divisible or separate based on when, how, and for what purpose they were acquired. If a debt is determined to be marital property or divisible property, the court may split that debt equally between spouses, unless additional factors dictate otherwise.
Separate Property
Separate property includes all property owned by either spouse before
the marriage, property acquired during the marriage by one spouse via
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 or otherwise clearly indicates at the time of the gift/conveyance
that it is intended to be separate property. Separate property may also
include income from separate property and property obtained in exchange
for separate property.
Marital Property
Marital property includes all property that was acquired during the marriage,
and prior to the date of separation, unless the property is characterized
as separate property. Marital property includes all vested pension and
retirement benefits accrued between the date of marriage and the date
of separation.
Divisible Property
Divisible property includes post-separation increases and decreases in
the value of marital property due to “passive” activity (e.g.,
due to changes in market conditions), 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 (e.g., dividends on stock, etc.) and received after
the date of separation, and post-separation increases and decreases in
marital debt that are “passive” in nature (i.e., not due to
the active direct efforts of either spouse; for example, interest charges
that automatically accrue would constitute passive debt).
In many ways divisible property is treated similar to 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, unlike marital property, which is valued by the court as of the date of separation. 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 your equitable distribution trial.
Equitable Distribution of Marital Assets
So long as you preserve your statutory right of equitable distribution
beforeyour divorce judgment (by filing your claim for equitable distribution
with the court prior to the divorce), equitable distribution can take
place before or after a final divorce judgment. The court will equitably
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:
If you have any assets, such as bank accounts or cash, that you suspect your spouse might take, remove, destroy, or otherwise conceal, you should advise us immediately so that protective actions can be taken. The court has the power to enter an injunction to prevent the removal or disappearance of any assets.
Unlike in alimony cases, marital misconduct such as adultery is not considered in the settlement of property rights. However, financial misconduct that constitutes “marital waste” could be considered by the court in determining the appropriate and equitable property division.
If you and your spouse can agree on a division of your property, and if your agreement is reasonable, it will be approved by the court. In the event you and your spouse are unable to agree on property settlement, a judge will divide your marital and divisible 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 (See Internal Revenue Code, § 1040). There may be tax consequences, however, when funds are transferred from a 401(k) retirement plan or and Individual Retirement Account (IRA) or when marital assets are sold to third parties. Proper legal planning can eliminate or minimize any tax consequences of such events.
Timing on the sale of a marital residence can have significant tax consequences affecting your non-recognition of taxable gain on the sale. Also, property that has increased in value significantly since it was acquired (e.g., shares of stock) may carry heavy tax liabilities down the road 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.
If you have questions about property division, please contact us today. We would be happy to answer all of your North Carolina spousal support questions.
Our firm’s founder Attorney Charles Montgomery has over 40 years of proven, award-winning legal experience.
At Montgomery Family Law, each of our attorneys dedicates 100% of their law practice to family law and divorce.
Two of our attorneys are N.C. Board Certified Family Law Specialists, a certification earned by only 1% of lawyers statewide.
Known for our dedication, our firm is rated AV Preeminent® by peers, the highest rating possible for ethics and legal skill.