Dividing Property In Divorce - How Does it Work?

If you are separated from your spouse or thinking about separating from your spouse, you need to begin planning for the division of your marital assets and debts. Any property acquired during your marriage will be considered marital (except property acquired by gift or inheritance to only one spouse). Any debts acquired during your marriage will also be considered marital, so long as the debts were for expenditures that benefited the marriage in some way (which is broadly defined).

In North Carolina, the law presumes that a 50/50 split of marital assets and debts is fair and equitable. Thus, an equal split of the property is the most typical outcome, whether by a negotiated out-of-court settlement or by order of the court. However, this presumption can be overcome for good cause, in which case one spouse might take more than 50% of the property. For example, if one spouse contributed a substantial amount of his or her premarital savings to purchase a marital asset, this might be good cause to not divide this asset equally. There are many other potential examples that might be applicable to your unique circumstances. Property division law in North Carolina is complex. There are thirteen listed statutory factors that a court must consider to determine whether to divide the marital property 50/50 or whether an unequal division of property in favor of one spouse should occur.

There are seven general categories of marital property and debt:

  1. Real property,
  2. Bank & investment accounts,
  3. Retirement accounts,
  4. Investments (e.g., stocks, bonds, etc.),
  5. Business interests,
  6. Motor vehicles, and
  7. Marital debts (mortgage loans, car loans, credit cards, etc.).

Anything of value acquired during your marriage is presumed to be marital property. This includes business interests, even if only one spouse owns an interest in the business. Our experienced family law attorneys can help you identify all assets that are subject to being divided, including assets that your spouse might not want you to find.

(1) Real Property: This category typically includes the marital residence, but can also include vacation homes and real property held for investment purposes. If you are living in the marital home, you will need to consider whether you should sell it, or whether you will continue to live in the home and pay your spouse for his or her portion of the property in some other way (i.e., “buy your spouse out”). Courts will consider allowing any children of the marriage to remain in the marital home with the primary custodial parent; this is not guaranteed and would depend on your unique circumstances.

(2)Bank & Investment Accounts: While the law presumes that an equal split of assets is equitable, this does not mean that each asset must be split 50/50. What it does mean is that overall the assets should be split evenly. As to bank and investment accounts, you will need to decide which spouse is keeping each account. Sometimes this means that each account is divided 50/50. Other times one spouse might keep one larger account, while the other spouse keeps several smaller accounts, in order to balance the division of property.

(3)Retirement Accounts: Retirement accounts are presumed to be marital. This even includes retirement accounts started prior to the marriage, to the extent that funds were contributed to these accounts during the marriage. If you have a 401(k), for example, and all of the contributions were made during the marriage, that account would be considered entirely marital and should be divided equally. On the other hand, if you have a retirement account and only one-half of the contributions were made during your marriage, it is likely that your spouse will only be entitled to one-quarter of the value of the account. In this case, one-half of the account is presumed marital and one-half of this marital portion is the one-quarter that would be owed to your spouse. Other investments that you and your spouse made during your marriage would also likely be distributed similarly.

(4) Investments: These often include stocks, bonds, and certificates of deposit. In the case of stocks, the tax basis of each stock lot should be considered so that the stocks are divided equitably. Future tax consequences can be substantial. If the capital gains taxes that would be owed on certain stocks (at the time of sale) are much higher than for others, this must be accounted for in the property division. Depending on the circumstances, we might recommend engaging a Certified Public Accountant to calculate the potential capital gains taxes owed.

(5) Business Interests: North Carolina law defines marital property broadly, including business interests held entirely by only one spouse. If you or your spouse own shares in a business, we would likely recommend engaging a qualified business valuator to determine the fair market value of the business interest. Often it is not advisable to divide the actual business equally, as the spouse engaged in the business is best equipped to continue operating it. Typically, the spouse that is keeping the business would pay to the other spouse his or her one-half fair market value share of the business interest.

(6)Vehicles: Most separating couples decide that each spouse should keep the vehicle he or she used during the marriage. As with other items of property, a fair market value needs to be assigned to each vehicle to determine the equitable division of value. This is most often done by reference to values listed by Kelley Blue Book or NADA.

(7)Debts: All debts acquired during your marriage are also presumed to be marital and the law presumes they should be divided equally. Debts are presumed to be marital so long as the debts were for expenditures that benefited the marriage in some way (which is broadly defined). There are certain circumstances where a debt acquired during the marriage might not be considered marital. For example, a credit card debt acquired by a spendthrift spouse with a gambling problem might not be considered marital. In this case, there is a strong argument that the debt did not benefit the marriage. Another example would be a large student loan debt acquired only a few years prior to separation. In this case, the debt arguably did not benefit the marriage or only partially benefited the marriage.

Does Every Account Have to Be Divided With My Spouse?

No, even though an equal division of assets is presumed reasonable, this does not mean that each asset must be divided 50/50; it means that the value of each marital asset and each marital debt must be counted in determining the net value (after subtracting out marital debts) of the marital property to be divided. In order to achieve an equal division of the property, one spouse might be permitted to keep more valuable assets, but would be required to pay a “distributive award” to the other spouse in order to equalize the division of the marital assets and debts.

This sounds complicated; where do I start?

Yes, it can be complicated, but you do not have to do it alone. Every divorce is unique and your situation will certainly require careful attention, particularly if you acquired many assets during your marriage. The experienced family law attorneys at Montgomery Family Law are well-equipped to guide you through this process. Call (919) 348-2317 to schedule an initial consultation with a Raleigh divorce attorney at our law firm.

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