Equitable Distribution and Property Settlement

Equitable Distribution of Marital Property

Generally, people refer to the division of property in connection with or following a divorce as a "property settlement." Strictly, speaking "settlement" refers to an agreement resolving issues between parties. In North Carolina such settlements in the context of family law matters occur in a "Separation Agreement" or "Property Settlement Agreement" or Consent Order or Consent Judgment" resolving one or any number of the issues related to the dissolution of the marriage and determination of the parties rights.

Equitable Distribution

The division of marital property is actually called equitable distribution. All marital property is subject to division in North Carolina. In addition certain property classified as "divisible property" is also subject to distribution under North Carolina law.

Marital Property

Marital property means the net equity in an item of property to which rights are acquired during the marriage and before separation. While the North Carolina statutes impose the requirement that the property must be owned on the date of separation to be subject to equitable distribution, this requirement does not mean that the husband and wife or either of them must hold legal title in their or in his or her name at the time of separation in order to be divisible. Any "net value" to which he or she has a claim of right on the date of separation is potentially subject to equitable distribution.

Presumptively, property is marital, unless it is excluded under the law. Excluded, however, from the definition of marital property are gifts and inheritances, received by one spouse only, from third parties, whether such property is acquired during the marriage or not. Such gifts and inheritances are that spouse's separate property and the original net value of such donated or inherited property is not subject to distribution to the other spouse. Gifts from one spouse to the other spouse during the marriage, on the other hand, are presumed to be gifts to the marital unit.

Separate Property

Property owned by either party prior to marriage is that party's separate property, provided that it is not given to the marital unit. Accordingly, exclusions from the marital property subject to division include property acquired before the marriage, inheritances, gifts to one spouse which were not joint gifts, and several other categories of property not ultimately given to the marital unit. However, active increases in value (that is, those derived from the spouse's work or effort) of a spouse's separate property may considered to be marital.

Divisible Property

Although not strictly within the defeinition of marital proeprty because the proeprty or its increase in value may not have been received prior to the date of separation, North Carolina law makes proeprty subject to distribution if it is classified as divisible.

Divisible property is:

• the increase or decrease in the value of marital property between the date of separation and to the date of division of marital property;

• the property or rights which were earned or acquired prior to the date of separation but were not received until after the date of separation;

• the passive income from marital property received after the date of separation prior to the date of division; and

• the interest, financing charges and increases of marital debt from date of separation to date of division.

North Carolina only recently has added this classification of property in equitable distribution. Divisible property allows for the fair division of assets like stocks, rents, businesses, bonuses, 401K plans and other similar funds and commissions. Prior to divisible property, the party who obtained ownership of the asset during the period of separation or at the date of division received the interest, commissions, dividends and increase in value.

The divisible property classification takes the advantage away from the party the holds the asset and allows the court to distribute the increases during the separation and at date of division. If a party earns a bonus from their employment prior to the date of separation but it is not paid until after the date of separation, it is divisible property. If the parties are renting a building to a third party, the rent can be divided as divisible property. If one party's 401K increases after the date of separation because of the increase in the stock market, that increase can be divided as divisible property.

Importantly, however, an increase in value of an asset after date of separation because of one party's activities is not divisible property. Active appreciation or diminution in value is not divisible property. If a party contributes to his or her 401K after the date of separation but prior to the distribution that is not divisible property.

Title Does Not Matter

It does not matter in whose name the property is titled. Although, legal title may be some evidence as to whether property should be classified as separate or marital, property can be divided without regard to legal title. Property division can be extremely complex, because property acquired prior to a marriage or as a gift must be valued both at the time of the marriage or gift and again at the time of the trial.

Debts

Consideration is also given to debts. Not only positive values but negative values, that is, marital debts must be considered and may be divided as a part of the division of martial property or property settlement. In the majority of cases, encumbrances ordinarily will be assigned to the person possessing or being awarded a particular asset, such as a motor vehicle. Similarly, if a husband or wife receives the family home or furniture subject to a mortgage or other encumbrance, that party will have to make the payments. Even when the other party is ordered to pay a debt for property received by the other party, there is no absolute assurance that will happen. A party may simply ignore the order or lack the ability to pay. In some cases bankruptcy is filed, discharging the obligation. The advice and assistance of a skilled family law practitioner is extremely important in these matters.

Equal or Equitable Division

Property Division is supposed to be "equitable." The preemption is that an equal division ordinarily will be equitable, but in making a decision as to whether a division of property is actually equitable and, therefore, whether an unequal division may be fair and equitable under the circumstances, the court must consider a list of statutory factors in making the division. Often the court will find that the factors offset each other. The result may simply be an equal division. In other cases, the court may find one factor or another sufficient to justify an unequal division. The case law does not require a precisely equal mathematical calculation. It requires that the division be objectively "fair and equitable."

Property divisions or Equitable Distribution matters are very complex. The general information provided, here, is designed to help you understand, generally, the rights and obligations generally concerning these matters, but should not be used without obtaining the specific advice of competent and capable attorneys such as that provided by the members of Mitchell, Brewer, Richardson.

As to other matters concerning divorce and separation, just click on the appropriate link below.

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