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Equitable Distribution

Equitable Distribution
Statute:§ 50-20
Description:Equitable distribution is how property and debt earned during the marriage is distributed between the spouses
Takeaway:In most cases, anything earned during the marriage, before separation, needs to be divided 50/50
Contents
  1. 1Classification
  2. 1.0.1Marital
  3. 1.0.2Divisible
  4. 1.0.3Separate
  5. 1.1Value
  6. 1.2Distribution
  7. 2Disclosures
  8. 3Types of Property or Debt
  9. 3.0.1Wedding/Engagement Rings
  10. 3.0.2Student Loans
  11. 3.0.3Hybrid Assets
  12. 3.1See also

Equitable Distribution refers to the distribution of property and debt earned during the marriage between the spouses. There is a heavy presumption in favor of a 50/50 split.

Classification

The first thing a court does for each asset or debt is classify it as either marital, divisible, or separate.

Marital

Marital property is owned by the marriage and is usually divided 50/50. Anything earned during the marriage, prior to separation, is usually marital, regardless of who is on the title, which spouse earned it, or other circumstances.[2] In most long marriages, almost everything is marital. Any property acquired after the marriage, but before the date of separation starts with a presumption that it is marital.[3]

"Earned" is a key word. Gifts and inheritance are not marital property.[4] However, there are also a variety of other exceptions, such as the proceeds of personal injury claims for pain and suffering. What these exceptions all have in common is that the money was not earned through labor.

Debt is treated differently than property. While property is presumed to be marital if acquired during the marriage, debt is only marital if the debt was intended to benefit the marriage.[7] The debt does not have to actually benefit the marriage, it just has to be intended to do so.[15] In practice, almost all debt is considered marital if it was acquired during the marriage. Groceries, vacations, cars, and any other expenses are usually for the benefit of the marriage. However, a debt to a family member is scrutinized for whether it is a legitimate debt[8] and student loans are a common exception.

Divisible

Divisible property is the term used for passive gains or losses in value of marital property after the date of separation, but before the marital property gets split up.[12] It also includes passively obtained debts or profits from marital property covering the same time period.[13] For example, interest and fees on debt are a type of divisible property,[14] as well as dividends from investments.

In other words, divisible property covers things like rental income, stock market fluctuations, variations in the value of real estate, or other changes in value after the date of separation, before the property is divided between the two spouses. Sometimes, the spouses can spend years in court and divisible property prevents one spouse from not sharing the profits or losses in the interim. It's treated the same as marital property.

Separate

Separate property is owned by the individual, not the marriage, and does not need to be divided. Separate property includes (a) premarital property earned before the marriage (b) post-marital property earned after the date of separation, and (c) property that was not earned, such as an inheritance or gift.[9]

You won't find the language "earned" in any statutes or caselaw. You'll only find specific exceptions, like gifts, inheritance, or payments for pain and suffering in personal injury claims. However, what all of these exceptions have in common is that the money was not earned.

Any allegation that one spouse provided the other spouse with a gift during the marriage requires a written agreement confirming it was intended as a gift.[10] Additionally, any time separate property is used to buy something during the marriage, the purchased property is still separate, unless there is a written agreement verifying an intent do donate it to the marriage. This is required, even if the purchased property is put in the names of both spouses.[11]

Value

The next step is for the court to determine the value of the item. In most cases, this is pretty clear:

  1. Accounts: The value of the account as of the date of separation.

  2. Vehicles: The value according to a Kelley Bluebook report

  3. Jewelry: Appraised at a jewelry store

  4. Retirement Accounts: Split in a qualified domestic relations order by the court, or a negotiated value, since these are pre-tax accounts

  5. Real estate: Appraised by a real estate appraiser

  6. Businesses: Appraised by a business appraiser

It's important to identify potential appraisers early on. Appraisers are ordinarily identified in a "scheduling & discovery order" (or similar) early in the case. Most items will be valued based on their date of separation value. However, any passive gains or losses in the value of stocks, real estate, or other assets subject to market conditions is divisible property that is also split the same way as marital property. In addition to expert appraisals, the owner of property is generally allowed to provide an opinion on its value.[6]

Distribution

Generally, most property like accounts, debts, vehicles, etc. are distributed to whoever's name the account is in, whoever uses that item more, is more familiar with it, or has possession of it. Often, one spouse wants to hoard all of the property, not realizing until trial that they will have to pay for it. The court will tally up the total net value of everything each spouse is taking to determine the cash payment one spouse must make to the other to balance the property and debt to 50/50.

The court has the authority to distribute property in a way that is not 50/50. However, most of the time it is frivolous to ask for a 70/30 split or something along those lines. Deviations from a 50/50 split are usually for specific amounts and reasons, such as:

  1. One spouse paid bills after separation that the other spouse should have paid and they should get credit for it.

  2. One spouse is accepting a major tax liability by having property distributed to them, the amount of which cannot be ascertained with certainty.

  3. Marital waste, such as buying a house for someone they were sleeping with during the marriage or damaging property during domestic violence.

Disclosures

A big part of equitable distribution claims is the financial disclosures. This is where you disclose everything you have and provide comprehensive documentation. You share things like bank statements, Kelley Bluebook values, deeds, and other documentation. You're always required to disclose everything, whether or not you think an asset or debt is marital.

Hidden assets are ordinarily found by looking for transfers of cash to accounts that were not identified and sending subpoenas to banks that were not disclosed.

Types of Property or Debt

Wedding/Engagement Rings

Engagement rings are generally seen as a conditional gift. They are gifted under the condition of marriage. They are usually purchased before the marriage and are therefore a separate premarital gift that does not need to be divided. Once the parties marry, the condition of the gift has been satisfied. When someone accepts an engagement ring but doesn't follow through on the wedding, this creates a breach of contract to marry claim. Wedding rings on the other hand are more ambiguous. If the wedding rings were purchased after the parties formally married, using marital funds, the wedding rings might be marital property.

Student Loans

Debts are only marital debts if they were "for" the benefit of the marriage. In order for a student loan to be for the benefit of the marriage, the marriage has to last long enough after graduation for the marriage to have benefited from the degree.[16] However, if a student loan was used to pay for living expenses, that portion of the debt can be marital, even if the portion used for tuition is separate property.

Hybrid Assets

Hybrid assets or debts refers to something that is partially marital and partially separate. A common example is a home that is purchased before the marriage, but the parties made mortgage payments during the marriage. The mortgage payments were earned during the marriage and create a marital component to the home's value. Another example would be a home that was purchased during the marriage, but one spouse made improvements or caused damage after separation.

See also

Property Division Calculator

Date of Separation

References

  1. § 50-20(b)(1b) ("Marital property. - All real and personal property acquired by either spouse or both spouses during the course of the marriage and before the date of the separation of the parties, and presently owned, except property determined to be separate property or divisible property in accordance with this subsection.")
  2. § 50-20(b)(1b) ("All real and personal property acquired by either spouse or both spouses during the course of the marriage and before the date of the separation of the parties, and presently owned, except property determined to be separate property or divisible property in accordance with this subsection.")
  3. § 50-20(b)(1b) ("It is presumed that all property acquired after the date of marriage and before the date of separation is marital property except property that is separate property under this subsection.")
  4. § 50-20(b)(2) ("or acquired by a spouse by devise, descent, or gift during the course of the marriage.")
  5. Denis v. Chandler 920 S.E.2d 199 ("A party who claims marital property by gift is separate property bears the burden of demonstrating the alleged donor intentionally transferred “ownership of the property without receiving any consideration in return.”)
  6. Denis v. Chandler 920 S.E.2d 199 ("[O]wners of property have generally been held to have both knowledge and basis for the testimony as to the value of their property.")
  7. Geer v. Geer 353 S.E.2d 427 ("a marital debt is defined as a debt incurred during the marriage for the joint benefit of the parties")
  8. Geer v. Geer 353 S.E.2d 427 ("loans from close family members must be closely scrutinized for legitimacy.")
  9. § 50-20 (b)(2) ("All real and personal property acquired by a spouse before marriage or acquired by a spouse by devise, descent, or gift during the course of the marriage.")
  10. § 50-20 ("However, property, other than real property, acquired by gift from the other spouse during the course of the marriage is considered separate property only if this intent is expressly stated in writing.")
  11. § 50-20(b)(2) ("Property acquired in exchange for separate property remains separate property regardless of whether the title is in the name of one or both spouses and is not considered marital property unless the intent for the property to become marital property is expressly stated in writing. ")
  12. § 50-20(b)(1a) ("All appreciation and diminution in value of marital property and divisible property of the parties occurring after the date of separation and prior to the date of distribution")
  13. § 50-20(b)(1a) ("Passive income from marital property received after the date of separation, including, but not limited to, interest and dividends.")
  14. § 50-20(b)(1a)(d) ("Passive increases and passive decreases in marital debt and financing charges and interest related to marital debt.")
  15. WARREN v. WARREN (2015) No. COA14–982 ("this Court has never required evidence that the marital unit actually benefited from the debt incurred")
  16. WARREN v. WARREN (2015) No. COA14–982 ("Therefore, in order for the court to classify student loan debt as marital debt, the parties must present evidence regarding whether the marriage lasted long enough after incurring the debt and receiving a degree for the married couple to substantially enjoy the benefits of the degree or higher earnings.")
David King — Attorney

David King, Esq.

David King is a licensed North Carolina family law attorney (Bar ID #54884). He started King @ Law in Raleigh, NC in 2019. King @ Law is focused on practical solutions for middle-class litigants with flat-fee and payment plan options. Click below to schedule a consultation.

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