When a marriage ends, couples must sort through numerous complex issues before they can move forward with their lives. One big issue is determining how property will be divided between the former spouses. In North Carolina, this is accomplished through a method called “equitable distribution.” This method allows courts to take the fair market value of all of a couple’s “marital property,” then divide it between the spouses in an “equitable manner.” If you are considering a prenuptial agreement or a divorce, these are five things you should know about how equitable distribution works.
The Date of Marriage is Critical
When a married couple separates, their property is classified as one of two categories: marital property or separate property. This classification is of critical importance as a court can only divide marital property, while it cannot touch separate property in an equitable distribution proceeding.
Marital property is generally everything acquired or earned during a marriage—between the date of a couple’s marriage and the date of their separation. In contrast, separate property is everything that each spouse brought into a marriage, which remains in the sole ownership of each respective spouse, or property earned or acquired after the parties’ date of separation. Disputes over this classification are common, as each spouse has a financial stake in walking away from a marriage with as much property as possible. When resolving these issues, courts will look at evidence of when the property was acquired.
Separate Property Can Become Marital Property
While the date of marriage is critical to classifying property, the classification of property does end there. Separate property can be converted into marital property. This happens when separate property is “commingled” with marital property. For example, if separate property is put into a joint account, subsequently titled in both parties’ names, or used with marital funds to invest in stocks, that property may become subject to equitable distribution when it would have otherwise been left alone.
Also, inheritance left to one specific spouse during a marriage is considered the separate property of that spouse. However, inheritance can also be converted into marital property if it is not kept separate from marital property. For example, putting inheritance proceeds into renovations or upgrades to a marital home essentially commingles the separate and marital property.
“Equitable” Does Not Mean “Equal”
Unlike “community property” states, where marital property must be split down the middle upon divorce, the same is not required in North Carolina. While a 50/50 split is a starting point, courts are given the discretion to make an unequal split between the spouses. In determining what an “equitable” split would look like, a court can consider many factors, such as:
- the respective income and property of each spouse;
- the duration of the marriage;
- child custody and who should own or occupy the marital residence;
- pensions, retirement accounts, and deferred compensation;
- contributions of a spouse to the education or career of the other spouse;
- contributions of a spouse to increase the value of separate property;
- equitable claims or interests in property acquired during a marriage, even if only one spouse is on the title; and
- the complexity of appraising and dividing an asset or business interest.
“Fault” is Not a Factor
In an equitable distribution proceeding, a court cannot consider marital fault (i.e. adultery, domestic violence) when it divides the property. However, it may consider the efforts a spouse has made to waste, neglect, or devalue marital property after the couple has separated. If a court has found a spouse to have acted in such a reckless or malicious manner, then it will appropriately penalize that spouse when making an uneven division of marital property. In contrast, courts will reward a spouse who has shown fiscal responsibility to marital property and has protected or increased the property.
Accurate Appraisals are Critical
Courts are tasked with determining the fair market value of all marital property before dividing it. They do so based on appraisals of property provided by the spouses. Sometimes spouses can agree to a fair market value of certain types of property, but there is a higher likelihood of conflict when it comes to complex or high-value assets that are harder to accurately analyze. Given the high financial stakes, our law firm works closely with experts who can provide accurate, research-based appraisals of all types of complex property. This is to ensure that our clients do not get short-changed when it comes to the most valuable assets in their marital estates.