When Separate Property Becomes Marital Property

In Separation & Divorce by Elizabeth Stephenson

When it comes to property division, North Carolina is an equitable distribution state. Essentially, a court takes all marital property and divisible property and considers numerous factors in determining an equitable division between the couple. A big source of conflict in property division proceedings is how property is classified as separate or marital property. This is because as a general rule, a person’s separate property remains with them and is not considered as part of the estate.

Separate property includes property that a person owns prior to their date of marriage, inheritance or gifts that are specifically left to that person during the marriage from a third party, and a gift from one spouse to another during a marriage that is specifically intended to be separate property.

While the definition of what constitutes separate property may seem straight forward, in practice it most definitely is not. This is because most married people don’t operate their finances with the assumption that they are going to get divorced. As a result separate property can sometimes become marital property. It can happen in the following ways.

  • Adding a spouse’s name to property title. If one spouse owns a house prior to marriage it is generally that person’s separate property. However, if during the course of the marriage, the spouse adds the other spouse’s name to the title of the house, the house then becomes marital property. This is because there is a rebuttable presumption that adding the other spouse’s name was a gift to the marital estate.
  • Use of separate property to obtain marital property. An example of this occurs when one spouse receives an inheritance from a deceased relative, then uses that money to buy a house on which both spouses’ name are on the title. While the inheritance was separate property, part of the inheritance was used to purchase the house, which is treated as a gift to the marital estate.
  • Property can be a combination of separate and marital property. A situation that can complicate matters even more occurs when property is partially separate property and partially marital property. One example of this is if a spouse inherits money, then puts it into a joint bank account that both spouses use and contribute to. This may be treated as a gift and wholly converted to marital property. In the alternative the court may look at the account and be forced to make a complex determination of what portion of the account is separate property and what portion is marital. Another example is a marital home that is built upon land that is the separate property of the other spouse.

Many of these issues can be resolved through a binding pre-nuptial agreement that specifically identifies what property will remain separate if the marriage dissolves. The other key is timely and accurate bookkeeping regarding separate property.

New Direction Family Law

At New Direction Family Law, we understand that property division and alimony orders can help protect your financial future and help you move forward with your life. Let us fight for your legal rights. We have built a reputation as effective, hard working attorneys and want to help you. We serve Wake, Johnston, Lee, Harnett, Cumberland, Nash, Granville, Franklin, and Durham counties. Contact New Direction Family Law at (919) 719-3470 to schedule an appointment, or contact us at our website.