Equitable Distribution in Property Division During Divorce

This guide may assist in answering questions you may have regarding Equitable Distribution.  We encourage you to ask other questions, as it is impossible to answer all of your questions in this guide. 

Does North Carolina allow for Equitable Distribution? 

Yes.  North Carolina is an Equitable Distribution state. 

What is Equitable Distribution? 

The process of dividing the property and debts of a marriage is considered Equitable Distribution.  An equal division of all marital property is generally considered to be equitable.  However, an equal division will not always be considered equitable, depending on the circumstances unique to your situation.

Are my rights to Equitable Distribution automatic? 

No.  Your right to equitable distribution of marital property vests at the date of separation, but they are not automatic.  Either you or your spouse, or both, must assert your right to equitable distribution. 

When should I file for Equitable Distribution?

You may file for equitable distribution at any time after your separation.  You may file your claim as a separate action, as a motion in the cause, or together with another Chapter 50 action.  A final judgment may be rendered either before or after a final decree of divorce. 

Does absolute divorce bar my right to make a claim for Equitable Distribution? 

An absolute divorce bars a claim for equitable distribution that was not already pending at the time of the divorce.  This does not mean that equitable distribution must already be determined at the time of divorce, but it is important that your claim be pending prior to a final decree of divorce. 

 ***There are two special technical provisions where a final decree of divorce will not act as a bar to a claim of equitable distribution.  However, these two provisions will not apply to most cases***

Who will divide our property? 

If you and your spouse agree on the division of your property, you may document your arrangement in your Separation Agreement.  If you are unable to reach a private agreement, you will need to let the court distribute property.  During this litigation process, the party in possession of the property will be able to use that property, unless an order directing otherwise is issued.

What is the process of Equitable Distribution? 

In North Carolina Equitable Distribution is a three-step process:

1. First, identification, is the process by which the court determines which property is “marital property” and which property is “separate property.” 
2. Second, valuation, is the process by which fair market value is assigned to each piece of marital property.  Often, appraisers and other experts become involved during valuation. 
3. Finally, distribution, is the process by which the court distributes the marital property amongst each party.  Under the Equitable Distribution Act, an equal division of property is mandatory, unless the court, in its discretion, determines that an equal distribution would not be equitable (fair). 

What is “marital property”? 

Marital property includes property that you and your spouse acquire throughout the course of your marriage up until the date of separation.  Property that is gifted to or inherited by a spouse is not considered marital property.  Title does not necessarily determine marital property.  Marital property is generally considered those things that are acquired with marital funds earned by either spouse, regardless of whose name is on the title. 

Can debts be classified as marital property? 

Yes.  Debts may also be classified as marital property and distributed in an equitable distribution claim. 

What is “separate property”? 

Separate property is property owned before the marriage, property inherited by one spouse, or property gifted to one spouse. Separate property used to purchase jointly held real estate becomes marital property.  Gifts from one spouse to the other during the course of the marriage are presumed to be gifts to the marital unit, and are therefore marital property.

How do courts handle property that is acquired after the date of separation? 

Property that is acquired after you are separated is not classified as “marital” or “separate.”  Rather, property acquired after your separation is a distributional factor. 

Can property be classified as both “marital” and “separate”? 

Yes.  It is possible for some property to be dually classified.  There are specific cases which dictate when a dual classification is appropriate, and your attorney can best advise you as to these specific instances.  One example where a dual classification would be warranted would be where the efforts of a spouse in actively managing separate property during the marriage augment the value of the property such that the resulting increase should equitably be viewed as marital property.

Is the division of marital property always 50-50? 

Not necessarily.  Although an equal division (50-50) is presumed equitable (fair), the court may determine that an unequal division (not 50-50) is more appropriate. 

What factors do courts use to justify an unequal distribution of property? 

There are a number of factors in the equitable distribution statute that may justify an unequal distribution of marital property.  These factors are:  (1) the parties’ financial condition at the time the division of property would be effective; (2) support obligations from a prior marriage; (3) length of this marriage; (4) age and health of the parties; (5) need of a custodial parent to occupy or own the marital residence for the benefit of the parties’ child or children;  (6) the expectation of nonvested pension rights; (7) a party’s contributions to the acquisition of property;  (8) a party’s contributions to the education or career of the other spouse;  (9) any direct contribution to the increase in value of the other party’s separate property;  (10) the relative liquidity of the marital estate; (11) the difficulty of evaluating business interests and the economic desirability of distributing such an asset to one party “intact and free from any claim or interference by the other party;” (12) tax consequences; (13) acts to maintain or devalue marital property occurring after the date of separation; (14) and any other factor deemed by the court to be just and proper.

Is fault a factor in making an Equitable Distribution determination? 

Fault is not a relevant factor in an equitable distribution proceeding unless the fault, or marital misconduct, has had an economic impact on the marital estate. 

How can I protect property during the process of Equitable Distribution?

 You may receive a temporary order or injunction to prevent the disappearance, conversion, or waste of property alleged to be marital or separate property.  You may also ask for a partial distribution.  An injunction will be available to you either before or after you initiate an equitable distribution claim.  An order for partial distribution is only available after the commencement of an equitable distribution claim. 

Can I recover my attorney’s fees with my Equitable Distribution action? 

Generally, no.  The statues do not allow for recovery of attorney’s fees.  However, there is an exception permitting the recovery of attorney’s fees.  This exception allows a discretionary award of your reasonable attorney’s fees to the owner of separate property who has to sue the other spouse in order to regain possession of separate property that is removed from the marital home or possession of its rightful owner by the other spouse. 

Do I have any defense against an Equitable Distribution claim? 

Yes.  Defenses include: reconciliation, absolute divorce, prior property settlement, death and federal law.

•  Reconciliation:  Reconciliation will void a release where the release of property rights in a property settlement “necessarily” depends upon the parties living separate and apart (ie: in separate residences).  Courts draw a distinction between pure separation agreements, in which separation is of the essence, and contracts in which the parties intend a complete property settlement, unrelated to whether they ever reconcile after a separation.
• Absolute Divorce: Your equitable distribution claim must be at least pending at the time of a final decree of divorce.  You must “preserve” your equitable distribution claim prior an absolute divorce.
• Prior property settlement:  Where there is a prior valid, comprehensive property settlement dividing the parties’ property or otherwise releasing the right to equitable distribution, a bar to an equitable distribution claim may arise.  The agreement must have been executed in accordance with formal statutory requirements.  This bar may also arise from written premarital and postnuptial agreements. 
• Death:  The death of a spouse prior to the granting of an absolute divorce, but while the equitable distribution claim is pending, will bar equitable distribution. However, the death of the spouse following the grant of divorce while an equitable distribution claim is pending will not bar equitable distribution.  In the latter case, the administrator or executor of the decedent’s estate and any heirs whose interests would be affected by the equitable distribution action must be joined in the pending action. If the heirs are not joined, then any order of sale of real property is void as to those heirs.
• Federal Law:  In some instances, federal law will take precedence over state law regarding equitable distribution.  In some cases, federal law will preempt North Carolina’s right to make a party’s property the subject of equitable distribution. 

Is money received as part of a distribution of property taxable? 

Generally, it is not taxable.  If a transfer of property (and money) occurs between spouses within one year of the separation, the law makes the presumption that the transfer was incident to the separation and divorce and it will not be taxable. If, however, the transfer occurs after one year, the presumption is that the transfer is not incident to the separation or divorce and therefore would be taxable.  In a case where the transfer is taxable, you may rebut by showing evidence that the transfer of money was part of a property distribution incident to separation or divorce.  However, where a transfer is made to a non-resident alien the transfer is taxable to prevent the avoidance of U.S. taxes on a later sale by the non-resident alien. 

 ***Also note that alimony and child support are not part of the distribution of property.  The non-taxable status of money transferred incident to a divorce or separation applies only to the equitable distribution of property***

 What types of property should I be sure not to overlook or disregard with respect to a claim for Equitable Distribution? 

A spouse’s pension and retirement plan can be a valuable asset and should not be overlooked during the course of accounting for your property.  It is essential that all marital assets and liabilities be discovered and evaluated.

The following list will help you get started in assessing your property so that we can best advise you in negotiating a property settlement or guide you through the course of a claim for equitable distribution:

• Financial statements
• Bank accounts
• Tax returns
• Real state
• Retirement plans and retirement accounts
• Insurance – life, medical, automobile, homeowners, personal property, umbrella policies, and any other insurance policy you may have
• Business interests
• Stocks and Bonds
• Estate or Trust interests
• A list of your creditors including information such as purpose of debt, whether it’s a joint obligation or what percentage, if any, you consider to be your obligation, the monthly payment, present balance, etc.
• Salary and other sources of income
• Safety deposit box and its contents
• Bonus and Commission Agreements
• Employment Fringe Benefits
• Executed wills and trusts
• Credit card accounts
• Claims brought against or by you
• Recent sales, transfers, conveyances or exchanges or real and personal property
• Any prior written agreements addressing support or property, or which confers a benefit to you or imposes an obligation upon you

If you are concerned about how your marital property, assets and debts will be distributed during divorce, make sure to talk to a divorce lawyer to ensure your best interests are protected.