How Equitable Distribution Works In North Carolina
North Carolina follows an equitable distribution law for distribution of marital property.
In equitable distribution states, all property, whenever or however acquired, regardless of legal title, is subject to equal or unequal division.
In equitable distribution states like North Carolina, when the spouses are unable to resolve property rights on their own, the Court determines what is a fair and reasonable for each spouse. It does not matter who bought the property – if it was purchased during the marriage it is considered “marital property” (property owned by both spouses).
It is important to understand that equitable does not mean equal, however the law assumes that an equal (50/50) division of the marital property and debt will be equitable unless factors exist to disprove that (see below for factors). Equitable Distribution states also recognize separate property, which is property that belongs to one spouse and not the other.
Separate property can include:
- Inherited Property (such as money or real estate);
- Property acquired prior to marriage like an engagement ring
- Gifts to one spouse by a third person
- Gifts from one spouse to the other are normally marital assets.
If an asset was acquired prior to the marriage and there is an increase in value because of work by the other spouse, the increase in value may be considered marital property, but the asset itself remains separate property. Separate property can become marital property. For example, if it is used to benefit both spouses, it may then be considered a ‘gift’ to the marriage. Retirement income, such as IRA’s, pension plans and 401(k) Plans are also considered equitable distributions.
There are several factors the Court uses to determine what is equitable – among them are:
- How long the couple was married
- The age, physical and emotional health of each
- The income or property each spouse brought to the marriage
- Economic circumstances of each party at the time of division
- Income and earning capacity of each, including education and training
- The standard of living during the marriage
- Direct contributions to increased value of separate property
- Expectation of retirement benefits considered not to be
- Expectation of retirement benefits which are marital property
- Liquid or non-liquid nature of property
- Difficulty in valuing interest in a business
- Tax consequences for each party
- Present value of property
- Needs of the spouse who has physical custody of children
- Support obligations for prior marriage
- Conduct by one party that relates to the economic condition of the marriage – ‘Economic Fault’
- Any other factors the court may deem relevant
In determining equitable division of marital property the court does not find it relevant if adultery, domestic violence, abandonment, drug or alcohol abuse is present in the marriage. Even if a spouse admits to having engaged in all these behaviors, he or she would still be entitled to an equitable share of the marital property and debt. Economic behaviors (economic fault) are relevant for the court to consider. An example would be a husband who transfers marital property over to a mistress prior to separation; the law would consider this “marital economic fault.”
Dividing or valuing retirement plans can become extremely complex. There are many different types of plans with different interpretations of the law, requiring documents to be drafted in a specific way, and with different tax consequences. Some plans require approval from a ‘plan’ administrator, in addition to the Court, to be enforceable. An Order called a “Qualified Domestic Relations Order” also know as a QDRO may have to be prepared to distribute these plans or the proceeds from these plans.
Because the issues can be complex, it is best to hire a family law attorney to protect your rights and ensure the documents are properly prepared and executed. Schulz Stephenson Law is prepared to answer your questions about equitable distribution in the State of North Carolina.