Equitable Distribution - North Carolina
How is Equitable Distribution Handled in North Carolina?
In North Carolina, property distribution is often determined by agreement of the parties in the form of a property settlement. If it becomes necessary to seek a court ordered property distribution the parties are required to work their way through numerous steps mandated by the court system. This process is called “equitable distribution.”
This information is most applicable to Wake, Durham, Johnston, Chatham, and Orange County, but will also be helpful for anywhere in North Carolina.
Settle Property Outside of Court with a Separation Agreement
The rights to equitable distribution (“ED”) of marital property vest at the time of the parties’ separation. The rights to ED are not, however, automatic, but must be specifically asserted by one or both of the parties. Upon application of a party, the court shall determine what is the marital property and shall provide for an equitable distribution.
At any time after the separation of the parties, either may file an action for ED as a separate action, together with another action brought pursuant to Chapter 50, or as a motion in the cause. A final ED judgment may be rendered either before or after the parties are divorced, at the discretion of a judge. If the judgment is being entered by consent, the parties themselves can stipulate to do so prior to the divorce.
Prevent ‘Disappearing’ Property
Temporary orders and injunctive relief are obtainable under the terms of special statutory provisions that allow for injunctive relief to prevent disappearance, waste or conversion of property alleged to be marital or separate, and that also allow for entry of orders for dividing part of the marital assets. The partial distribution may provide for a distributive award. Injunctive relief to prevent disappearance, waste or conversion is available before or after an ED action has been initiated. An order partially distributing marital property may not be made until after an ED action has actually been filed.
Collecting Legal Fees
In most ED actions, the statutes do not permit one party to recover legal fees from the other party. The one small exception to this rule allows the discretionary award of reasonable legal fees and costs to the owner of separate property who sues the other spouse to regain possession of separate property removed from the marital home or possession of its owner by the other spouse.
Defenses Against Equitable Distribution in North Carolina
There are various defenses that can be asserted against a claim for equitable distribution.
With the exception of the two special technical provisions, an absolute divorce bars the assertion of a claim for ED that was not already pending at the time of the divorce. This bar has been interpreted relatively strictly in case law.
Role of the Separation Agreement
In addition to bar by absolute divorce obtained without preservation of an ED claim, the other common bar to ED is prior execution of a valid, comprehensive property settlement dividing the parties’ property or otherwise releasing the right to ED. So long as the agreement is duly executed in accordance with the formal statutory requirements, the agreement might bar a subsequent ED pursuant to the rules discussed below. Such a bar may arise not only from property settlements entered into at the time of separation but also from written premarital and postnuptial agreements.
In general, under prior law reconciliation was deemed to void the executory or unperformed provisions of a separation agreement that contained property provisions. The courts now 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. Property settlements are to be construed according to the parties’ intent and the language of the contract. A reconciliation would void a release only if the release of property rights in such a contract “necessarily” depended on the parties living separate and apart.
Death Has an Affect on Equitable Distribution in NC
Another thing that can affect an ED claim is whether both parties survive. The time of a spouse’s death can make a critical difference in the viability of a pending ED action. The death of a spouse prior to the granting of an absolute divorce, but while the ED claim is pending, will bar ED. However, the death of the spouse following the grant of divorce while an ED claim is pending will not bar ED. In such a case, the administrator or executor of the decedent’s estate and any heirs whose interests would be affected by the ED 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 May Prevent Equitable Distribution
In a limited number of instances, federal law may preempt a State’s right to make a party’s property the subject of equitable distribution. For example, one case has held that social security benefits are not distributable by North Carolina courts, as such distribution is precluded by the anti-assignment and the other comprehensive provisions in federal social security law. In another case, the U.S. Supreme Court held that state courts may not distribute, as marital or community property, any retirement pay that has been waived by a serviceman in favor of receiving veteran’s disability benefits.
NC Property Division Resources
- Property Division: What You Need to Know
- Equitable Distribution: The Details
- Finding Hidden Assets in Divorce
- Is Your Spouse Hiding Assets?
- Secret Cash Stash: When to Hide Assets
- Protecting Your Estate During Divorce
- How the Courts Decide Property Division
- Who Gets the Car in a Divorce?
NC Financial Resources
Property FAQs
The rights to equitable distribution (“ED”) of marital property vest at the time of the parties’ separation. The rights to ED are not, however, automatic, but must be specifically asserted by one or both of the parties. Upon application of a party, the court shall determine what is the marital property and shall provide for an equitable distribution.
First, the court is required to identify and classify all the parties’ property, based upon the evidence presented regarding the nature of the asset or debt. Identification is the assessment of whether husband, wife, or the marital entity has any claim of ownership to any type or item of property. Identification is the preliminary step in which the court determines the full extent of the parties’ interests in all property, and this step precedes the classification of such specifically identified property.
With the exception of the two special technical provisions, an absolute divorce bars the assertion of a claim for ED that was not already pending at the time of the divorce. This bar has been interpreted relatively strictly in case law.
According to express statutory provisions, distribution of marital property must be without regard to the issues of alimony and child support.
Fault is not relevant in an equitable distribution proceeding, except to the extent that marital misconduct has had an economic impact on the marital estate. Where the equitable distribution factors make it equitable for one spouse to receive more (or less) than 50% of the net marital estate, a court’s award would be unequal, that is other than 50/50.
Unequal distributions come in all percentages, from 51.2% / 48.8 % to 95% / 5%, for example. Because, however, the vast majority of cases lack facts that weigh in favor of an unequal distribution, many litigated cases and most equitable distribution cases that settle result in each partner’s receiving half of the property. Thus the standard court case results in an even 50/50 split of the property.
The typical negotiated settlement on marital property also tends to be quite close to a 50/50 division, unless the spouses can agree to a different allocation. In a negotiated settlement, any ratio is permitted. The real question is what percentages the parties can agree to.
If you and your spouse are able to agree about the division of your property, then your arrangement will be documented with a separation agreement. If you are unable to agree, it will be necessary for you to go to court. The court will not decide your property distribution case for a period of time as the litigation process moves forward. During that time, the individual with possession of the property will have the use of that property unless a judge issues an order directing otherwise.
In distributing marital property, the court conducts a three-step analysis. Only the parties’ marital property, which includes both assets and debts, is to be distributed. An order distributing the parties’ property must contain written findings of fact supporting the court’s determination that the marital property has been equitably divided.
Among the factors considered are:
- The income, property and debts of each party.
- Support obligations for prior marriage.
- The length of the marriage and age and health of the parties.
- Custody of children
- Expectation of retirement benefits which are separate property
- Efforts made by each spouse to acquire the property
- Contributions of one spouse to the education of the other spouse
- Direct contributions to increased value of separate property
- Liquid or non-liquid nature of property
- Difficulty in valuing interest in a business
- Tax consequences
- Actions taken by either party to preserve or waste marital assets
- Other factors.
Equitable distribution law presumes that an equal (50/50) division of the marital property will be equitable. Most judges in this state favor awarding each party fifty percent of the marital property will be equitable. Most judges in this state favor awarding each party fifty percent of the marital property, unless certain factors make a good case for an unequal distribution.
There are a number of so-called “equitable distribution factors” in our equitable distribution statute that can justify a judge’s unequal (non-50/50) distribution of marital property. The trial court is only required to consider the distributional factors on which evidence is presented.
The factors to be considered in an unequal division are enumerated in section 50-20(c) at sub-sections (1) through (12) of the North Carolina General Statutes, and these factors include:
- the parties’ financial condition at the time the division of property would be effective;
- support obligations from a prior marriage;
- length of this marriage; age and health of the parties;
- need of a custodial parent to occupy or own the marital residence for the benefit of the parties’ child or children;
- the expectation of nonvested pension rights;
- a party’s contributions to the acquisition of property;
- a party’s contributions to the education or career of the other spouse;
- any direct contribution to the increase in value of the other party’s separate property;
- the relative liquidity of the marital estate;
- 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”;
- tax consequences;
- acts to maintain or devalue marital property occurring after the date of separation;
- and any other factor deemed by the court to be just and proper.
North Carolina Local Resources
Resources for all areas of the Raleigh-Durham Triangle, including transportation, schools, medical help, forms, and specific local court information. View all resources for Raleigh, Durham, Cary, Chapel Hill, and Wake Forest.
Other Property and Equitable Distribution Articles
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