Why You Shouldn’t Divorce Before Property is Settled

Property Distribution 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.” You can review the property distribution statutes for additional information. If a courtroom appears to be in your future be sure to read Navigating Basic Court Procedure in North Carolina. Our firm sponsors monthly seminars which address the multitude of issues found in most property distribution disputes.

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

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

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.

Military Pay Protections Against Property Division

 

Our Court of Appeals has more recently recognized that military disability payments are not included within the definition under federal law of “disposable retired or retainer pay,” and hence may not be classified as marital property and may not be distributed under state equitable distribution law. The Court had earlier held, consistent with the holding in the U.S. Supreme Court case, that disposable serviceman’s retirement pay, as defined by federal law, is distributable under the explicit language of the Uniformed Services Former Spouses’ Protection Act and G.S. 50-20(b)(1), which restricts distribution to “eligible” military pensions and therefore does not run afoul of preemption problems.

The Court’s Approach to Dividing Property

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.

Read more about how the courts distribute property.


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