How is separate property defined?

The definition of separate property is found in section 50-20(b)(2) of the North Carolina General Statutes — all real and personal property acquired before marriage, or property acquired during the marriage by bequest, devise, descent or gift. Professional and business licenses which would terminate on transfer are expressly defined to be separate property, as is any increase in value to separate property and income derived from such property.

However, the increase in value that remains separate is passive appreciation only, such as by inflation, market forces, third-party effort, or government action. Increases in value attributable to the marital unit, i.e., active appreciation resulting from the personal, financial or managerial contributions of one or both spouses, is marital property.

G.S. 50-20(b)(2) has two special provisos, the so-called spousal gift provision and the exchange provision. Property exchanged for separate property remains separate, regardless of how titled, “and shall not be considered to be marital property unless a contrary intention is expressly stated in the conveyance.”

Property acquired as a gift from one spouse is, on the other hand, separate “only if such an intention is stated in the conveyance.” These provisions have been interpreted to mean that where separate property is used in the acquisition of real property that is put into tenancy by the entireties, there is a presumed gift of the separate property to the marital estate, said presumption rebuttable only by clear, cogent and convincing evidence.

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