Dividing the Property is often one of the biggest issues in divorce. Property Distribution can be decided by a judge or by an agreement put into place by you and your spouse. In this video, retired divorce attorney and Rosen Law Firm founder Lee Rosen discusses the factors involved in Property Distribution in North Carolina.
Dividing Your Property – the House and Everything Transcript
Hi. I’m Lee Rosen. I’m going to be talking about property distribution today.
Property distribution is also referred to in North Carolina as equitable distribution. So you may see it referred to in that way in the statutes or on our website.
Property distribution is about how the assets and debts of the marriage are divided. Property distribution in North Carolina can be decided by a judge or it can also be settled by an agreement between you and your spouse. I’m going to talk to you about what a judge would do in a North Carolina property distribution case and how a judge will value and distribute the property.
The best way that I know to do that is for us to start by imaging that we have a huge pot sitting in front of us — a cauldron; you know, the kind that witches dance around. And what I want you to do is put into that pot absolutely everything that you own, whether it’s in your name or your spouse’s name; that doesn’t matter. It doesn’t matter who bought it. It doesn’t matter who says they own it or who worked for it. We want to throw everything you have into that giant cauldron. So go ahead and do that in your mind and imagine that everything you have is in that cauldron.
Everything means the house, the retirement plans, the bank accounts, the mutual funds, the stock options, all the debts — the credit cards and other loans — everything; your cars, your furniture. Put everything you can into that imaginary pot.
Now, once you’ve got the cauldron all loaded up, what we’re going to do is start by taking three things out of that pot. What we’re doing is we’re taking the separate property out and giving it back to the spouse it belongs to and we’re leaving the marital property in the cauldron so that later we can divide it.
So what do we take out of the pot? Well, the law of equitable distribution can be complicated. And the classification of property can be tricky. But generally, you’re going to take three things out and the first one is anything that you or your spouse inherited, either before or during the marriage. If there’s something in there that either of you inherited, take it out and give it to the person that inherited it.
The second thing we’re going to take out: anything that you or your spouse owned before you got married that you had during the marriage. And so if there were cars you had before marriage, jewelry you had before marriage, cash you had before marriage, anything like that, it’s going to come out of the pot and go back to the spouse that had it before marriage. Go ahead and take it right out and shift it over to that spouse.
The third thing to take out is anything that was a gift directly to you or directly to your spouse from somebody other than a spouse. So we’re not talking about gifts between husbands and wives, but we are talking about gifts from a friend or a family member. For instance, maybe your mother gave you an antique piece of furniture. Well, that would come out of the cauldron and go back to you.
Once we’ve taken out these three things from the cauldron, the only other thing that you can possibly take out is anything that can be traced back to one of the three types of property I’ve just described. And let me give you an example of what I’m talking about. Let’s say that before you got married you had money in a bank account. Then, after you were married, you took that money and you bought a car. And let’s say that you titled that car jointly. Well, I can trace or find a connection between that car and the money you had before you got married. So the car comes out of the pot and goes to the person who that cash came from.
And so we’re always tracing back. We’re always looking carefully at property to see if it can be traced back to one of those three separate property items: the things you had before marriage, the things you inherited, or the gifts from someone other than your spouse.
Now, there’s one more exception to these rules. And that is, if we’re doing some tracing — if we’re following money, say, from cash into a car and later the car is sold and now we’ve got cash again, but we take that cash and we use it as an investment in a house or some other kind of real estate during the marriage, and we title that house jointly, any time we do that, any time we trace money into jointly titled real estate, it’s treated as a gift to the marital estate and it becomes marital property and it stays in the cauldron.
Now, the cauldron that we have left — the pot of stuff that we have left — is marital property. And that’s what’s left to be divided.
Also in that cauldron might be some stuff called divisible property. And divisible property is pretty much everything that falls through the cracks, things like assets that were acquired between the date of separation and the date the property’s divided, or appreciation or depreciation of marital property. Those things are also left in the cauldron but they’re a relatively minor piece of this puzzle.
So we’ve got this pot full of property that needs to be divided. Now, here’s what a judge is going to do. The judge is going to take all of the property in that pot and put a value on absolutely everything. Everything needs to have a price assigned to it. And that price, that value, is going to be the value that it had — each and every item — on the date of separation. That’s the date that you and your spouse physically stopped living together.
The judge will also look at the value close to the date of trial so that we can account for any changes that have taken place between the date of separation and the date of trial. And there might be things like debts being paid down during that period, steps taken to preserve marital property, all of that will be accounted for by looking at the value on the date of separation and at the date close to the trial.
Now, once the judge has placed a value on every item of marital and divisible property, everything in that cauldron, then what a judge is required to do is to divide the property. The judge can divide the property in half and most of the time — in almost all cases — that’s what judges will do. They’ll divide it in half, say that half of it goes to the husband and half of it goes to the wife.
But the statute also allows a judge to give one spouse more than half of the property. The statute lists 13 factors that a judge can look at to figure out whether or not he or she is going to give more than half to one of the spouses. And the factors are listed on the website under the property distribution section. The factors are things like how one spouse might have started a career during the marriage or gotten education during the marriage. Health and welfare of the parties might be considered. There are lots of things in that list.
But one thing that’s not on the list is fault. Marital fault, marital misconduct, is not something that could be taken into account when property is divided. So there are lots of other things that can be considered, but marital fault is not one of those things.
Marital fault, marital misconduct, has to do with how alimony is divided. So if there’s fault in your marriage, take a look at the alimony information; but it’s not a factor in how property is divided. Property is a no-fault kind of thing.
So once a judge has decided how the property’s going to be divided, then each spouse is going to get their pile of property, half of — usually — what was in that cauldron. And a judge doesn’t have to sell everything or split every item in half. What a judge needs to do is be sure that each spouse gets their share of the property. And so that might mean one spouse gets all of one asset and the other spouse gets all of one asset that’s of equal value. We don’t literally divide each asset down the middle.
So some final comments to wrap this up. You need to make sure that when you’re thinking about your property and what there is to divide that you don’t overlook anything significant. You don’t want to forget about anything. And there are lots of assets that can be complicated. One of them, for instance — and it gets overlooked with some frequency — is retirement plans. We sometimes forget to deal with those things when we’re doing this without a lawyer.
Make sure you talk to a lawyer before you deal with dividing your retirement plan. It’s a complicated asset. You don’t want any piece of it to be overlooked and you want to make sure that it’s divided properly.
There are lots of ways that we divide retirement plans in North Carolina. And sometimes we use things that are special court orders called qualified domestic relations orders and those orders allow us to divide the retirement plan in half, usually without any tax consequences or any tax penalties which are normally associated with the division of a retirement plan. So make sure you talk to a lawyer about whether or not you need a qualified domestic relations order and whether that needs to be made a part of your agreement.
If you’re thinking about separating or if you’re in the process and need to be planning for how you’re going to deal with your property, what I really suggest that you do now, before you lose access to records, is to start collecting documents, things like financial statements, tax returns, mutual fund statements, bank statements, checking account statement. Gather all of the financial records that you may have around the house. These are the things you want to go ahead and put in a safe place and make sure that they’re there when you need them. The last thing you want to do is overlook things or forget about things because you didn’t have the records to substantiate their existence.
If you have questions about property distribution, or any of the issues related to divorce and separation, go back to our website at Rosen.com. There’s a lot of information there. And I encourage you to talk to a lawyer about property distribution. This is probably the most complicated issue that we deal with.
I’m Lee Rosen.