Going through a divorce can be intimidating. There are several different aspects of a divorce, but one important aspect, especially if each spouse owns the property, is equitable distribution. Equitable distribution is a process governed by statute and the judge’s discretion, where the property is divided amongst each spouse.
First, the court will classify the property as either separate property, marital property or divisible property. Second, the court will then determine the value of the property. Third, the court will distribute the marital and divisible property “equitably” among the spouses. Separate property is any property that either spouse acquired prior to the date of marriage or was acquired by either spouse through inheritance or gift during the marriage. Marital property is any property acquired by either spouse during the marriage and before the date of separation.
Divisible property is any passive appreciation and diminution in the value of marital and divisible property occurring after the date of separation and prior to the date of distribution. Note here that there are distinctions between active appreciation and passive appreciation. Passive appreciation refers to the enhancement of the value of property due to inflation, economic conditions or market forces that either spouse doesn’t have control of. Active appreciation refers to the financial contributions of one of the spouses (for example, adding an addition to the marital residence).
Often there are arguments over whether the property is separate or marital. North Carolina has adopted the ‘source of funds’ rule which basically explains that when both the marital estate and separate estate contribute assets towards the acquisition of property, each estate is entitled to an interest in the property in the ratio its contribution bears to the total investment in the property. See Wade v. Wade, 72 N.C.App. 372 (1985). Also note that the party claiming a certain classification has the burden of showing, by a preponderance of the evidence, that the property is within the claimed classification. See Joyce v. Joyce, 180 N.C.App. 647 (2006).
There are several factors the court will look at when determining how to distribute property. The way that the court decides to distribute property amongst spouses is not always equitable because the judge may use his or her discretion in their weighing of the determining factors.
It should also be noted that North Carolina S.L. 2019-172 (H 469) made substantial revisions to the equitable distribution statute governing the classification, valuation, and distribution of pension, retirement and deferred compensation benefits and applies to distributions made on or after October 1, 2019. Read the article here. At Shipman & Wright, we can help. Find out more, here.
