In Divorce, What’s Mine is Yours and What’s Yours Is Mine (True or False?)

We’ve all been there when the wedding bells ring, vows are exchanged, the flower girl has tossed her final petal, and newly married couples slip bands onto their fingers. Husband and wife share a future together, perhaps they share last names, and now that they’re formally married, they also share ownership of each other’s assets and debts. Or do they? This article sheds light on the equitable distribution process in North Carolina. Equitable distribution refers to dividing up certain assets and debts when a marriage becomes a divorce. But which assets get divided? Which debts get split? First of all, it’s always important to understand which statutes govern an issue because that is the state legislature’s guidance on how we handle a given situation. Equitable distribution cases in North Carolina are governed by N.C.G.S. 50-20, which is entitled, “Distribution By Court of Marital and Divisible Property.” There are several other statutes that provide guidance in equitable distribution cases, as well as a broad body of court cases that create additional law that we must follow when dividing a marriage’s assets and debts.

Important Deadline

When folks separate and eventually divorce, they are on an important time clock. They have until their formal divorce date (usually about 14-15 months after they become separated) to either (1) resolve their equitable distribution case or (2) to file a claim for equitable distribution in a lawsuit. If they fail to timely take one of these two steps, then they will forever forfeit their right to do so. In other words, it’s now or never when it comes to dividing your assets and debts. Missing this deadline can mean your spouse walks away with most or all of the assets that you have accumulated, or it can mean that you walk away with most or all of the debts, or both!

Which Assets and Debts Get Divided

Equitable distribution generally classifies all assets and debts into one of three categories. The first is “marital,” and this refers to assets or debts that you have accumulated since you got married until you became separated. The second is “separate,” and this refers to assets or debts that existed prior to your date of marriage or (sometimes) those which came into existence after you separate. The third and final category is “divisible,” and these are assets or debts that came into your ownership after you separate, but they relate back to actions that occurred before you separated (i.e., during the marriage). Marital assets and debts are divided when people divorce. This is the heart of equitable distribution, and it is where most people get the idea that upon getting married, both spouses own half of what the other already had. But that is untrue because parties divide “marital” and “divisible” property. They do not divide “separate” property. Imagine that you owned a retirement account before you got married. Then after you have been married for several years and decide to separate, does your spouse get to keep one-half of that account? The simple answer is “no,” but it’s much more complex than that. If you continued contributing money into that account during the marriage, then it will have multiple components, meaning it will be partly marital and partly separate. The marital component will be divided, and your spouse will be entitled to keep a portion of it. But you get to keep your separate component on one major condition: you must be able to dig up documentation to track the existence of the account before you were married, as well as the amounts in the account during multiple time periods. This is often a very complex process, and it is important that you consult with an experienced divorce attorney to protect your interest in this asset. This doesn’t apply strictly to retirement accounts. Rather, it applies to all assets and debts. Real estate is a particularly complex example because it is common for one spouse to give a down payment when purchasing a home by using his or her separate (pre-marriage) money, and then the spouses usually pay down the mortgage principal over time. You see, there are multiple components in that house. There is a pre-marriage separate component so long as the paying spouse can track his or her down payment by way of account statements. There is also a marital component since the mortgage principal was paid down during the marriage by some amount. It is also common for spouses to improve houses during their marriage, such as by installing hardwood floors or adding a patio. This can create a marital component, as well.

Divisible Property

What is divisible property, you ask? This can refer to a variety of assets and debts. But one common example is an income bonus or commission. Let’s say husband works in sales and has a good year, hitting and exceeding his sales goals. The parties separate in March, and he receives a bonus in June. However, that bonus is actually attributable to work that he did in the months leading up to the separation. That bonus is most likely “divisible,” meaning that wife is entitled to a portion of it. As you can see, with equitable distribution, there is more than meets the eye, and the numbers in most marriages will need to be carefully catalogued and analyzed in order to arrive at a fair and proper outcome.

Do We Split Our Property In Half, or Can I Receive More than Half?

There is a rebuttable presumption in the State of North Carolina that when parties separate and divorce, their assets and debts will be split equally between them. So, yes, we start with a 50-50 division. However, if one of several factors known as “distributional factors” exist, which are set forth in N.C.G.S. 50-20(c), then the Judge is empowered to grant one spouse a greater share of the net marital property than the other spouse. This rarely means a 70-30 split. An unequal division usually means that one spouse will receive slightly more than 50% (perhaps 52% or 54%). The most common factors that will lead Judges to grant an unequal share to the parties are when (1) one spouse is a stay-at-home parent and they need to keep the house for the benefit of the children, or when (2) one spouse has considerably higher earnings and is able to rebuild his or her nest egg much more quickly than the other spouse. Talk with your divorce attorney about whether one or more of these factors apply to you in case you may be entitled to keep more than one-half of the marital property.

What if I Can’t Afford to Pay the Marital Debts?

When one party is simply unable to pay one-half of the marital debts, it is common for the attorneys or the Judge to resolve equitable distribution by distributing more than half of the debts to the other spouse. But when this happens, that spouse will usually also receive more than half of the assets, as well. This creates a “net even” distribution, while recognizing unequal ability levels to repay debts without going into default. It is important to work with your divorce attorney to achieve an outcome that is going to work in your unique circumstances.

But Wait, There’s More

As with most family law topics, equitable distribution laws cannot be reduced to a three-page article. You must consider other issues such as alimony, and even custody and child support, because they can interplay dynamically with equitable distribution. In other words, a divorce is a broad process that almost always involves multiple issues, all of which are related to one another. At the very least, consult with an experienced divorce attorney who has handled complex equitable distribution cases so that you know what is needed to resolve your case while protecting your rights and preventing you from losing significant assets in the process. You only get one trip to this well, and you usually cannot “undo” a bad agreement or a poorly planned court appearance. As always, this article is not legal advice, and it is important that you seek the advice of an experienced divorce attorney regarding your unique facts and circumstances before making any major decisions that might impact you or your family.