Equitable Distribution (Marital Property Settlement)
|
The basic presumption of equitable distribution is that marital property and marital debts should be divided equally between the parties (50/50) using the value on the date of separation. The three-step process used by the court and by attorneys attempting to settle the matter privately for the parties is to 1) classify the property, 2) put a value on the property, and 3) determine a fair way to divide the property. While it sounds simple, the property settlement aspect of a divorce case is typically the longest and most involved. To begin with, there are often disagreements over what is considered a spouse's separate property and what is considered marital property. Separate property generally includes property acquired before the marriage, inheritance, gifts, as well as passive appreciation on separate accounts that remained separate during the marriage. Marital property generally includes any and all property acquired during the marriage by either or both spouses and owned on the date of separation, as well as any active appreciation in a spouse's separate financial or retirement accounts. Spouses often argue over what property should be considered their separate property or their separate contribution to marital property, and the issue is complicated by the fact that spouses often combine their separate and marital property in such a way that it becomes difficult if not impossible to trace out the separate and marital components. Additionally, one or both spouses may claim that money given to them by friends or family members was not a gift but a "loan" that must be paid back by both parties. In some cases, these claims may be legitimate, but oftentimes this is a tactic by one party to skew the property settlement in their favor. Depending on the parties' net marital estate (the combined value of their marital property) it is often necessary for the marital residence to be sold as part of the property settlement. This is because the residence is typically the parties' major asset, and there are not enough other assets to equalize a fair property settlement to both parties. In this case, the attorneys must coordinate with the parties the timeline for sale, who the realtor will be, what the asking price will be, what repairs are necessary, what offers will be accepted, and what will happen to the net proceeds after the sale occurs. It is important to remember, however, that every case is different, and there are circumstances where one spouse may retain the marital residence as part of the property settlement. When one of the spouses owns a business, it is usually necessary to have the business evaluated by a CPA, as one spouse usually keeps this asset, and it is necessary to have a number value as to its worth. People are often confused by this, because a business's value is not the same as its income, and requires a more complex analysis. This issue is discussed further under Tax Issues in Divorce Law. It may also be necessary to divide one or both spouse's retirement accounts as part of a property settlement. Generally, any funds that accumulated in a retirement account from a spouse's date of marriage through the parties' date of separation are considered marital property to which each party has equal entitlement. Again, there are exceptions depending on whether the account was owned prior to the marriage, whether the appreciation in the account was passive or active, and whether a spouse rolled over or transferred other separate accounts into the account in question. Division of retirement accounts are accomplished through a Qualified Domestic Relations Order (QDRO), and the one-time transfer is considered tax-free as a transfer incident to divorce. A QDRO can be drafted by an attorney or an independent agency based on either the parties' agreement in a separation agreement or consent order, or court order. Keep in mind that the goal of property settlement is not to split every asset down the middle, but is rather to equally divide the net marital estate. This goal can be accomplished by allocating whole assets to each party, without going through and dividing each asset, in such a manner that the final result is an equal division. For example one spouse may agree to keep the marital residence, which has $100,000 of equity in it, and agree to let the other spouse keep their entire retirement account, which contains $200,000 (where each spouse would be entitled to ½ or $100,000). In reality, the numbers involved in property settlement are rarely this clear-cut, however the principle to keep in mind is that there are many options that can make dividing property less painless and it is important to discuss those options with a family law attorney. Another major issue in property settlement is marital debt. Marital debt is defined as any debt acquired by the parties during the marriage. A debt is considered marital regardless of whose name it is in, or even whether both spouses knew about it. This is often frustrating to a spouse who was not kept informed about the finances, or when one spouse has incurred and then deliberately concealed debt from the other spouse. In such cases, it is important to seek the advice of a family law attorney as to what immediate steps you can take to minimize your liability and what your legal rights are with respect to creditors, in the event that your spouse defaults on any debts during the separation and divorce process. Finally, while the presumption of equitable distribution is a 50/50 split, this presumption may be rebutted, and there are factors which may entitle a spouse to an unequal distribution of marital property in their favor. These factors are set out by statute, and include the relative health of the spouses, income-earning potential of the spouses, the need for the children to remain in the marital home with one spouse, or the undesirability of splitting up an asset such as a business. Furthermore, only economic fault, such as one spouse wastefully spending assets or depleting the marital estate, may be considered, and other marital misconduct is irrelevant. In many cases, spouses may work out the property settlement issues by executing a separation agreement through their attorneys or executing a consent order for equitable distribution to be filed with the court. In some cases, negotiations and exchange of documents may be handled solely through the attorneys, but in some cases the spouses and their attorneys will meet for a settlement conference or agree to go through private mediation and/or arbitration to try to settle the issue. If either spouse initiates litigation by filing a complaint for equitable distribution, then the local domestic rules are triggered, requiring both parties to complete designated forms. The party who files the complaint must complete Initial Disclosures (ED) (WAKE-DOM-17b) and an ED Inventory (WAKE-DOM-18) within thirty days of filing, and the other party must complete the same forms within thirty days of being served. The disclosures require each party to provide specific documents to the other party along with their responses. Additionally, the family court office will schedule an equitable distribution status conference, where a family court administrator will set various dates and deadlines for the case. If your case goes the litigation route, a family law attorney can guide you through the forms, assist you with completing them, and explain the way the process works in family court. Property Distribution On-line Resources:Comparable sales prices for homes in your area: Trade-in Values for cars and other vehicles: Trade-in Values for cars and other vehicles: Current and Historical Stock Data: Stock and other market information: Wake County Domestic Court Rules: NC General Statutes: Property Division- Equitable Distribution Factors Considered in Equitable Distribution Recent Articles on Equitable Distribution Contact Heather Williams at Crawford & Crawford at 919-510-8140 to schedule an initial family law consultation to discuss equitable distribution or marital property settlement. |
