What is Equitable Distribution?

Equitable Distribution or E.D. as it is known to attorneys is the distribution of your property. What is property? It is everything you own, from your house, cars, and furniture, to your bank accounts, retirement accounts, insurance policies, credit cards, business interests and student loans. It is everything you would call an “asset” or a “debt.”

What do we do with the property? In North Carolina, we have to first identify the property, then we classify it as either marital or separate property, we place a value on it, then we distribute it. So, the first thing you should do is mentally put everything you own into a large box. Then we start the process of equitable distribution. Identifying the property is easy. What is it? Is it an antique desk, a 401 (k), a car loan, or a checking account?

Marital Property: To classify the property we have to know when it became your property and how you received it. In North Carolina, if you purchased a sofa during the marriage, and put it into your marital residence, it is marital property. If you earned a salary during the marriage, it is marital property. If you incurred a credit card debt or any other debt during the marriage, it is a marital debt, regardless of whether or not it is a joint account. Generally, anything you “get” during the marriage, whether an asset or debt, is a piece of marital property.

Separate Property: However, that’s only part of the picture. If you owned a piece of property before you got married, and you still own that property after you got married, that property is your separate property, and is not subject to distribution between you and your spouse. If you inherited a piece of property either before the marriage or during the marriage, that property is your separate property. If you were given a gift from someone other than your spouse, either before or during the marriage, it is your separate property. If you use separate funds, for instance, inherited funds, to purchase a car during the marriage, that car is your separate property, because the source of the funds used to purchase it can be traced back to your separate property. So, just because your separate property has changed forms, from money to a car, for instance, as long as it can be traced back to what was originally your separate property, it remains your separate property. There is one very large exception to this rule. If you, for example, owned a house before you got married, sold that house, and used the proceeds to purchase a house with your new spouse (and the house was jointly titled as “John Smith and Mary Smith, Husband and Wife”, otherwise known as a tenancy by the entireties), the money you put into that new house is presumed to be a “gift to the marriage” and does not make any portion of your new house your separate property. The house and its equity are marital property. This is the only exception to the separate property rule in North Carolina.

In valuing property, we will often use the date of separation value of the property. That means, we will look at bank statements, retirement account statements, credit card statements, etc., to determine what the value of or the balance on the property was as close to the date of separation as possible. If no statements of value are available, we will need to bring in an expert to tell us how to value a piece of property. We will often use appraisers to help us determine the value of a house. We will also use Certified Public Accountants or other financial experts who specialize in business valuations to help us determine how much a business owned by one of the parties is worth.

In distributing property, we start by looking at the “big ticket” items. Those things would be your house, vehicles, retirement and bank accounts, and business interests. Those are the pieces of property that have the most monetary value, and will usually drive the negotiation toward completion. That is not to say that your furniture and Hummel collections are not important. On the contrary! Many people have valuable antique collections and of course, pieces of furniture that have sentimental value. In North Carolina, the courts will divide your marital property equally, unless you can provide it with some reason why you should receive more than your spouse. An example of a possible reason for an unequal distribution could be that you are disabled and unable to work, and do not have any money on which to retire, so you are asking the court to give you more than 50% of the marital property so that you can secure more money for your retirement, while your spouse continues to work and earn retirement.