North Carolina Divorce: Dividing Property

When we think of hot-button issues in a divorce, the usual suspects are alimony or child custody. But dividing a couple's property can also be a big source of conflict, especially when it comes to things like determining who gets the marital home or even the family pet. If you're facing or in the midst of a divorce, it's important for you to understand how North Carolina's divorce law addresses the division of property and allocation of debts.

• Is North Carolina a Community Property State?
• Characterizing Marital, Divisible, and Separate Property in North Carolina
  • What's Considered Marital Property in North Carolina?
  • What Is Considered Separate Property in North Carolina?
  • What Is Considered Divisible Property in North Carolina?
  • Can Separate Property Become Marital Property in North Carolina?
• How Is Property Valued in a North Carolina Divorce?
• Can You Agree on How to Divide Your Property?
• How Do North Carolina Judges Decide What's Fair When Dividing Property?
• Who Gets the Family Home in a North Carolina Divorce?
• What About Dividing 401(k) and Other Retirement Accounts?
• Who Gets the Family Pet in a Divorce?
• Getting Help With Your Divorce and Property Division

Is North Carolina a Community Property State?

No, North Carolina isn't a community property state. Rather, it's generally thought of as an "equitable distribution" state.

In most states that follow the principle of equitable property division, judges divide a couple's property and allocate their debts based on what's fair under the circumstances—which doesn't necessarily mean a 50-50 split. But there's a twist in North Carolina. The law actually calls for an equal division of a couple's property unless the judge finds that wouldn't be fair. (N.C. Gen. Stat. § 50-20(c) (2023).)

Characterizing Marital, Divisible, and Separate Property in North Carolina

The first step in approaching the property division is to determine which assets and debts will be included. That boils down to figuring out which assets and debts are marital property, divisible property, and separate property.

What's Considered Marital Property in North Carolina?

Under North Carolina law, "marital property" means all real estate and personal property that either or both spouses acquired after they married and before they separated, except for property that's determined to be "separate" or "divisible" (as discussed below). (N.C. Gen. Stat. § 50-20(b)(1) (2023).)

This holds true regardless of whether title to the property is in one spouse's name alone, or in the name of both spouses in some form of legal co-ownership (such as a joint tenancy). For example, if a spouse bought a car during the marriage and only that spouse's name is on the vehicle's title, it's still considered marital property subject to distribution in the divorce.

The date of separation is crucial for determining whether assets fit the definition of marital property. North Carolina courts have long considered a couple to be separated only if they're living in different homes and at least one of them intends the separation to be permanent. (Richardson v. Richardson, 127 S.E.2d 525 (N.C. Sup. Ct. 1962).)

What Is Considered Separate Property in North Carolina?

"Separate property" includes:

• real estate or personal property that a spouse acquired before the marriage
• property that a spouse received during the marriage as a gift or inheritance
• property acquired in exchange for separate property (such as if you sold property you owned before marriage, then used the proceeds to buy something else for yourself)
• the increase in value of separate property, and
• any income derived from separate property.

Gifts between spouses may be considered separate property in North Carolina, but only if the gifting spouse made it clear that was the intention when making the gift. (N.C. Gen. Stat. § 50-20(b)(2) (2023).)

What Is Considered Divisible Property in North Carolina?

Most states only distinguish between marital and separate property for purposes of property distribution in divorce. But North Carolina law has a third category of property that may be divided in divorce. This "divisible property" category includes:

• the change in the value of marital property that happens between the date of separation and the date the asset is distributed (usually at the end of the divorce process), unless it resulted from one spouse's actions
• any property (or property rights) that a spouse earned during marriage but didn't receive until after separation—like a bonus or commission
• "passive income" from marital property, such as interest in a marital bank account or dividends from marital stocks, and
• passive changes in marital debt during the post-separation period (like changes in finance charges or interest rates, rather than additional debt that's incurred).

(N.C. Gen. Stat. § 50-20(b)(4) (2023).)

In the case of Romulus v. Romulus, 715 S.E.2d 308 (N.C. Ct. App. 2011), the court gave a good example of how divisible property applies to changes in the value of marital property during separation: A spouse who runs a corner store works there from 9-5, Monday through Friday. After the couple's separation, a large residential complex opens up across the street from the store, leading to many new customers and an increase in the value of the business. The increase would be divisible property, because it resulted from the new neighbors, not something the shopkeeper did. But if there wasn't a new building, and the increase in value was due solely to the shopkeeper's efforts (such as by staying open more hours, doing more advertising, or offering online shopping and delivery), the appreciation in value would not be included in the property to be divided in the couple's divorce.

Can Separate Property Become Marital Property in North Carolina?

Separate property can be converted ("transmuted") to marital property. In most states this can happen:

• intentionally, such as when the spouse who owns the separate asset changes title to the property to include the other spouse, or
• unintentionally, by commingling (mixing) separate property with marital property, as you might see if a spouse put inheritance money into a joint bank account with the other spouse, not realizing the consequences.

In North Carolina, however, separate property isn't necessarily transmuted into marital property when it's commingled. Still, any spouse who claims to have separate funds in a joint bank account must be able to trace the source of the initial deposit. (Fountain v. Fountain, 559 S.E.2d 25 (N.C. Ct. App. 2002).)

How Is Property Valued in a North Carolina Divorce?

When you have any financial issues at stake (including property division), you and your spouse must exchange complete information about your income, expenses, assets, and debts after you file for divorce in North Carolina. That's why it pays to prepare your financial information before the divorce process starts.

In many cases, determining an asset's value is fairly straightforward, such as obtaining the balances on bank accounts. With certain types of property (like a house, family business, or retirement accounts), you'll probably need help from financial experts—such as appraisers, forensic accountants, or actuaries.

If you and your spouse can't agree on the value of any particular asset, even after getting expert help, the judge may have to decide for you, based on the evidence you both provide.

You also must be mindful of the correct date for establishing the value an asset. In North Carolina, the valuation date for marital property is the date of separation. For divisible property and debt, it's typically at the end of the divorce process. (N.C. Gen. Stat. § 50-21(b) (2023).) Of course, if you and your spouse settle your case before any trial (more on that below), you'll agree at that point on the value of your property and debts.

Can You Agree on How to Divide Your Property?

You and your spouse always have the option of agreeing on how you'll split up your property when you get divorced, rather than having a judge decide for you. (N.C. Gen. Stat. § 50-20(d) (2023).) In fact, the courts strongly encourage divorcing couples to settle all their marital issues before a trial is necessary, and they provide ample opportunity to do that during the divorce process. You'll need to submit the agreement to the court for approval, but judges will almost always approve these agreements as long as they appear to be fair.

Also, if you and your spouse reach a complete marital settlement agreement before you file your divorce papers—covering all the legal issues involved in ending your marriage—you'll be able to file for an uncontested divorce in North Carolina. Uncontested divorces are much cheaper, quicker, and easier than traditional contested divorces. Many couples are able to navigate the uncontested divorce process without hiring a lawyer, either entirely DIY or by using an inexpensive online divorce service to streamline the process.

You can also agree before you get married (by signing a prenuptial agreement) on how you'll divide your property if you later decide to divorce.

How Do North Carolina Judges Decide What's Fair When Dividing Property?

Like many states, North Carolina's divorce law requires judges to consider all relevant factors that would impact a fair division of property in a particular case, including:

• the income, property, and liabilities of each spouse at the time the division of property will become effective
• any support obligation arising out of a prior marriage
• how long the marriage lasted
• the spouses' ages and physical and mental health
• whether the spouse who has custody of the couple's child or children needs to own or live in the family home and to use or own personal property in the home
• how much each spouse will expect to receive from pensions, retirement plans, or other deferred compensation that aren't marital property
• a spouse's contribution (whether direct or indirect) to the other spouse's education or career
• a spouse's direct contribution to the increase in value of separate property during the marriage
• how much the marital and divisible property is liquid or not (meaning, how easily it can be converted into cash)
• each spouse's contribution to the acquisition of marital property, including contributions of separate property and efforts as a parent, homemaker, and wage earner
• whether it makes financial sense for one spouse to keep an asset or business interest that's difficult to value
• either spouse's actions to expand or maintain marital and divisible property—or to waste or devalue it—during the separation period, and
• the tax consequences of the property division for each spouse.

(N.C. Gen. Stat. § 50-20(c) (2023).)

Note that marital misconduct isn't included in the list of factors. So a spouse's bad behavior (such as adultery) won't affect property distribution in and of itself. North Carolina courts have held that judges may consider marital misconduct only if it negatively affected the value of the couple's marital assets. (Green v. Green, 763 S.E.2d 540 (N.C. App. 2014).)

For example, if a spouse wastes a considerable amount of marital funds on gambling or on an affair, a judge might consider those actions and award that spouse a smaller share of the remaining marital property. But in a case where a wife removed several "truckloads" of marital property from the family home just before the couple separated, an appeals court held that the judge shouldn't have considered the wife's misconduct as a factor in the property division—because the value of the removed property was included in the total marital assets to be divided. (Walter v. Walter, 561 S.E.2d 571 (N.C. Ct. App. 2002).)

Who Gets the Family Home in a North Carolina Divorce?

As discussed above, North Carolina law specifically directs judges to consider whether a custodial parent might need to continue to own or live in the family home. But the law doesn't say that either spouse must get to keep the family home after divorce.

If you and your spouse can't agree on what to do with your house, the judge will make a decision based on the specific circumstances in your case. If a house is awarded to one spouse, the judge will typically award different assets—such as retirement accounts—to the other spouse to arrive at a fair distribution of all the couple's property.

Of course, many couples don't own enough other assets to balance out the value of a house awarded to one spouse. So the judge may simply order them to sell the house and divide the proceeds. If you don't want a forced sale, you'd be wise to work out an agreement with your spouse after exploring the other options for dealing with the family home.

What About Dividing 401(k) and Other Retirement Accounts?

Retirement plans are also part of the equitable property division in divorce. It can be complicated to figure out the value of the marital property in these accounts, especially when a spouse has interest in a defined-benefit pension or began participating in a plan before the marriage. In these situations, you'll almost certainly need the services of an actuary or an attorney trained in calculating the portion of the plan that's subject to distribution in the divorce.

And when you're dividing employment related retirement plans, such as a 401(k) or a pension, you'll need an expert to prepare a special order for the plan administrator known as a qualified domestic relations order (QDRO).

Who Gets the Family Pet in a Divorce?

Despite the fact that they often seem like members of the family, the law considers pets to be property. As such, they're subject to distribution just like furniture or a vehicle. Unlike a few other states, North Carolina law doesn't specifically allow judges to take into account the animal's well-being or to award joint custody of a pet. Still, when empathetic judges are deciding who gets the pet in the divorce, they will often consider the impact of their decision on members of the family, especially the children.

Getting Help With Your Divorce and Property Division

If you're having trouble agreeing with your spouse about how to divide your property, you can try mediation. The cost of divorce mediation varies, but you and your spouse can split the mediator's fee. And a successful mediation will be considerably less expensive than going to trial (with attorneys' fees for both of you).

But if you still aren't able to reach a settlement agreement, even with a mediator's help, you should at least speak with a lawyer. An experienced family law attorney can evaluate your case and lay out your options going forward. Having a lawyer on your side is especially critical if you're experiencing domestic violence in your marriage or if you suspect that your spouse is hiding assets.

You should know that the question of whether you need a divorce lawyer isn't always an all-or-nothing choice. Sometimes, you can hire an attorney on an as-needed or consulting basis to handle certain tasks in your divorce, such as drafting or reviewing your settlement agreement, to make sure you haven't missed anything important or inadvertently given up important rights.