Equitable Distribution: Thinking About Property After Marriage
by Jordan Arroyo
Kelly and Sam are working through a divorce. While married, they bought a house together, moved in, combined their assets, and started building a life together. Over time, they became unhappy in the marriage and decided that a separation is the best way to move forward. Now, they are each trying to build solid foundations on their own. In addition to the many conversations about how they will take care of their children, they need to decide how they will divide their property. Sam is the dependent spouse and is concerned about raising the children and maintaining their quality of life after separation. Kelly is the primary earner and worries that a 50/50 split will not be fair because Sam inherited private wealth before they were married. To settle the matter as fairly as possible, they decide to pursue Equitable Distribution. Equitable distribution (“ED”) is the solution that will help Kelly and Sam exit the marriage with the assets they need to thrive after the separation.
ED will help Sam, Kelly, and the court get a complete, holistic view of the property that each spouse owns. Equitable does not mean equal. The court will review the property and income reported by each spouse and then divide the assets as fairly as possible between the parties. In order for the court to perform ED, Sam and Kelly will need to know:
1. When to File for ED;
2. What to Disclose; and
3. What to Expect from the Court
When To File
A divorce petition does not guarantee ED. Just because Same and Kelly are filing for a divorce it does not mean that the court will automatically look at their property to divide it fairly between them.
Sam can file for ED as soon as the separation begins. There are three ways to file for ED. Sam may file:
1. An action separate from the divorce petition;
2. Together with any divorce or alimony action; or
3. A motion for ED by following the rules described in North Carolina General Statute (G.S.) 50-11(e) or (f).
Under G.S. 50-11(e) Sam will lose the right to file for ED after the court enters in a judgment for absolute divorce unless (1) Kelly is the one who initiated the divorce; (2) Sam files within six months of the date of the judgment; (3) Sam received service by by publication; and (5) Sam failed to appear in the action for the divorce.
Service by publication is when one party puts the information about the proceedings in a newspaper where the other party lives for a number of consecutive weeks. The idea is that the other party will see the information and become aware of the proceedings. The legislature put these precautions in place to protect spouses from being sideswiped by judgments they never got to see. If Sam did have notice of the proceedings because Kelly sent proper service, then Sam will not have the right to file under the “unless” portion of the statute.
Under G.S. 50-11(f), either Sam or Kelly will maintain the right to file for ED if the court handling the divorce did not have personal jurisdiction over the spouse that did not appear before the proceedings. Personal jurisdiction is the court’s ability to order someone to appear in court to have their matter settled there. A court has personal jurisdiction when a person either consents to the court’s authority or when that person owns property within the court’s jurisdiction. For example, if neither Kelly nor Sam live in Texas, Sam cannot drive across the country and force Kelly to appear in a court across the country just to make the process more difficult on Kelly.
Generally, if you are summoned, you should seek the advice of one of our attorneys to determine whether the court demanding your presence has the ability to do so. If the spouse failed to appear in a court that does not have personal jurisdiction over their person, that spouse may file within six months after the judgment is entered.
What To Disclose
Not all property will be subject to the ED claim. There are three types of property in an ED action: Separate Property, Marital Property, and Divisible Property.
Separate property is the property owned by either party before the marriage. This property is not subject to ED. For example, the car that Sam’s parents purchased as a sixteenth birthday present is separate property that will not be divided up in the divorce.
Marital property is the property acquired by the spouses during the course of the marriage up until the time of separation. It includes all real and personal property, like the home that Sam and Kelly bought right after their wedding, or the salt and pepper shakers that their friends bought them as a gift. It also includes all vested and non-vested pension, retirement, and other deferred compensation rights, and vested and non-vested military pensions eligible under the Uniformed Services Former Spouses’ Protection Act. Marital property is presumably held in tenancy by the entirety. A tenancy by the entirety is a situation in which both spouses own 100% of the property at issue instead of owning it 50/50. If one spouse passes away, then the other spouse automatically owns the entire property. This presumption can be disproved, however, with evidence to the contrary.
Divisible Property is any property acquired by a spouse after separation. It would include the condo that Kelly bought to live in after separating from Sam. It includes: all appreciation and diminution of value of marital property and divisible property (except any appreciation or diminution resulting from a separation agreement); passive income like interest and dividends; passive increases and decreases in marital debt and financing charges; and interest related to marital debt. Divisible property is subject to ED as the court sees fit.
What To Expect From the Court
Sam needs to file for ED and serve the claim on Kelly. In order for service to be proper, Sam needs to prepare and serve Equitable Distribution Inventory Affidavits listing out all of their known assets. The affidavits are Sam’s statement about what properties are separate, marital, and divisible. Sam must estimate the “date-of-separation fair market value” of each piece of property. The fair market value is simply what price Sam could sell each item for. For example, over the marriage, Sam bought a nice set of wine glasses to share with Kelly whenever it was five o’ clock somewhere in the world. When Sam is considering the “date-of-separation fair market value,” Sam is looking to see what the average buyer on the street would pay for the used wine glasses. Sam will look at the current condition of the glasses and what other wine-glass sellers list as the price of their product. Once served, Kelly has 30 days to prepare inventory affidavits with the same information and serve Sam.
The party bringing the claim (in this example, Sam) has 120 days after first filing for ED to ask the court to hold a scheduling and discovery conference. The other party may choose to move for the conference if the filing party does not. The court will set a plan for the various pretrial conferences and the trial itself. The expectations of pretrial conferences and evidence presentation at trial vary from county to county. Sam and Kelly should therefore consult with the attorneys at Smith Dominguez to file the claim for them. Unfortunately, Smith Dominguez cannot represent both parties because they have conflicting interests. They ultimately take on one client and refer the other to another great attorney in the area.
About the Author
Jordan Arroyo is a law clerk at Smith Dominguez, PLLC and a third-year law student at the Campbell University Norman Adrian Wiggins School of Law. During her time at Campbell, Jordan has been involved in a number of moot court and mock trial competitions and has served as a research assistant. She has also been heavily involved in the Black Law Student Association, the Hispanic Law Student Association and the International Law Society. Jordan is bilingual.