Property Distribution in North Carolina
State laws dictate property distribution when a marriage is dissolved. North Carolina is an equitable distribution state, meaning that when spouses are unable to resolve property rights on their own, the court determines what is a fair and reasonable distribution. It does not matter who bought the property or whose name it is titled in. If it was purchased during the marriage, it is considered marital property, owned by both spouses. It is important to understand that equitable does not necessarily mean equal.
North Carolina also recognizes separate property, which is property that belongs to one spouse and not the other. Separate property includes:
- Inherited property, such as money or real estate
- Property acquired prior to marriage—including real estate, bank accounts and vehicles
- Gifts to one spouse by a third person, although gifts from one spouse to the other are marital assets
If an asset was acquired prior to the marriage and there is an increase in value because of work by the other spouse, the increase in value may be considered marital property, but the asset itself remains separate property. Separate property can become marital property. For example, if it is used to benefit both spouses, it may then be considered a gift to the marriage.
It is important to note that North Carolina does not grant common law marriages. Unmarried couples who live together are not entitled to the same legal rights as married couples. This includes the property distribution rights if the couple separates. One way to avoid these issues is by deciding before moving in together what percentage of the property each partner owns. Under North Carolina law, unmarried couples can be designated as joint tenants or tenants-in-common. While joint tenants share the property equally, tenants-in-common each own a specific percentage of the property.
Another significant consideration in equitable distribution is retirement income, such as IRAs, pension plans and 401(k) plans. Often, retirement accounts have money in them that is separate—contributed prior to marriage or after separation—as well as marital—contributed during the marriage. The gains or losses to retirement accounts due to market forces are also divisible between the spouses, and it is important to understand how the law in this area works. See below for more information about retirement accounts.
Determining what is equitable
There are several factors the court uses to determine what is equitable, including—
- How long the couple was married
- The age and physical and emotional health of each
- The income or property each spouse brought to the marriage
- The standard of living during the marriage
- Economic circumstances of each party at the time of division
- Income and earning capacity of each, including education and training
- Direct contributions to increased value of separate property
- Tax consequences for each party
- Present value of property
- Needs of the spouse who has physical custody of children
- Support obligations for prior marriage
- Expectation of retirement benefits which are separate property
- Expectation of retirement benefits which are marital property
- Liquid or non-liquid nature of property
- Difficulty in valuing interest in a business
- Conduct by one party that relates to the economic condition of the marriage—economic fault (see below)
- Any other factors which the court may deem relevant
Contact us at 919-783-9669 today to discover how we can help with your property distribution needs.
Behavior such as adultery, domestic violence, abandonment and alcohol and drug abuse is not relevant in determining equitable division of marital property. Even if a spouse admits to having engaged in any or all of these behaviors, he or she might still be entitled to 50 percent or more of the marital property. Economic behaviors—economic fault—are relevant. For example, if a husband transfers marital property to his mistress immediately before separating from his wife, the law says this is economic fault, and this conduct is considered by the court in deciding on a fair division of property.
Distribution of property—retirement accounts
Included in the property distribution are retirement plans, pension plans, investments, stocks, bonds, etc. acquired during the marriage. In most cases, a divorced spouse needs a court order to collect on an ex-spouse’s retirement income in the future.
Property distribution in divorce, including valuing retirement plans, can be extremely complex. There are many different types of plans with different interpretations of the law, requiring documents to be drafted in a specific way, and with different tax consequences. For some plans, orders must be approved by the plan administrator in addition to the court for them to be enforceable. Because the issues can be complex, it is best to hire an attorney to protect your rights and ensure the documents are properly prepared.
The information provided below is a broad overview of different methods by which retirement plans are divided. Contact an attorney at Haas Tharrington, P.A. for specific information about your situation.
A Domestic Relations Order (DRO) is used for state government plans, such as those covering teachers, state employees and local government retirees.
A Qualified Domestic Relations Order (QDRO) is used for ERISA—Employee Retirement Income Security Act of 1974—retirement plans such as tax-deferred saving plans, and most large companies’ 401(k) or pension plans.
A Court Order Acceptable for Processing (COAP) is sometimes referred to as a Qualified Court Order. These orders are used for federal government employees who are members of either the Civil Service Retirement System (CSRS) or the Federal Employees’ Retirement System (FERS). When a Court Order Acceptable for Processing is drafted, monthly benefits are paid to the alternate payee—ex-spouse—when the participant/employee retires, and continue to be paid for the lifetime of the participant/employee. If the alternate payee—ex-spouse—is entitled to a Former Spouse Survivor Annuity (agreed upon by both parties or court ordered), the monthly annuity starts when the participant/employee dies and continues for the life of the alternate payee—ex-spouse.
A Military Pension Division Order (MPDO) applies to the benefits provided by the military retirement system to members of the uniformed services.
DROs and QDROs are the most common types of orders used in the equitable distribution of retirement benefits. A DRO or QDRO is a court order that instructs the plan administrator to pay an alternate payee—the former spouse—a portion of retirement benefits accrued by the other spouse. Each type of plan has its own guidelines and methods for distributing benefits. Below is a discussion of the various types of plans and the manner in which they distribute benefits between divorcing parties.
ERISA-defined benefits plans
An ERISA—Employee Retirement Income Security Act of 1974—defined benefit plan is a private retirement plan set up by a company, union or person that provides a participant/employee with a monthly income for life upon retirement.
When a QDRO is drafted for an ERISA plan, benefits may be paid to the alternate payee (ex-spouse) when the employee/participant (other spouse) reaches earliest retirement age or when he/she actually retires or at any time in between (dependent on the order). The benefit is distributed in monthly payments for either the lifetime of the participant or the alternate payee (depending on how the order was written).
ERISA-defined contribution plans
This is a private, tax-deferred savings plan set up by a company, union or person that provides an income to a participant/employee upon retirement. Examples include any thrift savings plan, profit sharing plan or employee stock ownership plan sponsored by a company, such as a company 401(k) plan to which the employee contributed, regardless of whether the company matched the contribution.
Because these plans have an actual value at any given time, benefits may be paid in a lump sum payment to the alternate payee—ex-spouse—immediately, when the participant/employee reaches his/her earliest retirement age, or at any other time as permitted by the plan.
Equitable distribution is a complex area of law, and it is important to be informed. The experienced family law attorneys of Haas Tharrington, P.A. can guide you through the legal process.