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Why You Shouldn’t Divorce Before Settling Marital Property
Russell Family Law & Litigation • Mar 10, 2020
Settling Marital Property During a Divorce
Among the many challenges that come with divorce, property distribution ranks second only to child custody and child support in terms of the emotional toll it takes on everyone involved. To help make things easier for you and your soon-to-be ex, here is a brief overview of the rules on property distribution in North Carolina.
Who Makes the Decisions on Property Distribution?
Oftentimes, the parties to a divorce proceeding agree on property distribution
themselves in the form of a property settlement. Where that is not possible, the court steps in. A judge will guide the parties through a number of steps in a process known as “equitable distribution” (ED).
Equitable Distribution Explained
The parties’ rights to ED arise at the time of their separation. These rights, however, are not automatic. One or both parties must assert them by making a formal application to the court. They can do so at any time after the separation in the form of either:
- A separate ED action;
- Together with another application under Chapter 50; or
- As a motion in the cause.
The court will then determine which property classifies as marital and which doesn’t and will distribute the former in an equitable manner. The final judgment may be rendered either before or after the divorce is finalized, at the discretion of the judge. If the judgment is with the consent of both parties, they may agree for it to enter into force prior to the divorce.
The Courts’ Approach to ED
When distributing marital property, the judge will carry out a three-step analysis. First, they will separate marital from non-marital property. Note that marital property includes not only real estate but also any debts and assets. Then, the judge will issue an order distributing the marital property. The order may or may not include written findings of fact that support the judge’s determination as to why the division of property is equitable.
Defenses Against Equitable Distribution
Divorce
Except for two special provisions, an absolute divorce will ban any ED claim that was not pending at the time the divorce was finalized. That has been interpreted quite strictly in case law.
Property Settlement
Another common defense to ED is the prior execution of a valid and comprehensive property settlement that either divides the property or otherwise releases the parties’ right to ED. That goes for property settlements entered into at the time of separation as well as premarital and postnuptial agreements.
Previously, reconciliation between the parties would void the executory or unperformed property provisions of a separation agreement. Nowadays, however, the courts differentiate between separation agreements proper and standard property distribution contracts. The former have the separation as their primary focus, while the latter are unrelated to whether or not the parties reconcile. As a result, reconciliation only voids the agreement where the intent and language of the contract clearly indicate that property rights depend on separation.
Death of One of the Parties
Depending on when it takes place, the death of one of the parties may significantly affect an ED claim. If the spouse dies prior to the entry into force of an absolute divorce but while an ED claim is pending, that will bar the ED.
However, if the spouse dies while an ED claim is pending but a divorce has already been granted, that will not bar the ED. In that case, any heirs and the executor or administrator of the deceased’s estate become joint parties to the action. Failure to join the heirs shall void any property sale as to those heirs.
Conflicting Federal Law
In some cases, federal law may preempt the state’s right to execute ED of certain types of marital property. For instance, anti-assignment and other provisions in federal social security law bar North Carolina courts from distributing social security benefits. Furthermore, the Supreme Court found that state courts may not distribute retirement pay to servicemen as either marital or community property, where they waived it in favor of veteran disability benefits.
Military Pay Protections
The Court of Appeals recently held that military disability payments do not fall under the federal definition of “disposable retired or retainer pay.” Therefore, such payments do not classify as marital property and may not be distributed by state courts pursuant to ED claims.
In contrast, however, the Court of Appeals found that disposable servicemen retirement pay is subject to equitable distribution under federal law, as per the Uniformed Services Former Spouses’ Protection Act
and GS 50-20(b)(1), which restricts distribution only to “eligible” military pensions. That finding was consistent with an earlier judgment of the Supreme Court.
How to Prevent Property from Disappearing
It is not uncommon for a party to a divorce to try to hide, waste, or convert alleged marital property to avoid its equitable distribution by the court.
Fortunately, there exist special statutory provisions that allow the other party to obtain injunctive relief and temporary orders to prevent marital property from disappearing. Parties can apply for injunctive relief either before or after the filing of the ED action.
Alternatively, a party to a divorce may apply for an order for the partial distribution of marital property. However, parties may do so only after the ED action has been filed.
Collecting Legal Fees in ED Actions
Typically, a party to an ED action may not recover legal fees from the other party. The only exception is where the court allows, at its discretion, the award of reasonable legal fees and costs to a party that:
- Owns separate property; and
- Sues the other party to regain possession of the said property.
The above also applies where the other party removed the property in question from the marital home.
To Conclude
This brief note serves only as a general overview and introduction to the marital property distribution rules in North Carolina. The information contained here is not all-inclusive, and different rules may apply depending on the circumstances of each case. For more details, interested parties should review the relevant property distribution statutes and seek expert legal advice.
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https://www.ncleg.net/enactedlegislation/statutes/html/bysection/chapter_50/gs_50-20.html
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