The In's and Out's of Property Division in North Carolina

Russell Family Law & Litigation • January 30, 2021

Basic Guide to Property Division During a Divorce

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Any divorce attorney would tell you that property division is a big part of a divorce trial. So, knowing exactly what you should expect out of it is important. In NC, before the court starts dividing any property, they have to do an analysis in three steps. Only after doing so can the process truly begin. 

Property Division: A Process in Three Steps

The only property that the court divides is the spouses’ marital property. It includes both assets and debts. After the property division  is complete, the court must give clear proof that it was done in a fair and impartial way. But three crucial steps precede any final division.


1. Identification and Classification of Property 

The first step the court needs to take is to identify and classify all the parties’ property. They do this based on the proof the parties provide about the nature of their debts and assets.


During the process of identification, the court looks at which party has title claims over which item or asset. It is the first step during which the court determines the interest each party holds in all property. It comes before the classification of said property.


During the classification of property, the court decides which item is separate property, and which is marital. They do this for every item any of the spouses have a claim over. They must support their decisions with apt findings of facts and hard evidence. 


Marital Property

Section 50-20(b)(1) of the North Carolina General Statutes holds the definition of marital property. It says that marital property is any property, real and personal, obtained by the spouses from the start of the marriage up until the end. If the parties want to bypass this definition and prove that the property should not be called marital, they need to provide evidence to the court.


Marital estate excludes any property which is deemed as separate property by the court. But it does include all presently owned property.

With respect to time, “presently owned” property is any property either of the spouses has an interest in on the date of the divorce. With respect to right, “presently owned” refers to the basis for claiming title or interest in the property. This basis is realized no matter who owns and holds the rights to the property at the present time or who has an interest in it. 


Separate Property

You can find the definition of separate property in section 50-20(b)(2) of the North Carolina General Statutes. It says that separate property is all real and personal property the parties had before the marriage. It also includes any property they got during the marriage by descent, gift, bequest, or devise. Finally, any business and professional licenses that would end or transfer are also separate property.


In theory, any increase in the value of separate property or any income parties get from it are separate property. But it is all a bit more complex than that. It stays separate property if the increase in value or income is due to someone else's effort (e.g., the government's). If one of the spouses is behind the increase, then the item is no longer separate property, but marital. Thus, the spouses will divide it. 


The part of the statue on separate property has two special provisos. These provisos deal with marital gifts and property exchange:

  • Any separate property the parties exchange for other separate property remains separate, no matter who owns it
  • The property a spouse acquires as a gift is marital property unless stated differently 


Put simply, the provisos say that if parties get a property as a gift, it becomes marital property right away. When it comes to separate property, it remains separate during any exchange. Only clear and hard evidence to the contrary can change these provisos.


Property That Is Neither Marital Nor Separate

If you’ve already talked with a divorce attorney, you know that there are items that belong to a gray area. These items are neither marital nor separate. Rather, they are a factor the court needs to look into separately. For example, anything the parties acquired after splitting but before the divorce belongs to this area. 


How and when a party acquired property is quite important for its classification. Estate acquisition is a dynamic process of getting equity and it begins when a payment is made. So, no matter when a party becomes the official owner of the property, they get it only after making the first payment. The court decides who gets this kind of property based on the date of the payment.


The spouses equally share the income of a property they got together. But the court decides who gets the income that comes from this kind of gray area property. 


Property With Dual Classification 

Some property is part marital and part separate. Property can be classified like this in different situations.



Firstly, it occurs when the court attributes the efforts of a spouse who doesn’t own the property to separate property. Secondly, when adding a property the spouses got during marriage to a separate property improved the separate property’s income. And finally, when a spouse who does not own it manages a separate property and thus increases its income. 


2. Valuation of Property

Valuation of the estate is the second step you and your divorce attorney will go through during estate division. It is the process of figuring out the net value of the marital property. The net value is thus the value the spouses will divide. 


3. Division of Property

The final step in the process of property division is the distribution itself. The Equitable Distribution Act says that the court must divide all property equally. But, the court can decide that doing so would be unfair and choose not to do it. 


Courts consider several factors when deciding how to divide property, such as:

  • The financial prospects of the parties at property division time
  • Any support duties of the spouses from prior marriages
  • The age and health of the parties
  • The length of the marriage
  • If the party who has custody over any kids needs a property to raise them on
  • Pension prospects
  • A spouse’s input in any shared properties
  • A spouse’s input in the education or career advances of the other spouse
  • The fund flow of the marital estate
  • Taxes a spouse needs to pay
  • Acts to maintain the marital estate after the divorce
  • Any other factor the judge deems suitable to the case


How Does It Work?

Even though the court gathers most of the evidence, you and your divorce attorney will have to provide some as well. The court will gather proof of title and interest. But if you want to dispute any of those, you will need to provide proof that supports your claim. 


If one of the spouses wants to prove that an equal division would not be fair, they need to give reasons why. Once a divorce attorney presents such evidence, the trial court must consider it. Then, a judge makes the final decision after looking at all the facts and hearing both sides. 


An important thing to note is that estate division must be separated from the issues of child support and alimony. Thus, alimony and child support are separate issues that require a new hearing. 


To Conclude

Property Division in a divorce is a long and complex process. Even if the value and size of the estate are not big, the process can be long and tiring. Thus, hiring a good divorce attorney who has experience is an important step you need to take. Together with the court, they will make sure the division goes smoothly and is fair and equal for all parties.


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How are 529 Plans Handled in Divorce?

March 24, 2025
A 529 Plan, which owes its name to Section 529 of the Internal Revenue Code, is a tax-advantaged savings account that is designed to be used for the education expenses of the beneficiary. It is very common that parents create such an account to save for their child’s college education. So, what happens to such an account when the parents decide to divorce? 529 Plans , like other savings and investment accounts, are property. As such, in North Carolina, 529 Plans are dealt with during equitable distribution proceedings. During such a proceeding, the court will classify the parties’ property as one of three categories – marital, divisible, and separate – and then distribute the marital and divisible property among the parties. Thus, the treatment of the 529 Plan will depend upon how the plan is classified. N.C. Gen. Stat. 50-20 defines marital, separate, and divisible property as follows: Marital Property : “all real and personal property acquired by either spouse or both spouses during the course of the marriage and before the date of the separation of the parties, and presently owned, except property determined to be separate property or divisible property.” Separate Property : “all real and personal property acquired by a spouse before marriage or acquired by a spouse by devise, descent, or gift during the course of the marriage. However, property acquired by gift from the other spouse during the course of the marriage shall be considered separate property only if such an intention is stated in the conveyance. Property acquired in exchange for separate property shall remain separate property regardless of whether the title is in the name of the husband or wife or both and shall not be considered to be marital property unless a contrary intention is expressly stated in the conveyance. The increase in value of separate property and the income derived from separate property shall be considered separate property. All professional licenses and business licenses which would terminate on transfer shall be considered separate property.” Divisible Property : “all real and personal property as set forth below: All appreciation and diminution in value of marital property and divisible property of the parties occurring after the date of separation and prior to the date of distribution, except that appreciation or diminution in value which is the result of postseparation actions or activities of a spouse shall not be treated as divisible property. All property, property rights, or any portion thereof received after the date of separation but before the date of distribution that was acquired as a result of the efforts of either spouse during the marriage and before the date of separation, including, but not limited to, commissions, bonuses, and contractual rights. Passive income from marital property received after the date of separation, including, but not limited to, interest and dividends. Passive increases and passive decreases in marital debt and financing charges and interest related to marital debt.” Given these definitions, the classification and distribution of a 529 Plan will depend upon how and when it is created and funded. What is most important to note is that the court will not award the 529 Plan to the child, as the child is not a party to their parents’ divorce. Further, while the court may consider the purpose of the 529 Plan when making an “equitable” distribution of the parties’ property, the court will not totally disregard the value of the 529 Plan when distributing property among the parties simply because it is intended for the benefit of their child. However, the parties may take such considerations into account when negotiating a potential settlement between one another. If you are considering divorce or engaged in, or anticipate being engaged in, an equitable distribution proceeding, call our office today to schedule a consultation with an experienced family law attorney.

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