How Is Property Acquired After a Separation—but Before Division—Divided?
How Is Property Acquired After a Separation—but Before Division—Divided?
Marriage is the most complex relationship humans can enter. While it might be nice to think love is all that really matters, there are many factors at play when two lives intertwine. And when the time comes that a married couple decides to separate—and, eventually divorce—untangling all the various elements can be a challenge.
One area where that is especially true is for the marital estate, and determination of which property now goes to which spouse—including property acquired after separation but before the property is divided. Sometimes this period of time can cover many months or years.
In North Carolina, the determination of what constitutes marital property to be divided is based on the date of separation. However, a long period of time can pass between the date of separation and the date when the spouses agree to divide the property or a judge hears the case. The date when the property is actually distributed is called the date of distribution.
Between the date of separation and the date of distribution, property may change value, be sold, or be acquired. This property is called divisible property, and determining what happens with this property can be complicated.
Let’s review what happens to property acquired in that period between the date of separation and the date of distribution, starting with a quick overview of property division in North Carolina.
How Does Property Division Work in North Carolina?
As discussed in our Is Everything Split 50/50 in a Divorce in North Carolina? blog post, North Carolina is an equitable distribution state. While a community property state splits all marital assets and debts evenly, an equitable division state like ours divides marital property “equitably”, which may or may not be equal, as determined “in the eyes of the court.”
While it would seem as though equal (a 50/50 split) and equitable are the same thing, the key distinction is that equal is exactly even and equitable implies a sense of fairness in the division. Along with that, “in the eyes of the court” is an important caveat.
For example, consider a situation in which one spouse has a disability that requires costly treatment and prevents them from working. In an equitable distribution state, the judge could take this into consideration when dividing the marital property and may grant them extra resources due to greater need. But if the same divorce were to happen in a community property state, the value of all marital assets would be totaled, and each spouse would receive exactly as much as the other spouse.
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What Is Considered Marital Property?
Things of value like the marital home, bank accounts, retirement accounts, and stock options that were acquired during the marriage can be considered marital property. Other valuable assets can fail into this category—as long as they were obtained prior to the date of separation—even though they are held in the name of one spouse only.
That means when “his” platinum necklace or “her” new boat are bought prior to separation, they are technically part of the marital estate (for distribution purposes). The appropriate valuation will be assessed, and the judge will factor it into their considerations when determining a final distribution.
What Is Considered Separate Property?
The general rule here is that property acquired in the following ways would potentially be considered one spouse’s separate property, rather than marital property, and not divided in the divorce.
- Property already owned by one spouse before the marriage began
- Property acquired by one spouse after legal separation
- Gifts or inheritance explicitly designated to one spouse only, even if it occurred during the marriage.
However, there are some important caveats.
One is that North Carolina law presumes that all property owned by either spouse on the date of separation is marital property. So, if you believe a certain asset should be considered separate property instead, you will need to prove it to the court.
Another is that there are many circumstances in which separate property can become marital property.
A court may also consider what funds were used to purchase the property. To go back to the necklace- and boat-owning couple:
- If he bought the necklace with money that was marital property, the necklace would be marital property even if purchased after the date of separation. Cash accumulated during a marriage counts as marital assets, no matter when (or by whom) it is spent.
- If she bought the boat with money she earned after the start of the separation, then she will likely be able to keep the boat without having it count against her share of the final distribution.
While that might seem fairly straightforward, we also need to address a few key definitions and requirements involved in the North Carolina divorce process.
Divorce and Legal Separation in North Carolina
The North Carolina divorce law has a specific definition of legal separation that must be met for an “absolute divorce” to be granted—and this plays a role in property distribution.
To meet the legal requirements for the official, one-year separation, the following factors must hold true:
1) Spouses must be living in separate homes.
2) At least one spouse intends the separation to be permanent.
These requirements for an “absolute divorce” to ultimately be granted in our state can also affect what kind of assets are considered which kind of property.
How Separation Status Can Affect Property Distribution
If a couple doesn’t meet the above circumstances, they will not be considered separated and any property they acquire will typically be considered marital property.
It should be noted that North Carolina does not require any paperwork or legal documentation of a separation. Once a spouse moves out of the marital residence (with the intention of doing so permanently), the couple is considered separated. However, it is important to keep your own records in case the date of separation is later challenged.
Of course, you and your spouse could also choose to draft and sign an official separation and property settlement agreement (commonly known as a separation agreement), which will formalize the date of separation and can even settle property distribution, child custody, child support, spousal support, and other disputes that would otherwise fall to a court to decide. But this is completely optional.
Property Acquisitions During Brief Reconciliation Periods Between Separations
The fact that couples can (and do) separate, decide to “give it another chance,” and then separate again provides ample opportunity to create complicated situations when one or both spouses acquire property. In this instance, anything that one or the other spouse decides to acquire during the initial, less-than-one-year separation should considered marital property, even though the couple wasn’t together (and even intending to divorce) at the time of purchase.
The spouse who bought the asset during the “trial” separation, though, might be inclined to think it should be designated as separate property. Since the couple was retroactively considered to be not legally separated at the time, however, this argument may not stand up in court.
What Is Divisible Property?
North Carolina recognizes a third category beyond marital and separate property: divisible property. Divisible property is the term given to property that is acquired or changes in value between the date of separation and the date the property is actually divided. This category of property can be distributed between the spouses, just like marital property.
Determining what constitutes divisible property can be complicated. Divisible property accounts for assets that change value between the separation and date of distribution. These changes could be appreciation or diminution in value. It also includes any property received after the date of separation that was earned during the marriage.
Examples of divisible property include bonuses and sales commission that were earned during the marriage but not received by a spouse until after the date of separation. Also, the passive appreciation of an asset, such as a house, is divisible property.
Determining what is passive versus active appreciation or diminution is often complicated. For example, if one spouse lives in the former marital house, does not make any improvements, and the house increases in value, the increase will be passive and is therefore divisible property. If the spouse makes improvements to the house, though, a determination needs to be made about what was passive versus active appreciation. Another example could be stocks. If the stocks were owned on the date of separation and increase in value due to the market, the increase is passive and therefore divisible property. If one spouse is actively trading the stocks, the increase could be active and not divisible.
Myers Law Firm Provides the Help You Need in Divorce Law
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Howell, C. (2017, September 8). Equitable Distribution: The Marital Property Presumption. On the Civil Side: A UNC School of Government Blog. Retrieved from https://civil.sog.unc.edu/equitable-distribution-the-marital-property-presumption/
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.