Category: Separation

Maximizing Tax Benefits in the Context of Divorce

justice - Siemens Family Law GroupAt tax time, we handle lots of questions from clients related to the sharing of various claims and exemptions. The article Divorced Couples, Put Aside Your Differences…for the Tax Break, from The Wall Street Journal, highlights several of the issues we encounter in our work, offering suggestions to maximize tax benefits in the context of separation and divorce. Reaching tax advantaged resolutions for our clients matters to us. This article reveals how some of that can be done. The story is online at wsj.com.

Loving Our Children Unconditionally

Here is a piece by David Brooks, a social commentator that I appreciate.  His point is that our love for our children should not be conditioned upon their achievements.  The piece resonates for me as a parent, and as a professional advising parents in the process of separation and divorce.  It could be that children affected by separation and divorce are particularly vulnerable to the adverse effects of love conditioned upon achievement and perhaps an expressed preference for one household over another.  Read Brooks’ column, “Love and Merit,” on The Opinon Pages: http://nyti.ms/1ONlDKy

Merits of Mediation in Dispute Resolution

This post is about the merits of mediation, and the role I can play as your lawyer when you are thinking about using a mediator to resolve issues with your partner, spouse or former spouse. While I mediate disputes when asked, there are many good mediators in town, and I’m as happy being a lawyer as I am a mediator. Mediators mediate. Lawyers advocate and advise. No lawyer/mediator can be both in one case; there are rules of professional conduct that now prohibit this practice. Understanding the difference between the role of a mediator and the role of a lawyer will serve you well.

Mediation is, in my estimation, the most cost effective means for resolving disputes of all kinds, and family law disputes in particular. When I say cost effective, I am talking not only about money, but also emotional expense. When families change in configuration (separation), when new households are established, and when children are forced to navigate new environments, airing grievances in a public record (a court file) and in a public place (the Buncombe County Courthouse) can be destructive. Sometimes there is no alternative, and there are members of the Siemens Family Law Group that are highly skilled litigators when the only alternative is court.

Back to money. If you would prefer to spend your money on yourself or your kids, rather than a legal battle, here is my advice:

1. Find a family law lawyer for initial consultation. Ideally you will find a specialist like me, or an associate working under that specialist. You should expect to pay for that consultation (I charge $300, my associates charge less). What you should expect to get at that consultation are answers to all your questions. Prepare as many questions in advance as you can. What you should also expect to get is an education regarding family law in North Carolina, how that law might be applied to the facts of your case, how you might settle your case in mediation, and how the Buncombe County Family Court might view your case if you can’t. At a good law firm, you should get good counsel. This counsel might go beyond the law. If you meet with me, I’ll give you my honest perspective as a lawyer with 20 years of experience in Buncombe County; as a single parent of a now 7-year-old; and as man in mid-career who enjoys the ability to provide clear, seasoned, sound advice.

2. Go to mediation. Sarah Olson is a seasoned lawyer and mediator with a background in psychology, accounting and parenting. She has an informative website at www.mediationasheville.com. Other good mediators include Gary Cash, Rebecca Knight, Sarah Corley, Michael Drye, Barbara Davis, Rhonda Moorefield and Patrick McCroskey. We can help you get in touch with any one of these individuals. The mediator you choose should have a working understanding of family law in North Carolina, the Buncombe County Family Court in particular, an ability to assess financial matters, and if children are involved, some life experience or training related to child development. Ideally, the mediator you choose will facilitate a conversation that results in a meeting of the minds, otherwise known as an agreement. At the conclusion of mediation, the mediator must ensure that any agreement that is reached is summarized in written form. The written summary of the mediator is a road map for settlement, but not the actual legal settlement document.

3. So, after mediation, go back to the lawyer you consulted initially with the agreement your mediator has reduced into writing. The lawyer you consulted should be able to pick up on your last conversation with him or her, take the mediator’s road map (the mediator’s memorandum), and get you to the destination (a binding legal document). We call that binding legal document a contract of separation and property settlement agreement. The legal document may have custody provisions in it. The legal document may, or may not, provide that it is to become a court order upon divorce. Your lawyer should be prepared to talk with you in detail about these procedural nuances.

If you follow these steps, you will come through the process of separation and divorce in the best way possible. You will expend less emotional energy. Your children will avoid unnecessary wounds. And, you will save money. I’d like to talk with you in more detail about this approach in an initial consultation. If you don’t talk to me, talk to one of my associates, or try to find someone equally qualified.

Why Mediation Works

“Reactive devaluation”.  That is the take away term from a mediation training I attended in May of 2012.  The term describes a phenomenon I”ve identified as a mediator, divorce lawyer and one time Husband, but it took the training to give that phenomenon a name.

In the context of divorce mediation, parties generally harbor negative feelings about their spouse or former spouse.  Those negative feelings compromise the ability of one party to hear the other, no matter how valid or important the message.  Polarized parties react by devaluing the message because they don’t like the messenger.

For a while, I thought mediation worked because parties in mediation recognize they can control the outcome and avoid the uncertainty of discretion exercised by a judge.  I still think that’s true in part.  Good lawyers in mediation certainly understand controlling risk.

But, as I continue to mediate for parties in the context of divorce, it is increasingly clear to me that it is my ability to serve as a substitute messenger, and a filter, that brings people to agreement.  As a mediator, I find it rewarding to carry and deliver important messages that might otherwise be reactively devalued and not received.

There is a connection between this concept of “reactive devaluation” and Stephen Covey’s 6th habit of empathic listening, the habit of seeking first to understand before being understood.  Negative feelings and emotions can interfere with the implementation of that habit.

At the recent recommendation of a great judge, I’ve read Viktor Frankl’s book, Man’s Search for Meaning.  This book was foundational for Covey, and it ties nicely into the concept of reactive devaluation.  Frankl (and Covey) emphasize that we have the freedom to choose, at all moments of life, how we will react, even in the worst of circumstances.

Mediation is a great tool when you are the messenger getting shot, the one doing the shooting, or both. You have the freedom to choose how you will react to the difficult circumstances of divorce.  We can help you hear important messages.  We can help you deliver them.

Choices

Recently, my husband and I were in a counselor’s appointment with my middle son. He has been struggling and we were all looking for a little guidance. The counselor told our son he is at a crossroads and now must make a choice on what kind of person he wishes to become. He can go down a dark path, feeling as though everyone is out to get him, lashing out because he feels angry and alone, and dwelling on the perceived unfairness of life, or he can choose to focus on building his strengths, moving his life forward, maybe outside his comfort zone, and make a choice not to feel like a victim.

This made me think of the choices we all have every day. I hear people say they “don’t have a choice” or he/she “made me” do something, but the reality is we always have a choice. One of the most important choices we have is how we react when other people’s actions affect us.  This could be as simple as choosing to ignore a friend or colleague when they behave rudely, or as difficult as choosing not to play the role of victim when a spouse seeks to end a marriage. When a marriage ends, it seems to create an endless stream of choices, thrust upon us at a time when we are at our most vulnerable and scared.  What’s next? Which lawyer do I choose? Is mediation an option? Who gets what? Where to live? What about the children? The list goes on and emotions run very high, possibly clouding the choices available to us along the way. We can choose to react from a place of pain and hurt, lashing out at a spouse who no longer chooses to share a life with us. Or we can nurture ourselves, and make the difficult choice to try to resolve each of the upcoming issues with respect for those we have loved or who have loved us.

I feel certain, in time my son will make the right choice. He has already taken steps toward improving his life. I believe it can be empowering to “take the high road” and try our best to make choices from a place of knowledge and compassion, rather than choose to strike out from a place of pain and emotional reaction. What choices will you make today?

by Kathleen F. Abbott, NCCP

Sharpening the Saw

A few months ago I posted about a Covey Leadership training the Siemens Family Law Group attended.  I have watched the group practicing the habits since, and I think we have all gained personally and professionally.  I know everybody has practiced the 7th habit, because we have all taken some time off this Summer.

This week, I have taken a couple days at the beach.  Before I return to the office, I want to post about that 7th habit of re-creation, what Covey calls “sharpening the saw”.

The metaphor goes like this: you can’t saw wood all week and expect the saw to perform the same way Friday as it did when you started Monday.  The saw needs to be maintained, it needs to be sharpened.  You might say you have too much wood to cut to take time to do the sharpening, but that will only make the saw dull and ineffective.

I have encouraged every member of SFLG to take time off this Summer, for good reason.  Time away from the job allows for re-creation.  An opportunity to rediscover talents and interests.  An opportunity for fresh perspective and insight.  I know I am coming back sharper, with more ideas and a renewed desire to care for clients.

But the real message here is for clients and prospective clients.  Separation and divorce are some of the toughest life experiences humans endure.  In the past 24 months, I have known clients, and their former partners, who have become so overwhelmed by the circumstances and events of their lives that they experienced tragic consequences. I believe they forgot to care for themselves along the way – they neglected to sharpen their saw.

You can’t afford not to take care of yourself.  Take a day off and take more if you can.  Go for a ride, a run, a hike.  Read, paint, play music.  Do whatever it is you used to do that brought you joy.  Re-create yourself.  You will be happier for it, and better able to manage whatever comes your way.

We want our clients to do their best to take care of themselves.  Clients who know how to sharpen the saw are better able to follow our advice, make better decisions, and help us to get better results.

Stay sharp and count on us to do the same.

Are you prepared for a possible “Gray Divorce?”

While browsing the Asheville Citizen-Times website on August 13, 2012, we came across a terrific article by guest columnist Haleh Moddasser about “Gray Divorce.”  Although the article targets older women,  we feel Ms. Moddasser’s article contains important information for all of us,  regardless of gender and whether you may be young, middle-aged or whatever comes after that.  Given that family and financial circumstances can change unexpectedly, be it by death, accident, or divorce, it pays to plan ahead and be informed. Follow the link to learn more:  http://www.CITIZENTIMES.com/apps/pbcs.dll/article?AID=/201208140015/LIVING/308140016

 

 

 

Separation Agreement

When we accept a case involving separation, we typically contemplate guiding our clients down one of two roads: 1. negotiation of a separation and property settlement agreement without court involvement, or 2. filing a lawsuit.  Here we address the first of these roads.

 

WHAT IS SEPARATION? In North Carolina, you do not need to have any specific form or paper in order to be legally separated.  Legal separation occurs when one spouse leaves the marital home and stops living together under the same roof with his or her spouse.  At separation, at least one party must have the intent of remaining separate and apart.  This “intent” does not mean either party can’t hope for reconciliation under better circumstances, but it does mean that separate households are being created for the foreseeable future. The law presumes that spouses have separated when there is an obvious change in living arrangements and one spouse’s intent to remain separate is expressed.

 

AGREEMENT TO SEPARATE VS. SEPARATION AND PROPERTY SETTLEMENT AGREEMENT: WHICH ONE AND WHY?   It is best for spouses to separate after having discussed and negotiated a written agreement to separate that both have signed in front of a notary.  This type of written agreement, referred to as a “Consent to Separate” or “Separation Agreement”, typically states that the parties have agreed to live separate and apart, as if unmarried, and that neither will accuse the other of “abandoning” the marriage.   This agreement to separate can be as simple as that, or it can be part of a more detailed contract that addresses property settlement, child custody and support and spousal support and alimony.  We call an agreement to separate, which includes these additional provisions a “Separation and Property Settlement Agreement”.

 

When spouses can successfully negotiate a complete Separation and Property Settlement Agreement, they can avoid the expense and uncertainty of involving a Court in deciding matters highly personal and complex matters.  Spouses who reach agreements ideally understand what to expect from each other so they can go more easily go about the process of reorganizing their lives.  The only thing typically left for those spouses to do is to file for divorce at the conclusion of one continuous year of separation.

 

HOW CAN YOU HELP ME WITH THE SEPARATION AND PROPERTY SETTLEMENT AGREEMENT?  We begin the process of preparing a separation agreement by carefully listening to you in order to clearly understand your concerns and goals.  We will understand the economics of the marriage, the needs of children and the nature and extent of the marital estate.  Once we have an understanding of these things, we can put the framework of an Agreement together.

 

In the process of generating the property settlement portion of an agreement, we may ask you to bring us documentation, including mortgage, credit card, retirement, brokerage and bank statements.  If you or your spouse owns a business, we may involve a CPA to understand and value the business.

 

If it can be done in a calm and rational manner, we encourage you to negotiate with your spouse as we prepare agreements so that the Agreement we prepare is one that is likely to be signed.  Negotiation can occur at the kitchen table, at settlement conferences in our offices, through mediated settlement conferences in mediators’ offices, or by and through attorneys.  Agreements that both spouses have participated in generating, and fully understand, are typically durable and enforceable.

Separation & Divorce: FAQs

FAQ to Asheville Divorce Lawyer

 

After a combined 20 years of consultation with people contemplating separation and divorce, a mental inventory of frequently asked questions (FAQs) has crystallized.  We intend to add more FAQ entries to this blog and invite you to share with us any questions you may have.  Here are some of the most common questions we encounter during an initial consultation:

What is a legal separation?

In North Carolina, you are legally separated when you no longer live under the same roof with your spouse, and you have the intent to remain separate and apart.  It’s that simple but the simplicity is deceiving.  Once you are legally separated, the clock starts ticking on your eligibility for divorce, but all of the other issues that rise from the fact that you are married remain to be resolved.  Although no legal document is necessary to accomplish a “legal” separation, legal documents are necessary to resolve property (and debt) issues, support issues and child custody issues.

How do I accomplish a legal separation?

This is the toughest question.  When we consult with clients, we try to understand how far gone the marriage actually is.  If a client is on the fence, and there has been no attempt at counseling, we may suggest that and point the client in the right direction.  If the client is clear that separation is the goal, we spend time talking about the right approach to accomplish a legal separation.  We think the best way to initiate a separation is through an honest conversation with your spouse.  It won”t be a happy conversation, but if you can bring your spouse to recognize that separation would be best for all involved, the remainder of the process is likely to be easier.*

Someone has to leave the marital home in order for a separation to occur.  Calm conversations about how this can occur are best.  If that is not possible, you need to consult with a lawyer.  Domestic violence restraining orders can be used to initiate a separation, but they should only be used to prevent violence between spouses.*  There is also a cause of action known as divorce from bed and board, but that action can only be brought in limited circumstances.

What about abandonment?

Our answer to this question will tell you a little bit about our perspective.  Abandonment is a form of marital misconduct that a Judge can consider in entering an alimony judgment.  In Jim”s 15 years of practice, he has observed no Judge cite abandonment as a factor influencing his or her decision to award or deny alimony.  It could happen, and we don”t discount the fact that the alimony statute references abandonment as a factor.  But it could be that the concept is a bit outdated, at least as it”s defined in the statute.  Abandonment is defined as the termination of the marital relationship without justification.

The definition does not encompass the type of marital misconduct that could, in Jim”s opinion, influence a Judge.  That is, financial abandonment, and parenting abandonment.  If you or your spouse leaves the marital household to initiate a separation, the household cannot be abandoned financially.  Children likewise cannot be abandoned.  Marriages fail, and spouses separate, but in initiating a separation, care must be taken to ensure that financial responsibilities and parenting responsibilities are met.

What type of documentation do I need to provide?

In an ideal world, you will bring your divorce lawyer a copy of your prenuptial agreement, together with an exhibit that fully illustrates each spouse’s assets and debts at date of marriage.  In addition, you will bring documentation that provides an inventory of assets and debts at date of separation.  Finally, you will bring current income information that aids your lawyer in analyzing support claims.

Most people who come to see us do not have a prenuptial agreement, so we start an analysis of the equitable distribution claim with a discussion of what assets and debts were owned by each spouse at date of marriage.  This is important because assets and debts owned prior to marriage are generally defined as separate property, not subject to equitable distribution.  For instance, if you had retirement savings at date of marriage, and those retirement savings can be traced; those retirement savings should not be subject to division.

Date of separation statements are equally important.  The marital estate “freezes” at date of separation.  Passive market activity, and debt service post date of separation, is factored in equitable distribution but post date of separation, your active efforts to earn income, and the assets you acquire with that income should be characterized as your separate property.

Tax returns are important to bring.  Bring personal returns as far back as you have them.  Bring corporate returns and partnership returns if those have been filed during the course of the marriage.  Personal returns will help your lawyer determine what support should be paid, or received.  Corporate returns may be useful if a partnership or corporation needs to be valued for equitable distribution purposes.

If you have appraisals for real or personal property, bring those documents too.  Again, date of marriage and date of separation values are critical, but appraisals at any point during the marriage will be useful, if only to gauge the reliability of subsequently obtained appraisals.

Until your lawyer and opposing counsel have a complete picture of the marital estate, your case should not, and probably cannot, be resolved.

Does it matter that my spouse is involved with someone else?

Adultery is a form of marital misconduct in North Carolina.  This form of marital misconduct, like abandonment, is defined under the alimony statute and is considered by a court in awarding alimony.  It is not considered in an equitable distribution case.

Marital misconduct is generally not relevant in an equitable distribution case.  The law presumes that the marital estate (assets and debts) will be divided equally, despite the fact that aspouse has been unfaithful.  This particular realization often comes as a shock to clients.

*  A separate entry regarding the issue and implications of domestic violence in a relationship will follow this entry. This entry in no way implies that, if your partner is abusive, you should discuss separation prior to consulting with (a) the local domestic violence protection agency (in Buncombe County, Helpmate, (828) 254-2968; elsewhere, call the National Domestic Violence Hotline, (800)799-SAFE) and an attorney.  Nor does this entry imply that a domestic violence protective order should be sought in the absence of abuse.

Divorce: Dividing Property

Separation and Divorce:  Dividing Assets and Debt

           In your spare time during your adult life and for the length of your marriage, you’ve carefully managed and accumulating assets.  Maybe you’ve not so carefully managed and have accumulated significant debt. Now the marriage is ending and you’re having to learn a whole new language to keep track of what goes where and who owes what to whom.  This is the language of equitable distribution, and it is an issue that has to be cleared up before you can safely obtain a divorce judgment.

The whole point of equitable distribution is to classify property as separate, marital, divisible and/or non-statutory so that each party can walk away with their fair share of the assets and of the debt.  Getting the right piece of property (or debt) in the right category will help you keep track of what goes where.  But what are those categories, and what to I list under each one?  What follows is a very basic description of the categories designed to help you speak the language of equitable distribution and increase the productivity of your initial meeting with your attorney.*  There is alot of information contained in this entry, but equitable distribution can be a tricky issue that requires precise language.  Ensure that the attorney you trust with the division of your assets speaks this language fluently.

Marital, separate, divisible and non-statutory: The property or debt must be classified as either (a) marital, (b) separate, or (c) divisible. Yes, as with all things legal, there are times when the property or debt will not fit into any of these definitions, and thus, is something else. I call it, for lack of a better term, (d) non-statutory. It is not subject to distribution, but it can be considered as a distributional factor by the court when dividing the stuff that IS divisible. An example of non-statutory property is: a commission entirely earned (house was listed after date of separation) and received by the real estate agent spouse after the date of separation and before the date of the equitable distribution (ED) trial.  Although the earnings of one spouse after the date of separation are generally that spouse’s separate property, the court will consider this commission as part of the “big picture” when allocating assets and debt that are divisible.

Active and passive increases in value of separate property: Active increases are those increases in the value of separate property occurring during the marriage and before the date of separation, caused by the effort of either or both spouses, e.g., the husband paints his barn. These increases are marital. Passive increases are those increases in the value of separate property occurring during the marriage and before the date of separation, caused by something other than the efforts of either or both spouses, e.g., inflation.  These increases are separate. There is a presumption any increase in the value of separate property occurring during the marriage and before the date of separation is marital.  The burden thus, shifts to the party claiming the increase to be passive to prove it. There is no such thing as an active or passive increase in the pre-separation value of marital property or in the post-separation value of separate property. Any post-separation increase in the value of separate property is the property of the spouse owning the separate property and thus, is either his non-statutory property or his separate property (under a source of funds theory) and properly treated as a section 50-20(c)(1) distributional factor.

Active and passive increases (decreases) in value of marital property: We see alot of this related to the bursting of real estate bubble in 2008.  Active increases (decreases) are those increases (decreases) in the value of marital property occurring after the date of separation and before the ED trial, caused by some post-separation action or activity of a spouse. N.C.G.S. Sect. 50-20(b)(4)a. This increase (decrease) is not divisible property, but is a distributional factor under N.C.G.S. Sect. 50-20(c)(11a) or (12). Passive increases (decreases) are those increases (decreases) in the value of marital property occurring after the date of separation and before the date of the ED trial, and caused by something other than a post-separation action or activity of a spouse, e.g., inflation. N.C.G.S. Sect. 50-20(b)(4)a and c. This increase (decrease) is divisible property. As neither party has the benefit of a presumption with respect to post-separation events/activities, the party claiming the increase (decrease) to be divisible has the burden of proof. If that burden is not met, i.e., no proof the increase was passive, the increase will be treated as a distributional factor. This is tantamount to saying there is a presumption the post-separation increases (decreases) in marital property are active.

Active and passive income from marital property: Passive income from marital property received after the date of separation and before the ED trial is divisible property, e.g., dividends from marital stock. N.C.G.S. Sect. 50-20(b)(4)c. Income received from marital property after the date of separation and before the ED trial resulting from the post-separation efforts of a spouse (active income), e.g., increase in value of marital property stock portfolio occurring as a result of the management of account by the husband, is not divisible, not marital and not separate. N.C.G.S. Sect. 50-20(b)(4)a; Sect. 50-20(b)(1); and Sect. 50-20(b)(2). It is this spouse’s non-statutory property and is properly treated as a N.C.G.S. Sect. 50-20(c) (11a) distributional factor.

Transmutation: This occurs when something happens to alter or change the classification of property during the course of the marriage. Marital property is rarely transmuted into separate property, although it can occur, e.g., spouse (who has right to manage marital funds) uses marital funds to purchase a gift to give to his wife and makes clear his intention that the gift is to be his wife’s separate property. Most often our concern is with whether separate property is transmuted into marital property. An example: separate funds are commingled with marital property, e.g., placed in a joint checking account, during the marriage and before the date of separation. Has the character of the separate funds been altered? Yes, a transmutation of the separate funds into marital funds has occurred unless the party claiming a portion of the funds to be his separate property is able to trace those separate funds into their current form.  In essence, the commingling of separate and marital assets, occurring during the marriage and before the date of separation, raises a rebuttable presumption that all the assets are marital.

Marital property presumption: Although the ED statute speaks in terms of a marital property presumption, N.C.G.S. Sect. 50-20(b)(1) it does not mean all property owned by one or both of the spouses is presumed marital. To be entitled to the presumption, a spouse claiming a property is marital is required to prove it was acquired by one or both of the spouses during the course of the marriage, before the date of the separation and presently owned.  If this fact is shown and there is no contrary evidence, the property must be classified as marital. If the other spouse, however, is able to show the same property was acquired by gift or bequest or in exchange for his separate property, the asset must be classified as his separate property. The failure in the burden of proof by the party claiming the asset to be marital, however, does not mandate its classification as separate. The party claiming the asset to be her separate property has the burden of showing the asset is her separate property, which can be met by showing it was acquired by her before the marriage. If neither party meets their burden, the property passes outside ED and thus, the party having title retains ownership.

Marital gift presumption: Sometimes known as the McLean presumption. A titling of separate real property in the entireties raises a rebuttable presumption the grantor intended a gift of his separate properties to the marital estate.  To rebut the presumption there must be clear and convincing evidence no gift was intended. If the presumption is rebutted, the property retains its separate property classification under the exchange provision of section 50-20(b)(2). If the presumption cannot be rebutted, the property must be classified as marital. If not rebutted, the grantor spouse is entitled, however, to have his separate property contribution to the marital estate considered as a distributional factor. The McLean presumption does not apply to personal property.

Marital debt: Debt, like assets, must be classified, valued and distributed.  Debt is marital if acquired by one or both spouses during the marriage and before the date of separation, presently owed, and acquired for the benefit of the marital estate. As with assets, how the debt is titled (which spouse owes the debt) is not determinative. The biggest controversy here is whether the debt was for the benefit of the marital estate.  An example: dental bill incurred by one spouse and owing at time of separation has been held not to be marital. Another example: credit used to purchase clothing for a spouse is generally considered marital. There is no presumption that a debt accumulated during the marriage and before separation is for the benefit of the marital estate. Thus, the burden is on the party claiming the debt to be marital to prove it is presently owed by one or both of the parties, was incurred during the marriage and before the date of separation and was for the benefit of the marital estate. Beware: (1) if the debt is in the name of both spouses, is classified as marital and distributed to the husband and the husband does not pay the debt, the creditor (who is not a party to the ED action) can proceed with collection against either or both parties; (2) if the joint debt is classified as marital and distributed to the wife to pay and the wife petitions for a discharge in bankruptcy and that petition is granted, her obligations to the creditor and to the husband under ED can be discharged, thus, eliminating any claim he has against the wife for failure to abide by the ED order.

Divisible debt: Increases in marital debt and any finance charges, i.e., interest, related to the marital debt arising after the date of separation and before the date of the ED trial is divisible debt. N.C.G.S. Sect. 50-20(b)(4)d. Also, any post-separation (pre ED trial) payments made by a spouse on a marital debt is divisible property. Id. The discretion heretofore lodged in the trial court to treat these post-separation payments as a distributional factor or provide a direct credit to the spouse making the payments (see Hay supra) is eliminated. If the payments are made pursuant to a post-separation order, can these payments be classified as divisible in light of N.C.G.S. Sect. 50-20(f) which states that ED should be made “without regard” to support payments arising out of the marriage? The issue has not been decided by the courts. It appears, however, that N.C.G.S. Sect. 50-20(f) merely prohibits post-separation/alimony payments (arising from the marriage at issue) from being considered as a distributional factor. It does not attempt to prevent the proper classification of property or debt. New debt acquired after the date of separation and related to marital property, e.g., repairs to marital home, does not appear to be a divisible debt and could be treated as a distributional factor or the trial court could provide a credit to the party making the payment. A good argument can be made that post-separation payment of taxes and casualty insurance on marital property is marital debt to the extent the taxes and/or insurance premium accrued before the date of separation.

Acquired: Property is acquired when legal title comes into the husband and/or wife. Property is also acquired when some third party has legal title but is holding the property in trust (express, resulting or constructive) for the benefit of the husband and/or wife. If a spouse claims property owned by some third party is a marital asset, that spouse has the burden of showing the existence of the trust and the third party must be joined as a party to the ED action. This third party is a necessary party within the meaning of Rule 19 of the Rules of Civil Procedure. Although the issue of the existence of a trust is normally a question for the jury, in the context of the ED action there is no right to a jury trial.

Source of funds: The general principle provides that if the source of the funds used to purchase the property was marital, the property acquired with those funds is also marital. This is also known as tracing. It is an easy concept if the exchange occurs during the marriage and before the date of separation. What if marital funds, existing at the date of separation, are used to purchase property after the date of separation? Is this new asset marital, separate, divisible or non-statutory? By definition it is not marital, separate or divisible. Nonetheless, the source of funds theory has been used in the past to qualify the post-separation exchange asset as marital The same principle would appear to justify the classification of fire insurance proceeds, received after the date of separation, where the fire policy insured the marital home which burned either before or after the date of separation. Did the adoption of the divisible property statute, reflecting an effort to deal with post-separation events, signal an end to use of source of funds as a methodology for classifying post-separation exchanges? It can be argued it does, but I don’t think so. That statute does not even address post-separation exchanges of marital property, suggesting the legislature was aware of our case law on the source of funds theory and elected to leave it in place. Furthermore, what the Court of Appeals had to say before the divisible property statute, seems to still apply: without thesource of funds theory, there would be “an incentive for a spouse to convert marital assets titled in his or her name as soon as the parties separated, thereby undermining the very point of the (ED) Act – to alleviate the inequities caused by the title theory approach to the distribution of marital property.  The lesson: property acquired in fact after the date of separation may indeed be properly classified as marital property because in theory it was acquired before the date of separation.

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* This entry borrowed heavily from a manuscript by attorney and former Judge K. Edward Greene entitled “The Language of Equitable Distribution”.  We thank Mr. Greene for his permission to use his work.  We have removed case citations, but are happy to provide them upon request.