There are four steps in the equitable distribution process: (1) identification, (2) categorization, (3) valuation and (4) distribution.
- Identification. The first step in the equitable distribution process is to identify all property owned by one or both parties on the date of separation. Property that is identified during this stage includes real property, vehicles, household furniture and furnishings, bank accounts, investment accounts, annuities, retirement accounts, business interests, cash, the cash value of life insurance policies, art, collectibles, jewelry, electronics and any other asset or item of property owned as of the date of separation. Marital debts are also divided during the equitable distribution process, so all debts existing as of the date of separation also need to be identified in this process.
- Categorization. After property and debt existing as of the date of separation are identified, each item of property and each debt must be categorized as either marital or separate. Marital property is property acquired during the marriage by labor of the marriage. Although how property is titled may be important in categorization, generally how property is titled is not controlling in determining whether property is marital or separate. Separate property is property owned by one of the spouses before the date of marriage or property acquired by a spouse by gift or inheritance prior to the marriage or during the marriage from someone outside of the marriage. Separate property is not divided by the court during equitable distribution and is kept by the party who owned it before the marriage or acquired it individually during the marriage. The remaining property is classified as marital property and will be the property that is divided during equitable distribution.
There is a presumption in the law that any property acquired during the marriage is marital property. If a spouse believes that an item of property acquired during the marriage is his or her separate property, that person has the burden of proving the separate nature of the property.
There is a third category of property called divisible property which concerns property and property rights that arise after the date of separation. Divisible property includes passive changes in value of marital property that occurs between date of separation and the date of distribution. It may also include property that was earned during the marriage but was not paid or received until after the date of separation.
Divisible property is also subject to equitable distribution.
- Valuation. As the parties identify property and debts that existed on the date of separation, they will also gather documents and information to establish the value of these assets and debts. The most common value assigned to marital property is the fair market value, which is frequently defined as the amount a willing buyer will pay a willing seller under willing circumstances. The fair market value is often considerably less than the replacement value. For most assets this is a fairly simple process, but appraisers and other experts can be brought in to assist if an asset is difficult to value, such as an interest in a business. The valuation of an asset is made as of the date of the parties’ separation; however, if an asset substantially appreciates or depreciates following the date of separation, this change in value can and should be considered when the final property division is made. If the parties cannot agree on the value of a marital asset, then the court will ultimately have to decide the correct value based on the evidence presented.
- Distribution. The last step in the equitable distribution process is the distribution of the assets and debts in an equitable manner. Under North Carolina General Statute § 50-20(c), the court will equally divide the marital property unless the court determines that such a distribution would be inequitable. There are a number of factors that the court is to consider when making this decision. These are discussed in another post.