Sarah Files for Divorce and John Keeps the Majority of the Money

John worked for a company for many years and had built up a 401(k) worth three hundred thousand dollars. His wife, Sarah, filed an action against him for an absolute divorce using some forms she found online. When John came to me for legal advice, we made a list of the property that he and his wife acquired during the marriage.

• Former Marital Home [Joint] $ 245,000
• Mortgage [Joint] ($ 175,000)
• 401(k) [John] $ 300,000
• His Car [John] $ 14,000
• Debt on His Car [John] $ 0
• Her Car [Sarah] $ 18,000
• Debt on Her Car [Sarah] ($ 8,000)
• Checking Account [Joint] $ 2,300
• Net Marital Estate $ 396,300

If either filed for equitable distribution and the Court agreed that the above listing accurately represented the property acquired during the marriage, it would be presumed equitable for each side to get property worth ½ the overall value or $198,150 each. However, if a divorce occurs without each side properly preserving their claim for equitable distribution then property vests based upon title. Therefore, under the facts above, John would keep his 401(k) and car worth $314,000 and Sarah would keep her car and the debt on her car worth $10,000. The joint property would be held as tenants in common with each having an undivided interest in the whole. John could sue Sarah after the divorce to divide the house with $70,000 in equity and potentially have a total of $349,000 (1/2 the equity in the house plus the 401(k) and car) while Sarah would only get $45,000 total. In theory, the checking account could also be divided through a petition to partition personalty but it probably would not be worth the cost. So it is to John’s advantage to get divorced without suing for equitable distribution. Actually, he comes out better by over one hundred and fifty thousand dollars!

Very little of it was jointly titled and most of it was in John’s name. The 401(k) like most retirement plans was solely in his name. My advice for his particular case was “let her get the divorce and then we will file a petition to partition the real property.”

The entry of a divorce judgment forever cuts off claims for the division of marital property (equitable distribution) and spousal support (post separation support and alimony). The failure to specifically apply for these rights prior to the entry of a divorce judgment acts as a waiver of these rights and they are lost forever. North Carolina law, N.C. GEN. STAT. § 50-11(e), states that “an absolute divorce obtained within this State shall destroy the right of a spouse to equitable distribution.” To preserve claims for equitable distribution and alimony, a valid claim must be asserted before entry of the divorce.

So be careful when filing for divorce in North Carolina. It is worth it to consult with an attorney and determine the best option for your particular situation. A simple divorce could cost you hundreds of thousands of dollars! It also cuts off alimony rights and if John would owe Sarah alimony in the above hypothetical, she would be in even worse shape!  In this case, Sarah made a huge mistake.

The cause of action of breach of promise to marry is related to the “heart balm tort” of alienation of affections.  The former is the result of a breach before marriage and the other may be brought if a third party has an affair with a plaintiff’s spouse during the marriage.  Either one of these claims may be brought by a man or woman.  The unpredictable amount of a damage award may cause a defendant to settle because a plaintiff may receive punitive damages if they prevail on either of these claims.   

Breach of promise to marry has survived since the late 1800′s and is still brought by plaintiffs in North Carolina.  One need only look to the recent case of Dellinger v. Barnes (No. 08 CVS 1006), 17 December 2010.   A jury in McDowell County, North Carolina awarded the plaintiff with damages of $130,000.  The plaintiff was a young woman that was dedicated to helping her fiance to start several businesses, however, he paid her a small amount of salary.  The defendant broke his promise by starting a relationship with one of his other employees after which he broke off the engagement to the plaintiff.  The plaintiff’s counsel showed the jury that the Defendant not only broke his promise to marry, he also took advantage of her reliance in that she worked hard alongside the defendant because she believed she would share in the success of the businesses.  For more information on this case see below. 

Due to the above results, one may ask whether they should enter into a prenuptial contract (aka a “prenup”).  A prenup may be helpful in the long run for certain people.  In the past, the very act of being asked to sign a prenup may have been seen as insulting and a signal that the marriage is starting on rocky ground. Now, more individuals consider a prenup as an essential planning document that simply makes good sense.  While discussing the contents of the prenup, many couples resolve difficult financial questions at a time when they are most in love.  For more information on things to be included in a prenup see www.ricefamilylaw.com.

This author sees a place for the cause of action of breach of promise to marry because the facts may be different from the 1800′s but the basic theme still occurs today.   However, discussing finances and a prenup may prevent costly litigation like in Dellinger v. Barnes or after a marriage.  Couples should have a serious conversation about finances before deciding to get married, and couples should seek the advice of a licensed attorney to draft an enforceable prenup.

For more information about Dellinger v. Barnes, read the article  in N.C. Lawyers Weekly entitled “Man must pay jilted fiancee $130k for reneging on engagement”, by Sylvia Adcock, published on January 6, 2011.

If you discover that you missed the initial filing deadline, North Carolina has a “Savings Statute” that allows the defendant to claim equitable distribution subsequent to the divorce under certain circumstances. North Carolina’s statute allows a late claim for equitable distribution if the defendant was served by publication. A late claim is also allowed when the divorce was granted in another jurisdiction.

The Uniformed Services Former Spouses’ Protection Act (USFSPA) was passed in 1982 to make military pensions subject to division by state courts in divorce and property division proceedings.  All of the states now allow the division of military pensions as marital or community property.  North Carolina enacted N.C. Gen. Stat. 50-20(b)(1) (2001) so that marital property includes vested and nonvested military pensions under the USFSPA.  Furthermore, certain amendments made by Congress to parts of the U.S. Code dealing with Reserve retirement and benefits imply that Congress intended the Act to cover Guard and Reserve retirement also.

The North Carolina Court of Appeals case of Draper v. Draper, 159 N.C. App. 465, 583 S.E. 2d 426 (N.C. App. 2003) involved the division of military retirement benefits in equitable distribution. The plaintiff, Ms. Draper, requested an interim distribution of the defendant, Mr. Draper’s, retirement benefits. The defendant was married to the plaintiff during his entire service as a member of the United States Air Force.  At the trial court level, the plaintiff was unsuccessful in getting any of the Defendant’s retirement benefits because she did not offer evidence of the date of separation value or the present value of the defendant’s benefits.  On appeal, the Court of Appeals reversed the trial court on the issue of equitable distribution. The Court remanded the case to the trial court to value under the deferred distribution method and equitably distribute the defendant’s military retirement benefits, except for defendant’s disability benefits. The Court explained that the North Carolina trial courts are not limited to the present value method, as long as the court values the retirement benefits as of the date of separation.

North Carolina calculation

Equitable distribution and pension issues are addressed in N.C. Gen. Stat. 50-20.1 in which it provides a formula to value the marital portion of the benefits:

Years of Marriage that Coincide with Employment

Year of Employment

An example of division in a hypothetical case may help to illustrate how it works.  Assume that the couple has been married for 5 years and that, for all 5 years, she was employed by the company, government or organization providing the pension.

Also assume that her pay with 20 years of employment is $4,800 per month, and that she can retire after 20 years of service with 50% of her base pay.  Thus, the monthly retired pay of the employee spouse is $2,400.

$2,400 × 5 years marital pension service = $600 (marital part of pension)

20 years total pension service

Military Calculation

Deferred Division: The marital fraction is calculated as follows:

Years of marital pension service =  M

Years of total pension service            T

The numerator (M) represents the years of marital pension service, and the denominator (T) represents the total number of years of creditable service that the service member will perform.

An example of deferred division in a hypothetical case may help to illustrate how it works.  Assume that a service member has been married for 5 years and that, for all 5 years, he was on active duty in the United States Marine Corps.

Also assume that his active duty pay with 20 years of service is $4,800 per month, and that he can retire after 20 years of service with 50% of his base pay.  Thus, the monthly retired pay of the service member is $2,400.

$2,400 × 5 years marital pension service =  $600 (marital part of pension)

20 years total pension service

Present Value Offset: In addition to the future division of retired pay, all states recognize a second method of pension division called a “present value offset.” This represents the present value of a series of money payments over the course of the service member’s life. The money payments are their retired pay, present value is the amount used so that the service member keeps the entire pension. The parties are left with a complete division of this asset.

How is present value calculated? There are several options available. Sometimes an expert is needed for trial. If settlement is possible, a mail order pension evaluation can be done by a party or parties, approximately $300–$500.

There is also a second method of determining present value, and this one makes no assumptions regarding interest rates, life expectancies or inflation.  It involves pricing an annuity that will yield a monthly payment equal to the pension. You and your attorney can seek out a professional to create a proposed annuity that might provide a better outcome.

North Carolina allows for several options to handle a military pension. Make sure you and your attorney consider all of the options.

First, the parties identify the property. For instance, most people have different types of property, and an attorney will likely need details about the property like the year and/or product number. Property includes collections, stocks, and vehicles to name a few. In all cases, attorneys use discovery as an important tool to identify all of the property. (“By finding hidden assets, preventing surprise, narrowing the issues before trial, or promoting fair settlement; discovery reduces the costs to the client in the long run and/or increases that which the client is entitled.”)

Second, a court classifies the property into separate, marital or divisible. The classification of the property depends on whether the property is acquired before, during or after the marriage. The source of funds rule controls this process in North Carolina. In addition, under the source of funds rule property may have both separate and marital interests, like if money from an inheritance is combined with funds from a joint account to purchase a boat. However, some courts have ruled the money from inheritance used on a boat becomes marital because it is a gift to the marriage. For couples that acquired property for many years, the classification process is more difficult.

A helpful analogy for equitable distribution is the image of a football field with one goalpost at each end. All property acquired before or after the marriage will fall off the field outside of the goalposts and is your separate property. All property acquired during the marriage falls on the field within the goalposts and is marital property. If separate property, acquired before the marriage, is used to pay for a marital residence it is pulled onto the field and thus becomes marital property. Divisible property covers the change in value of marital property after separation but before distribution, and this increase or decrease falls outside of the goalposts. This analogy explains the basic rules of equitable distribution, but exceptions do exist.

Third, a court values the property. This step merely requires determination of the fair market value. One problematic type of property is a collection. Be content to keep the collection if you have a collection of beanie babies or baseball cards. These collections are worth a fraction of their value 10-20 years ago. The value assigned to a collection must be equal to what similar collections sell for today.

Fourth, a court distributes the assets, and debts if any. North Carolina presumes an equitable distribution, 50/50 split, of the marital property and debt. Obviously, it makes sense to give a collection to the person that is more emotionally attached to the collection. Furthermore, the family heirlooms typically stay with the person that brought the heirloom to the marriage.

Now that you have a general understanding of how equitable distribution works, start listing the specific property items that you most desire and provide this list to your attorney. Equitable distribution becomes more expensive in cases that require discovery to identify suspected hidden assets, experts to value business interests, and an attorney to initiate litigation for purposes of a Qualified Domestic Relations Order (QDRO). Trust your attorney to create a good game plan to accomplish the desired outcome.

For more information on equitable distribution and other family law topics, get the free eBook on Separation & Divorce.

The above is presented as general information on equitable distribution. It is not exhaustive coverage of these issues but only a general explanation from an attorney’s perspective. Seek help from a licensed attorney for more information.

The dependent spouse depends upon their supporting spouse to pay the bills for the food, home, etc., which can lead to a lack of control over their life. In the event the dependant spouse intends to separate from the supporting spouse, they should consult an attorney to learn about their many options. The options below are not exhaustive and will not apply to every situation.

In the event the supporting spouse will not leave the marital residence, the dependant spouse and children should seek a temporary home so that a Complaint and Motions can be filed after the parties separate. The temporary home may be required for a couple of days or months. Before leaving the residence, the dependant spouse should make copies of important documents, refrain from arguments, and limit computer activity. It is necessary to shut down social networking pages on the day you leave the residence, and take your computer to a shop to ensure that spyware was not installed by your spouse. However, the dependant spouse should leave immediately in a case of domestic violence and, in this situation, a local legal aid office and shelters for victims will usually provide free assistance.

In an attempt to provide stability to the dependant spouse and children, an attorney can file a complaint, motion for interim distribution, and motion for sequestration. In these documents an attorney can request that the dependant spouse be supported financially, and the Court can order that the supporting spouse be removed from the former marital residence so that the dependant spouse can return to the residence. The Court can order an interim distribution of marital and separate property pursuant to N.C. Gen. Stat. §50-20(i)(1) (Distribution by Court of Marital and Divisible Property), which provides as follows:

(i)(1) Unless good cause is shown that there should not be an interim distribution, the Court may, at any time after an action for equitable distribution has been filed and prior to the final judgment of equitable distribution, enter orders declaring what is separate property and may also enter orders dividing part of the marital property, divisible property or debt, or marital debt between parties.

For more information about equitable distribution, see the property settlement page on our Website.

se·ques·tra·tion [see-kwes-trey-shun], legal definitions:

1. Seizure of property.
2. A writ authorizing seizure of property.

The order for sequestration is similar to a temporary restraining order. It is a common law remedy that is used on a regular basis in this type of situation. A Judge can order the property to be sequestered with or without the presence of the supporting spouse or opposing counsel. It is highly recommended that the dependant spouse change the locks on the home as soon as they return to the former marital residence. If the supporting spouse returns to the former marital residence, the dependant spouse can request that the police enforce the Court’s Order and eject the supporting spouse from the property. Another option is to file charges for domestic criminal trespass, in which case the accused might be taken to jail. For more information about protective orders, see the domestic violence page on our Website.

A dependant spouse may choose to have an attorney prepare a separation contract or Separation and Property Settlement Agreement (SAPS). These two documents can settle some important issues. The agreement should attempt to maintain the status quo of the current child custody arrangement. For instance, the dependant spouse would maintain primary custody of the children throughout the week, while the supporting spouse visitation on some nights and every other weekend. The amount of custody and/or visitation of the supporting spouse will vary according to their work schedule. This type of custody arrangement can provide a stable environment for the children. Of course, the agreement should provide for interim financial support for the dependant spouse in order to provide a safe home and necessities for the children. The agreement can even contain a clause providing for “Temporary Possession of the Marital Residence.” See the sample separation contract on our Website.

These are a few of the legal options provided for stay-at-home parents and dependant spouses in North Carolina. To learn about additional options, get the free eBook on Separation & Divorce. In all of these cases the children’s best interests and safety should be the primary concerns of the parents.

The above is presented as general information on separation and interim distribution and sequestration. It is not exhaustive coverage of these issues but only a general explanation from an attorney’s perspective. Seek help from a licensed attorney for more information.

In some cases, “what the court givith, the IRS taketh away.” Depending on the language in certain court orders, this change in legislation may allow a custodial parent to revoke a dependency exemption despite what a state judge ordered in a divorce decree.

A recent review of the Internal Revenue Code revealed the change in 2008. The change in law is a result of court cases and comments from the public and tax professionals. A custodial parent is now likely able to release or revoke an exemption for a child from a noncustodial parent. According to the IRS website, “if the custodial parent provides notice of revocation to the noncustodial parent in 2009, the earliest tax year the revocation can be effective is the tax year beginning in 2010.” The IRS has also further clarified and modified its definitions of a custodial parent and noncustodial parent.

A revocation of a release will likely have federal and state tax implications for both parents. A custodial parent can revoke a previous release of an exemption on IRS form 8332. As a result, the noncustodial parent may be prevented from claiming the child exemption on their Federal return. Moreover, if the custodial parent revokes a release, the noncustodial parent may be prevented from claiming a child credit/deduction on their State return. Exceptions do exist to the new tax rules on release and revocation.

The change requires that the individual claiming an exemption attach specific paperwork to their tax return. The original tax form 8332, signed by the custodial parent, is usually required. Court cases have ruled that some previously acceptable documents are no longer accepted by the IRS in lieu of a signed form 8332. If a signed form 8332 is not available, noncustodial parents should immediately consult a tax professional to ensure they comply with the new requirements.

The IRS Web site, www.irs.gov, provides further explanation, definitions, and some examples.

IRS CIRCULAR 230 DISCLOSURE: Rice Law, PLLC does not provide tax advice. Accordingly, pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained herein (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter.

Discovery is that legal process designed to elicit information from the opposing party in a lawsuit. It is the principal fact-gathering method in litigation and may actually help to minimize costs in the long-run by narrowing the issues that need to be addressed at trial, convincing either a settlement might be a preferable resolution, or by finding hidden assets to be distributed. Discovery encompasses a wide variety of techniques, including: Interrogatories, Requests for Production of Documents, depositions (written and oral), physical and mental examinations, admissions, and others. The most important and most commonly used discovery methods are Interrogatories, Requests for Production of Documents, and Requests for Admissions.

Interrogatories are questions posed to the opposing party. In North Carolina, a party may pose up to 50 Interrogatories to the opposing party. If a party to whom the interrogatories are made does not answer the questions, the court may impose a host of sanctions, including but not limited to: 1) entering a judgment by default; 2) dismissing the case; 3) striking the pleadings; 4) staying the proceedings; 5) prohibiting the non-answering party from supporting his case or from opposing certain defenses; 6) prohibiting the non-answering party from introducing certain evidence; 7) finding the non-answering party in contempt; or any combination thereof.

The opposing party must answer the Interrogatories under oath which increases the likelihood that the information will be truthful. Of course, a party may answer but not tell the truth. If such is the case, the individual may be subject to criminal sanctions such as perjury. Other discovery methods may reveal the untruth told in the interrogatories and may be useful in impeaching the opposing party during the hearing.

Requests for Production of Documents (RPDs as they are sometimes called by attorneys) are exactly what they sound like. An attorney makes formal requests for documents in the other party’s possession or in their control. Failure to release requested documents can lead to sanctions by the court as detailed above. Unlike Interrogatories, there is no limit to the amount of requests that can be made. A verification under oath must also accompany the RPDs.

Admissions are statements presented to the opposing party. The opposing party is asked to admit or deny the truth of certain matters, the application of law to the facts, or the genuineness of certain documents. Admissions are very useful in narrowing the scope of the issues at trial. Also, if the opposing party does not answer a request for admission timely, the request may be deemed admitted.

In one case in Pender County dealing with marital property division (Equitable Distribution), a husband failed to timely file his responsive property listing which caused the Court to order the husband to pay the wife’s attorney fees associated with obtaining the listing. The husband was represented by an attorney. In another case, discovery showed that a wife who had secretly planned to leave her husband for sometime had accumulated property in the names of businesses she owned worth several hundred thousand dollars. The husband had no idea of the existence of this property. Another client discovered her husband had a good case for her to repay his debt of over $70,000 which caused her to dismiss her claim leaving him, in this particular case, literally “holding the bag” of debt because they had already divorced and he had no counterclaim for equitable distribution.

As alluded to above, discovery can help to uncover hidden assets. Many clients think they know what they and their spouse own as a couple and yet after the discovery process, many find that their assets are much greater than they thought. Of course, occasionally it works the other way as well and some client discover that the marriage actually has less then what their spouse had been telling them for all those years. The important thing is to know what is out there so that the attorney can plan and advise accordingly.

If discovery is had and the case settles based upon the representations made under oath in discovery and such representations are later found to be fraudulent, that would be a basis to “re-open” the case. A waiver of discovery or an acknowledgement that full disclosure was had when it was in fact not had, would not generally be grounds to re-open the case.

In cases of child and spousal support, discovery is essential. One individual showed a very modest “salary” but he owned his own business. His answers and responses to discovery showed that much of his personal expenses were run through his business. By proving this to the Court, the Court was able to reallocate such personal expenses as income to him which resulted in a higher child support obligation.

Modern technology has increased the effectiveness of discovery and has reduced the cost of discovery methods. Whereas just a couple decades ago an attorney had to type for long hours to generate discovery; with word processors, the internet, and modern computer database technology, an attorney can generate discovery, use public information to validate/invalidate the answers and responses, and research the effect of that new information in a fraction of the time. Less time for the attorney means less money the client has to pay.

In conclusion, discovery is a useful tool for the attorney and is usually absolutely necessary to protect the client’s interests. By finding hidden assets, preventing surprise, narrowing the issues before trial, or promoting fair settlement; discovery reduces the costs to the client in the long run and/or increases that which the client is entitled.

Published August 10, 2009 | Authored by Richard Forrest Kern, Esq. and Mark Spencer Williams, Esq., Rice Law, PLLC

Author’s Note: This article is not intended to be a comprehensive analysis of the discovery process. The Purpose of this article is to impress on the non-lawyer who may read it, the importance of discovery and to outline generally some commonly used discovery methods in North Carolina family law and divorce actions. The reader interested in learning more should contact their attorney.