The rules of Equitable Distribution and a simple football analogy

In my law practice I have learned analogies from other attorneys that help explain the rules of law to clients. I strive to explain these rules so that clients understand our game plan. The process of equitable distribution is one such case. North Carolina courts apply the Equitable Distribution Act and the following four steps to decrease costs and increase efficiency.

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 (or soccer 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.

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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.