Divorce, Equitable Distribution, and Debts

It is no surprise that the topic of divorce in Waxhaw brings so many people anxiety, stress, and concern. One reason for these feelings is the requirement of dividing up the former couples’ property, both assets and liabilities. Disagreements over who gets what can quickly become a nasty argument. Compounding this stress is the fact that the debts of only one of the spouses can be attributed to both spouses during division, leaving both parties responsible for these liabilities. North Carolina, like many other states across the nation, follows an equitable distribution method for division of marital property.

Equitable Distribution

When the courts divide the property in a divorce, they do so equitably, not necessarily equally. The goal is to be fair. Like a majority of the states across the nation, property division is founded on the idea that marriage is a partnership during which each spouse makes contributions to the relationship. Before a North Carolina court can equitably distribute marital property in a Waxhaw divorce, the trial court must determine what portion of the couple’s assets and liabilities are marital and what portion is not. Of note, this determination is not an “all-or-nothing” approach.

Marital versus Non-Marital Property

Unlike several states in the country that classify property according to how it is titled, North Carolina uses the “source of funds” rule for classifying assets. In short, this means that a family law court will trace the funds that were used to acquire the property in order to properly classify the asset.

Typically, only divisible - or marital - assets and liabilities are subject to equitable distribution between spouses under North Carolina law. That being said, if a property is titled (or deeded) separately to one spouse, a court may still classify the property as marital and/or separate property, depending on the circumstances. For example, if one spouse combines his or her funds with marital funds and purchases a property solely in his or her name, a court may still classify the asset as partially marital and partially separate property. Divisible property may include the following in a Waxhaw divorce:

Any decrease or increase in marital assets that happens between separation and the date the judge enters an equitable distribution order - excluding increases or expenses that happened because of the couple’s separation;
Any property that was acquired through the efforts of either spouse during the matrimony but prior to separation what was actually received during separation but before the divorce - this can include commissions, bonuses, and contractual rights;
Any increase or decrease in marital debt including finance charges and interest relating to this debt; and
Any passive income, including stock dividends and interest among others, that was generated from marital property that either spouse receives after separation.

Distribution of Debt

In North Carolina, debt is treated differently than assets when it comes to equitable distribution. The spouse who is claiming that the debt in question is marital bears the burden of proving to the court that the debt should be subject to distribution between the spouses. Ways in which this can be established include proving that the debt was:

Incurred after the marriage, but before the couple separated,
Incurred for the joint benefit of both spouses, or
Incurred to pay off a marital debt.

Of note, joint expenses for the maintenance and care of the couple’s home and their children are typically considered as providing a joint benefit. Likewise, a former spouse’s student loans borrowed during marriage may be classified as marital debt if the marriage lasted long enough after the completion of a degree for the other spouse to enjoy the resulting benefits. A secret loan whose funds benefit both spouses, however, is not considered marital debt if the other spouse was unaware of the loan.

Another item a North Carolina court needs to consider with regard to equitable distribution of debt during a Waxhaw divorce is debt valuation. If the debt is classified as marital, the valuation will be calculated as the amount of the debt as of the date of the couple’s separation. If the debt is classified as divisible, however, it will be valued as the date the judge enters an order of equitable distribution. It is important to understand that marital debt cannot be cancelled or discharged in a Chapter 7 bankruptcy proceeding. Nonetheless, a Chapter 13 bankruptcy - in which a repayment plan is put together - allows for the cancellation of marital debt at the end of the debtor’s three to five-year repayment plan. There are exceptions to this rule, however, like alimony and child support.

Family Law Attorneys in Waxhaw

If you are facing a separation, divorce, or other family law matter in Waxhaw, North Carolina, know that you do not have to go through this alone. Indeed, it is critical to have an experienced family law attorney to help protect your rights and guide you through this complex process. Contact the law firm of Arnold & Smith, PLLC today to speak with one of our family law attorneys about your case.