At its most basic, equitable distribution is the court’s process for dividing property in a divorce. It is used when spouses are unable to divide their property themselves. The trial court has a lot of discretion in deciding on distribution matters, which can lead to troublesome results.
The first step in an equitable distribution case is to identify and classify all property as either marital or separate property. Marital property is property acquired during marriage by either spouse that is owned on the date of separation. Gifts and inheritances are generally not considered marital property unless given to the other spouse during the marriage. Separate property is owned before the marriage. The trial court must classify the marital and separate property specifically.
Secondly, the court must determine the value of the marital property on the date of the parties’ separation. The property is valued using the fair market value minus the amount of any encumbrance. The fair market value is the price which a willing buyer would pay to purchase the asset on the open market from a willing seller, with neither party being under any compulsion to complete the transaction.
Lastly, the court must equitably distribute the marital property. Under North Carolina law, an equal division of the marital property is mandatory unless it would be “inequitable.” The court must determine if an unequal split is fair by using an explicit list of factors. There are many statutory factors in favor of unequal distribution, including the: earnings of both parties; health and age of both parties; time of marriage; liabilities of the parties; efforts of either party to maintain and preserve the marital property; debt of both parties; existence or lack thereof of pension, retirement, or similar compensation packages; support of education ventures; and tax consequences of the distribution of retirement accounts.
