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One of the most contentious issues between spouses going through a divorce is the division of property that was once shared during the marriage. In North Carolina, the North Carolina General Statutes (“NCGS”) outline the legal framework governing divorce, including the distribution of marital property. NCGS § 50-20 and § 50-21 specifically address the process of equitable distribution in divorce proceedings.
NCGS Section 50, Article 20, titled “Equitable Distribution of Property,” govern show marital property is divided following a divorce. This statute emphasizes equitable, rather than equal, distribution—meaning the division is based on fairness, not necessarily a 50/50 split. Marital property, which generally includes assets acquired during the marriage, is subject to division, while separate property—such as assets acquired before the marriage or through inheritance—remains with the individual after separation and/or divorce.
NCGS§ 50-21, titled “Procedure for Equitable Distribution,” outlines the procedural framework for pursuing equitable distribution. This includes filing a claim before the divorce is finalized and establishing a valuation date for the property to be divided. This statutory framework promotes transparency and fairness, ensuring both parties have an opportunity to present their claims and protect their interests in the marital assets.
While equitable distribution is designed to ensure a fair division of property, conflicts often arise when one spouse attempts to secure more than their fair share. In cases where mediation fails and spouses do not collaborate, the process can become contentious. Some individuals may try to circumvent North Carolina’s equitable distribution laws, but the statutes provide protections to prevent this from happening.
Trusts are one mechanism that some spouses may try to use to avoid equitable distribution. By moving assets into a trust, a spouse might hope to shield them from division. This might have happened years prior to a separation and/or primary intentions at one time from a spouse could have been for tax evasion and/or for estate planning, not necessarily in avoidance of an uneven distribution or to secrete marital funds from the other spouse. The purpose during separation is to look back at the intent of the spouse at the time of the creation of the Trust. However, North Carolina law has strong protections to prevent misuse of trusts in the context of secretion of martial funds for an uneven distribution. While certain trusts, such as those set up for business purposes, may be excluded from equitable distribution, most attempts to use trusts to avoid dividing marital assets are closely scrutinized by the courts.
Courts can examine the timing of when a trust was created or accessed to determine whether it was an attempt to avoid equitable distribution. If a spouse transfers assets into a trust after filing for divorce, the court may view this as a fraudulent conveyance. North Carolina’s Uniform Voidable Transactions Act allows courts to void such transfers if they are intended to defraud the other spouse. In such cases, the court can return the assets to the marital estate to be divided.
Moreover, North Carolina law requires both spouses to provide full financial disclosure, including any interests in trusts. If a spouse fails to disclose a trust or other assets, and this is later discovered, the court can impose penalties and redistribute the concealed assets as part of the marital estate.
Another tactic spouses might employ is altering estate plans during divorce proceedings. Estate plans dictate the distribution of assets upon death and are often created with the marriage in mind. A spouse might attempt to update their estate plan to exclude the other spouse or redirect assets to a family member. However, North Carolina law imposes time limits on such changes, preventing spouses from altering estate plans after divorce proceedings have begun. This ensures that marital assets cannot be reallocated through last-minute estate plan modifications.
North Carolina’s legal code effectively closes loopholes that might allow for an inequitable division of assets, ensuring fairness and transparency throughout the process. In addition to these statutory protections, collaborative divorce provides an alternative path that emphasizes open communication and mutual respect. In a moderated setting, with each spouse employing their own collaboratively trained counsel, both parties work together to reach agreements regarding property and asset division, promoting an equitable outcome without the need for contentious and expensive litigation where a judge determines your financial future.
Michael & Russell, PLLC is your Advocate!
Whether you need a Litigator to protect your assets in Court vested in our North Carolina statutes with judicial remedies; assist you in Mediation discussions to find common goals and discern solutions; discover interest-based solutions for a win-win outcome in a Collaborative Divorce; or craft a Separation Agreement that fits the needs of you and your family, schedule an Orientation with Michael & Russell today!
Sources:
https://www.sog.unc.edu/sites/default/files/course_materials/2016%20ED%20Statutes.pdf
https://www.360financial.net/post/what-happens-to-family-trust-in-divorce