How Is Debt Divided in a North Carolina Divorce?

When spouses file for divorce, they must go through the process of property division. During this process, the court will determine how assets and property are divided according to the principle of equitable distribution which means that property will be divided fairly but not necessarily equal. During this process, debts are also distributed equitably. Keep reading to learn more.

NC Property Division Law

Most states use the community property method for property division which divides the property into marital and individual ownership. North Carolina on the other hand, uses the equitable distribution method. This means that instead of dividing only marital property and verifying individual ownership, the court will divide property in a way that is fair.

It is important to note that “fair” does not mean equal. During a divorce, property is not split 50/50 but according to guidelines established by the court. The judge will evaluate several factors before making a final decision about equitable distribution.

To begin the process, the judge must categorize all property, assets, and liabilities as either marital or divisible. Separate property under one spouse’s exclusive ownership is free from division while the marital and divisible property is split during the divorce.

  • Marital property is all property acquired during the marriage. This may include pensions, real estate, investment yields, and other deferred compensation rights.
  • Divisible property is everything that may change in value between the date of separation and distribution. Money or property that both spouses earn during the marriage but is not realized until the separation is considered divisible. A bonus or commission during the time after separation and before distribution is divisible.
  • Separate property is anything actively gained or lost after separation or before the marriage.

Based on these categories, the court will consider the following factors when splitting marital and divisible property fairly:

  • The duration of the marriage
  • The spouses’ health
  • The liquidity of marital property (cash is more liquid than stocks)
  • The contributions of each spouse during the marriage
  • The spouses’ income, assets, and liabilities

So, if one spouse makes more money but contributes less to the household overall, the court may not give them the larger share of property during equitable distribution. Additionally, if one spouse has poor health and requires extensive medical treatment, the court will take that into consideration.

So, how does debt factor into divorce?

Debt and Distribution

When spouses file for divorce, all their assets and liabilities are eligible for equitable distribution. Liabilities are debs. In the same way that a pension or real estate investment may be split during a divorce, student loans or credit card debt may go through the same process.

To determine how to distribute debt, the court must determine when it was incurred. For example, if a spouse had student loan debt before the marriage, they are solely responsible for paying back what they owe. On the other hand, if the loans were incurred during the marriage, both spouses could be held responsible for repayment.

In some cases, marital debt may occur because of the equitable distribution process. This means that one spouse gains debt because of property division and may experience financial hardship as a result. If this is the case, the court may treat marital debts as divisible between spouses. In other words, both spouses will carry that burden.

For example, one spouse incurs tax debt to pay off marital debt from the divorce. In that case, the court will redistribute the tax debt to both spouses fairly and both parties will share responsibility. However, if the spouse has tax debt from before the marriage, they alone must handle it.

The goal of equitable distribution is not to impose financial hardship on either party. Instead, the court tries to distribute property equitably so both spouses can maintain a standard of living similar to what they had during the marriage.

This process is very complex, and while North Carolina has clear laws regarding equitable distribution, it can be confusing and frustrating for spouses during divorce. Contact the Law Office of Kelli Y. Allen, PLLC to get the guidance you need during divorce.

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