Classification of Property. Unless the spouses agree upon a marital property division, the court will divide the property pursuant to North Carolina statutes on equitable distribution. There are three (3) types of property that must be considered, which are as follows: “Separate Property” includes all property owned by either spouse before the marriage, property acquired during the marriage by one spouse by inheritance or gift from a person other than the spouse, and property acquired after the date of separation with post-separation earnings. A gift from one spouse to the other during the marriage is marital property unless the donor states at the time of the conveyance that it is intended to be the separate property of the recipient spouse. Separate property also includes income from separate property and property obtained in exchange for separate property.“Marital Property” includes all other property owned on the date of separation that was acquired during the marriage. Marital property includes all vested and non-vested pension and retirement benefits. “Divisible Property” includes passive appreciation and depreciation in the value of marital property after separation, property received after date of separation but resulting from efforts made during the marriage, and passive income received from martial property after date of separation. Division of Property. Unless the parties agree to the division of marital and divisible property, an equitable distribution hearing will be necessary. This hearing may occur after separation but either before or after the absolute divorce and will be conducted by a judge without a jury. Separate property will be kept by the spouse to whom it belongs while marital and divisible property and debt will be divided between the parties by the court. While there is no precise formula for dividing the property, there is a presumption in North Carolina that the marital and divisible property or its equivalent value, will be divided equally and that the property will be divided in-kind. Income, property and debts of a party; Support obligations from prior marriages; Length of marriage and age and health of each party; Needs of custodial spouse to own or to possess the marital home place and household effects; Expectation of retirement benefits which are separate property; Efforts made by a spouse to acquire marital property not titled in his or her name; Contributions of one spouse to the education or career of the other; Direct contributions that increase the value of separate property; Liquid or non-liquid nature of property; Difficulty in valuing interest in a business; Tax consequences to each party; (a)Actions taken by either party to preserve or waste marital assets; and (b)Property received in the event of death of either party prior to equitable distribution; Any other factor which the court finds to be just and proper. Debt. Marital debts must also be divided between the spouses. The court is not bound to divide debts in the same percentage as it divides assets. The court must consider the purpose for which the debt was incurred and the disposition of any asset encumbered by the debt. If one party establishes that a debt was incurred during the marriage, the other party has the burden of proving to the court the debt was not incurred for a marital purpose, but for the individual separate expense of the other spouse. Post-separation increases in marital debt financing charges and interest related to marital debt are classified as divisible debt and will also be equitably divided by the court. Marital Misconduct and Division of Property. Marital misconduct, such as adultery, is not admissible in the litigation of property rights. The division of property in North Carolina is based upon the economic factors described above. However, evidence of “economic fault” is admissible. Such evidence may be of marital funds spent by one spouse in the course of illicit sexual behavior during the marriage with a third party, reckless spending or waste of marital assets. Tax Consequences. Generally, a division of marital property is a non-taxable event. Usually, if property is transferred between spouses pursuant to an agreement or court order, it will neither be taxed as income nor allowed as a deduction. There may be tax consequences, however, when funds are transferred from retirement and individual retirement accounts and when marital assets are transferred to third parties. There are ways to transfer retirement assets without incurring immediate tax liability. Some qualified retirement plans will require a special court order specifically designed to transfer plan assets. The court orders are called “Qualified Domestic Relations Orders” (sometimes referred to as “QDRO’s”). All property distribution matters must be analyzed by your attorney for tax consequences. Mediation. If a claim is filed for equitable distribution, the parties will be required to first participate in mediation with a trained professional mediator before the claim may be litigated in court.