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How Are Marital Assets Valued in Court?

How Are Marital Assets Valued in Court?

How Are Marital Assets Valued in Court? By Amy A. Edwards In equitable distribution marital property cases, the court has a legal duty to identify assets and classify them as marital, separate, divisible or mixed assets (part marital and part separate). Parties are always free to stipulate or agree that assets have certain values, but if they cannot, the judge must make the decision on what each asset is worth. What Does the Law Say About Value? For marital property purposes, the value of a marital assets is fair market value, “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.”[1]  The court must use the net value of marital property, meaning the fair market value minus the outstanding debt at the time the parties separate. [2] If the court finds that a property is worth the same thing as the outstanding debt, the value is zero. Courts also assign negative values to assets worth less than the outstanding debt. New vehicles often fall into this category when the down payment is not substantial. Valuing Marital Assets is Mandatory Only if an asset, or part of an asset, is marital does the court then have to make a ruling on the value of it. It sounds like common sense but if neither of the parties presents evidence to the court of the value, the court cannot just make up a value. In one case[3], a couple owned a gas station, and the business was in the husband’s name. Although the wife proved that the business was established after marriage and before the separation, she failed to offer any credible evidence on the value of the business. The court must value an asset in order for it to become a marital asset. Therefore, the court had no choice but to award the business as his separate property.  Property Appraisers The most obvious way to prove the value of an asset is by an appraiser who has special skill and experience with the asset at hand. People frequently have appraisals performed for jewelry, real estate and antiques. Often, the appraiser is hired by one or both of the parties to prepare a report for the court, to be used during the trial. Appraisers value marital property and the increases in value of separate property when the non-owner says there...

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Free-Trader Agreements in North Carolina

Free-Trader Agreements in North Carolina

Free-Trader Agreements in North Carolina When a married couple separates, if they can reach an agreement on all of the issues between them, they may choose to sign a separation agreement. It is a contract that says how they have agreed to divide property and debt, how family support will be provided, if any, and what they will do about parenting time if they have children together. One of the usual terms contained in it is a free-trader-agreement (FTA). If there is no separation agreement, an FTA can be a short contract by itself. What’s the Problem? Many couples own real estate when they separate. After time passes but before the divorce is granted, some people consider home ownership. When married couples acquire a mortgage loan, both usually sign the promissory note, which means they both have a legal obligation to make mortgage payments. That’s pretty straightforward. But when only one spouse signs a promissory note, only he or she owes the money. To oversimplify the problem, if the home-owner dies before becoming divorced, the surviving spouse has no legal responsibility to make the mortgage payments. But regardless of the fact that a married couple is separated, as a spouse, the non-home-owner would still have certain inheritance and survivorship rights to the property. Remedy #1 – Free Trader Agreement Mortgage lenders require parties to sign an FTA, which is an agreed-upon right to buy (i.e., trade) freely (i.e., without interference). Mortgage lenders lend money to buy a home that will be theirs if they foreclose on the loan. They don’t want to share any ownership of the home with the surviving spouse (who isn’t obligated to make mortgage payments). The purpose of an FTA is for the spouse who is not buying the home agrees to waive all claim to it, including inheritance and/or survivorship rights. Usually recorded on public record at the office of the Register of Deeds, these contracts clarify that the spouse buying the home has exclusive ownership of it, even though he or she is married. Because the FTA is a contract, both parties must voluntarily agree to sign it.  Remedy #2 – The Divorce When a divorce decree is granted, the other person is no longer a spouse, so the mortgage lender no longer has the problem of an ex who is still a surviving spouse even if they were separated for some time when the home was...

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What in the World is Divisible Property?

What in the World is Divisible Property?

What in the World is Divisible Property? By Amy A. Edwards Marital property is property that a married couple owns when they separate, as long as they acquired it during the marriage. Separate property includes property that you owned before marriage, property that was a gift to you individually, or inherited property. In 1997, North Carolina created something else, divisible property. [1] This article barely scratches the surface of it, and does not include divisible debt. What’s Included in “Divisible Property”? Only property owned on the date of the separation is marital property. But what happens to marital property after you separate? The time from the date of separation until the date that the case finally reaches the courtroom can easily be a year or longer. If the value of a marital asset changes, the court will decide what to do with that change in value. If the court says the change in value of marital assets is divisible property, the amount of that change will be divided 50/50. Otherwise, the change in value will not be divided and that change in value is kept as separate property. For Example . . . Assume your home is worth $200,000.00 when you separate, and that you still live there. By the time you reach the courtroom, after 13 months have passed, the value increases to $225,000.00. The judge will decide whether that $25,000.00 difference in value is divisible property. If so, it will be equally divided and each spouse would get value worth $12,500.00. On the other hand, if the difference is not divisible property, that increase in value is the separate property is yours. What Makes the Change in Value Divisible? The increases and decreases in the value of marital property after separation are assumed to be divisible property, and divided equally. This assumption is based on things such as inflation, changing economic conditions and market forces, the mere passage of time and changes in tax assessments. These increases in value are divisible property because they are natural changes, which the court calls these changes “passive” in nature, generally beyond either spouse’s control. What Makes the Change in Value Separate or Shared Property? Although the law assumes that the change in value is divisible property and equally divided because the change in value was passive, you can offer evidence to show why the change in value is not passive....

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Is Credit Card Debt Marital?

Is Credit Card Debt Marital?

Is Credit Card Debt Marital? By Amy A. Edwards In short, credit card debts can be marital, just as any other type of debt. In contrast with marital property, the law doesn’t assume a debt is marital just because it was incurred during the marriage. If a debt is marital, each party is equally responsible for it, although the court usually assigns it to one party to equalize the net part of property each party gets. If a debt is separate, it isn’t calculated into the marital estate, and the person who has the account in his or her name is responsible for it. To understand credit card debt, we must first look at what a marital debt is. The Timing of Marital Debt A marital debt must generally be incurred by one or both spouses while they are married and before the date of separation (DOS). One exception to that rule is when one spouse takes a loan after DOS to pay off the “old” marital debt that existed on DOS. [1] Like marital property, marital debt must exist at DOS. If you just paid off your credit card with your bonus from work, and then you separate, the debt doesn’t exist at DOS and it is not a marital debt for which you would get credit for paying. What’s in a Name? Marital debt can be in the names of one spouse or both. However, there is one important distinction between debt and marital debt. The court can say who is responsible but only as between two spouses. But the court can’t tell a third party, such as Mastercard or Visa, that they can only enforce the debt against one person when two people signed the agreement to repay them. The court may indemnify a spouse, meaning that if the husband is assigned to pay the credit card debt and he fails to do so, he has to repay the wife if the credit card company sues her for payment. But if the other spouse had the money to repay you, he or she would’ve probably paid the debt in the first place. In practice, indemnification only goes so far. Joint Benefit: The Key Issue Unlike marital property, to call a debt marital, it must be incurred for the joint benefit of the parties. [2] There is no presumption that the debt was incurred for the benefit of both parties. If you want to prove...

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What is Marital Property in North Carolina?

What is Marital Property in North Carolina?

What is Marital Property in North Carolina? Before 1981, our state had traditional title ownership. This meant that the assets would be awarded to the person in whose name they were owned if a couple divorced. If the house or vehicle was in the husband’s name, for example, the wife received no share of the value for it. Reform: Equitable Distribution Some states have what they call community property. Instead, we use a process known as Equitable Distribution to divide marital property. After a particularly harsh result in a 1979 case that demanded reform, an equitable distribution statute was created, NC Gen. Stat. §50-20. Title ownership was fairly straight forward, but the newer process has lots or grey area. Instead of strictly using the law to simply look at the name on the deed or car title, the statute requires judges to divide property fairly (i.e., equitably) between spouses. When the court decides property is marital, it is given to (i.e., distributed to) one spouse or the other, even if his or her name is not on the title or other ownership title. Equity gives the judge discretion to award assets as he or she sees fit, so long as it is within the terms of the law. The law requires judges to divide marital property equally unless one uses his or her discretion to do otherwise when there are special reasons. Marital Property Definition Marital property includes land and personal property that is acquired by either or both spouses during the marriage but before they separate. It must also be owned at the time they separate. If it meets these requirements, the property is legally presumed to be marital. In other words, if a spouse wants to show that property is his or her separate property, he or she must prove it is separate property. To beat the legal assumption that it is marital property, he or she must prove the property was acquired before they married, after they separated, or acquired by a spouse by devise (property transferred by a will) or by descent (property inherited upon death). What Counts as Property? The current statute includes just about everything with a dollar sign on it, and a few things that don’t have any real value, such as photo albums, or even a negative value such as an overdrawn bank account. Other examples you might not think of include cemetery property,...

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Is a 529 College Savings Plan a Gift to a Child or Marital Property?

Is a 529 College Savings Plan a Gift to a Child or Marital Property?

Is a 529 College Savings Plan a Gift to a Child or Marital Property? By Amy A. Edwards Yesterday, the NC Court of Appeals addressed this question in Berens v. Berens. This was a case of first impression, meaning our courts have not yet made any decision on this subject. The Court defines 529 plan as “investment programs permit parents to set aside money for their children’s college expenses under tax-favorable conditions.” In the Berens case, the parents funded several 529 plans for their children while they were married and before they separated. The First Trial: Marital Property The lower court said the funds in the plans were marital property, and then awarded them to Mom as marital assets. She disagreed with that, and appealed the case, arguing that the money invested in the plans were gifts to each child, not marital property. And therefore, the court had no jurisdiction over the plans because they were not marital property. The Court of Appeals disagreed with her. The Appeal: Marital Property In this particular case, the Court of Appeals said the funds were not gifts to the children because they were all in Mom’s name alone. Besides the intent to give the gift to someone, a gift is only a gift if it is actually given to someone. Here, Mom failed to give a gift because no child was a named owner. Had the plans been gifts, each child would’ve had “all right, title, and control over the property.” Just because a 529 plan gives an owner a special tax benefit doesn’t mean it changes ownership. Although each child was a beneficiary, the plans were still owned by Mom. Therefore, she had the ability to spend the funds in any way see saw fit.  Amy A. Edwards is a family law attorney in Greenville, NC, certified by the NC State Bar Board of Legal Specialization as a Family Law Specialist, and is licensed only in NC. Laws change. This article is current as of...

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