What is Marital Property? What is Separate Property? Common Misconceptions
There seems to be a lot of confusion over what is classified as marital property and what is classified as separate property in North Carolina. This confusion is understandable because it can be complicated, and many factors play into the martial vs. separate property classification.
How property is classified is important during equitable distribution or property division because any separate property is yours to keep, but any marital property will be divided equitably among the spouses.
Here are the most common misconceptions I come across:
The Name on the Title/Deed/Account Controls Who Gets to Keep That Property
I think this is one of the most mistaken and damaging beliefs of someone going through a divorce. The name on that piece of paper plays a very small role, if any on classification. Instead, the determining factor on what is martial property and what is separate property is if it was purchased during the marriage. Did your husband buy his new truck when the two of you were married? Was the house purchased during the marriage? Then that’s marital property.
One exception to this rule is if separate property was used to purchase the item or the property was a gift or inheritance.
If the House Was Bought Before the Marriage, The Person Who Bought the House Owns It Completely
This isn’t necessarily true. The house will still be categorized as separate property but most likely, the non-owner spouse will have what’s called a marital interest in the property. If any mortgage payments or improvements were made to the house during the marriage, and marital funds, i.e. either spouse’s income, was used to make those payments or pay for those improvements then the non-owner spouse still has a financial interest in the property. Also, any appreciation in value during the marriage, if a marital interest is created, will be categorized as marital property. So if when you got married your house was worth $100,000, and you used your marital income to help pay for that house, and on the date of separation the house is worth $200,000. That $100,000 appreciation will be categorized as marital property.
Additionally, in North Carolina if you are married you cannot sell a house, even if it’s separate property without your spouse’s written consent. The rare exceptions when separate real estate property stays separate property is when the house has been completely paid off before the marriage or the mortgage payment was made with only separate property (money from before the marriage or an inheritance).
If I Bought the House/Car Before the Marriage and Only Used My Wages to Pay for It, It’s Still Separate Property
Income during the marriage is not separate property. Any wages or income from a business during the marriage, no matter who earns it, is classified as marital property. Therefore, using only one spouse’s income to pay off a mortgage does not keep that piece of property separate.
My Income is Mine, His/Her Income is His/Hers, If I Paid for It, Then It Should Be Mine
This is not true. In North Carolina, any income earned during the marriage is marital property. Any debts incurred during the marriage are marital property (a big exception here is student loans). Therefore, even if you were the one paying the mortgage payment, car payment or insurance payment it doesn’t matter legally. Unless you were using separate property, so property or money from before the marriage (or an inheritance or gift) to pay for something it is still going to be marital. Just because you paid for that car with only your income does not make the car separate property. All of your wages or business income earned during the marriage is marital property, so it doesn’t matter who pays for what. Many people will have their check go to their separate account and then pay for things from that separate account. It does not matter where or which account you deposit that check into. The income is still going to be marital so anything you pay for with that money is going to be marital, not separate.
These are not hard and fast rules and there can always be exceptions, but this outline does cover most of the common misconceptions I see in my practice. Please let me know if you have any further question. You can schedule a low-cost consultation to discuss your case by calling 980-225-1832 or emailing Info@DuncanLarsonLaw.com