During the time from the initial separation and the final divorce, what is the law and/or typical process for the change in values of property and debts. Example, we own a house with a mortgage. I pay all the bills currently. The value of the house will likely increase while the debt is reduced. To me, I will receive the proverbial “short end of the stick” if we must re-evaluate debts and assets upon divorce. Does a separation agreement “stop the clock” on any of this or is this just the way it works?
The change in values of marital property becomes divisible property.
Using your example of owning a home with a mortgage (I am assuming the home was purchased during the marriage and is marital property): The value as of the date of separation of the home is marital property subjected to being divided 50/50. The passive increase in the home’s value from the date of separation to the date of distribution (i.e. via a separation agreement or equitable distribution court order) is marital property and subject to being divided 50/50. This would be due to real estate market increases or fluctuations.
The equity in the home that is due to the fact that you have been paying the mortgage each month and therefore decreasing the principal balance owed is your separate property because you have been using separately earned funds to pay down the principal and make the mortgage payments each month.
The final settlement should account for the current value of the home to be divided equally but with a credit to you for the amount of the principal reduction in the mortgage from date of separation to date of distribution.
The same analysis works for marital retirement accounts that continue to be funded during the marriage with separately earned funds.
Anna Ayscue
Attorney with Rosen Law Firm Cary • Chapel Hill • Durham • Raleigh • Wake Forest
Rosen Online | Unlimited confidential access to a North Carolina attorney for $199/mo - click here
The response posted above is based upon the limited factual information made available and is not intended as a full and complete response to the question. The only reliable manner to obtain complete and adequate legal advice is to consult with an attorney, fully explain your situation, and allow the attorney sufficient opportunity to research the applicable law and facts required to render an accurate opinion. The basic information provided above is intended as a public service only, a full discussion with an attorney should be undertaken before taking any action. The information posted on this forum is available for public viewing and is not intended to create an attorney client relationship with any individual. These answers are provided for informational purposes only, a person should consult with their own individual legal counsel before taking any action that could affect their legal rights or obligations.
1 Like
Thank you. Can you provide a simple example showing how to perform the appropriate accounting for the asset division along with the credits?
If the spouse keeping the marital residence is the same spouse that has paid on the mortgage since the date of separation, then no credits are needed to be assessed because that spouse is keeping all of the equity and reimbursing the other spouse for one-half of the date of separation equity value.
If the marital residence is to be sold, then the spouse that stayed in the home and paid the mortgage after the date of separation will get the amount paid down in principal reimbursed at closing. With the net proceeds, one spouse will get reimbursed for the total amount of the principal paid on the mortgage between date of separation and date of closing and then the remaining net proceeds are divided equally.
Anna Ayscue
Attorney with Rosen Law Firm Cary • Chapel Hill • Durham • Raleigh • Wake Forest
Rosen Online | Unlimited confidential access to a North Carolina attorney for $199/mo - click here
The response posted above is based upon the limited factual information made available and is not intended as a full and complete response to the question. The only reliable manner to obtain complete and adequate legal advice is to consult with an attorney, fully explain your situation, and allow the attorney sufficient opportunity to research the applicable law and facts required to render an accurate opinion. The basic information provided above is intended as a public service only, a full discussion with an attorney should be undertaken before taking any action. The information posted on this forum is available for public viewing and is not intended to create an attorney client relationship with any individual. These answers are provided for informational purposes only, a person should consult with their own individual legal counsel before taking any action that could affect their legal rights or obligations.
Ok so for complete clarification, based on your initial point of your last reply, the date of separation is the value to use for equitable distribution purposes and NOT the date of divorce? If so, is this true of both a home and a 401k, where I am the primary payer of the mortgage and the holder of the 401k that I will keep? Not that it matters for this part of the discussion, but there is also an IRA that we plan to give to her in it’s entirety as part of the ED.
Yes, the date of separation value is what is important for equitable distribution. When a separation occurs, the marital estate is “frozen” on that date.
Anna Ayscue
Attorney with Rosen Law Firm Cary • Chapel Hill • Durham • Raleigh • Wake Forest
Rosen Online | Unlimited confidential access to a North Carolina attorney for $199/mo - click here
The response posted above is based upon the limited factual information made available and is not intended as a full and complete response to the question. The only reliable manner to obtain complete and adequate legal advice is to consult with an attorney, fully explain your situation, and allow the attorney sufficient opportunity to research the applicable law and facts required to render an accurate opinion. The basic information provided above is intended as a public service only, a full discussion with an attorney should be undertaken before taking any action. The information posted on this forum is available for public viewing and is not intended to create an attorney client relationship with any individual. These answers are provided for informational purposes only, a person should consult with their own individual legal counsel before taking any action that could affect their legal rights or obligations.