Author: Amy Edwards

What is the Impact of Marital Debt?

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By Amy A. Edwards

I recently had a client ask what it means, exactly, to have marital debt. That’s a fair question. In North Carolina, the legal process of dividing marital assets and marital debts is called equitable distribution. Spouses or former spouses have a marital estate, and each usually gets half of the marital estate.  Think of the marital estate like a pie. Marital assets and marital debts make up the pie, which is sliced and cut in half.

With several exceptions, marital assets are assets acquired by either spouse during the time the parties are married and living together. Marital assets are the starting point of the marital estate pie but if there are no marital assets, then only the marital debt is divided between the parties. Separate property includes things like inherited property or property acquired before marriage. It is not added to the pie, so it isn’t be sliced up and divided between the parties. After the marital assets are divided, the debts are taken into account and either divided or not divided, depending on whether the debts are marital.

To be a marital debt, the debt must be generated during the marriage, and exist at the date of separation. The debt must be for the “joint benefit” of the marriage in order to be marital. Usually, a joint benefit is something that benefits both parties, even if the benefit is indirect, such as using a credit card for groceries, gas in the car, something for the children, etc.  If a debt is a separate debt, it does not have any impact on the pie that is the marital estate. The person with separate debt is stuck with responsibility for paying it. On the other hand, marital debt is “credited” to the share of the marital estate that the person paying the debt will receive. The marital estate is thereby adjusted to account for the payment of marital debts.

Example A (no marital debts)
Marital Assets: $100,000 (house equity, cars, etc.) ÷ 2 = $50,000 each
Husband gets $50,000
Wife gets $50,000

Example B ($10,000 in marital debt)
Marital Assets: $100,000 (house equity, cars, etc.) ÷ 2 = $50,000 each
Husband gets $50,000
Wife gets $50,000

But Wife pays $10,000 in marital debt, so she really only got $40,000.  Husband would owe Wife $5,000 in assets or money so that each spouse gets $45,000 (50% of the adjusted marital estate).  But if Wife paid $10,000 in separate debt (i.e., non-marital debt), she would not get any credit for paying it and each spouse would still get $50,000 in value for his or her share of the marital estate.

 

 

Should You Settle or Let the Judge Decide?

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There are a number of ways to address child custody and support, alimony, and/or equitable distribution (division of marital property). Each case is different but there are similarities. Reaching an out of court settlement has the benefit of flexibility, allowing you to choose an arrangement you can live with instead of risking what a judge may decide. Compromise is a result of giving up some things to be sure you get certain other things. Privacy is also a benefit, keeping your personal matters out of the courtroom. Settlement by negotiation, mediation or collaborative family law is frequently quicker and less expenses.

However, settlement may not be in your best interest. An emergency may require immediate attention and a court order. No matter how badly one person may want to settle, the other may be completely unreasonable. Other times, the court’s ruling prevents a party from being taken advantage of where there is a significant power imbalance and/or domestic violence. On the other hand, going to court usually take a long time, and involves “busy work” that can be costly. The stress and emotional toll of court cannot be overlooked, not only on the parties but on the whole family in some cases. Your attorney is the best person to guide you through the maze, based on your goals and expectations.

Your Nest Egg: Retirement Plans and Divorce

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A retirement plan may be the most valuable asset any couple owns.  Pensions are essentially promises to pay the employee when the time arrives, based on the years of employment and other factors. A defined contribution plan, like an IRA or 401(k), is an actual account containing various investments.  These accounts are intended to be used for income upon retirement, and there are severe tax penalties if you use or withdraw funds if you are under the age of 59 and ½, on top of the funds being considered income.

When a couple separates, they may choose to enter into a contract called a separation agreement, which resolves all of the marital property issues.  On the other hand, you or your spouse may file a lawsuit called equitable distribution and ask the court to make the decisions about who keeps what.  Yet another way to finalize the property is through mediation of some other type of alternative dispute resolution.

An account must be classified, meaning it will be considered marital, separate or mixed (part separate and part marital) property.  Next a value must be agreed upon or ruled upon by the court.  CPAs or other financial professionals will give expert opinions when disputed.  The court will also rule on the plan value for funds earned before the marriage, if any, and the vale based on any funds contributed after the separation.  Matters become more complicated if there are required minimum distributions (RMDs) based on age after the separation, withdrawals after separation (thereby reducing the overall value), roll-overs or companies managing the plan change several times over the years.

When a retirement benefit must be divided, there is typically a court order directing the plan administrator to send two checks each month when the benefits are paid, one to you and one to your former spouse.  This order is called a QDRO (qualified domestic relations order), or sometimes just a DRO, depending on whether the account is subject to a federal law called ERISA.  For military accounts, a MPDO (military pension division order) is the type of court order that accomplishes a division of benefits.  Done properly by your attorney, there is no taxable event when a retirement is divided.  It stays there until the effective date for payment, and you and your spouse will each claim only the amount paid to you for tax purposes.   Another consideration to take into account is how death benefits are assigned, and who any beneficiaries will be.   If there are any outstanding loans against the account, the court or the parties must determine how that debt will be treated.

Show and Tell: Do You Really Have to Disclose Everything to Your Attorney?

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We understand. Nobody wants to sit down with a total stranger and admit all the things that are quite personal to you, especially when you are facing a family crisis.  But remember your conversation with your attorney is privileged. That means you can’t be forced to testify about what you said or the advice your attorney gave you. For better or worse, North Carolina still uses marital fault in certain cases. This may include adultery, substance abuse, domestic violence or other things that might happen when you “hit rock bottom.” There are also secrets that could jeopardize your case, not to mention your credibility as a witness if you end up in court.

We need to know everything for several reasons. One is that we can try to mitigate the damage (i.e., reduce he bad consequences) by advising you how to begin correcting the problem or at least building a better track record. Another reason is that the other parent or your ex will already know way more about the unflattering information than you may think.  This means your ex will tell his or her attorney. If that happens, everyone knows about the compromising position you may find yourself in except the only person who is able to help you maneuver it, your attorney. When the other attorney walks up to you in court and asks you to explain that certain photo, text or other evidence, be ready.

Is Your Life an Open Book? Protective Orders in Civil Discovery

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In family law cases, such as alimony, the division of marital property or child custody and support, your life will often become an open book. Courts discourage trial by ambush. Instead, the courts require people to share significant personal information with each other, the attorneys and the judge. The other party typically has access to your credit card statements, bank records, deeds, mortgage and debt records, pay statements and documentation of rents or any other income you have, retirement and investment records, and tax returns in most cases. This applies both to marital property and separate property.

However, there are times when the court can limit access based on court rules concerning what each person is entitled to get. Civil discovery is a process that allows each of the parties in a lawsuit to ask written questions called Interrogatories to the other party, who must then answer the questions in writing under oath. Civil discovery also includes something called a “Request for Production of Documents and Things.” The law requires the parties to exchange documents requested by the attorneys. A request for “things” might be a request to access a mobile device with videos stored on it. The responses to such a request are also made under oath, including any explanation as to why the item or document is not available or clarification that a request is not applicable.

What Does a Discovery Protective Order Do?

When the judge rules on a motion for a protective order, he or she reviews the discovery requests to decide whether they are necessary or reasonable. If a motion for a protective order is granted by the judge, it “protects” you from having to produce documents/things or answer certain questions. Otherwise, refusal to respond to discovery requests as required without a court order excusing you means that you risk paying the other party’s attorney’s fees, among other penalties. The judge can decide to narrow the scope of what the other person is seeking. Instead of providing five years of bank statements, the judge might decide only three years of records must be produced.

When Discovery Protective Orders Are Used?

A judge might enter a protective order when discovery requests include confidential records like medical records or computer passwords. If parties are arguing about the income and profitability of a business for determining support, or the value of the business as a marital asset for purposes of a marital property case, a protective order might be appropriate to protect other co-owners of a business or the business itself. It can prevent confidential information and trade secrets of the business from being shared with anyone except the other party in the lawsuit, the attorneys and any other appropriate individuals. Sometimes the information requested in discovery is difficult or costly to gather. A protective order can address who pays the cost and even the manner in which the information will be obtained, especially when seeking electronically stored information.

Laws change. This article is current as of 2023.

What is a Divorce From Bed and Board?

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In North Carolina, there are two types of divorces, an absolute divorce and a divorce from bed and board. (DBB).  An “absolute divorce” is a typical divorce that dissolves a marriage and allows a person to remarry. In our state, after a one year separation, either spouse may seek an absolute divorce. In contrast, the court must find there is marital fault before granting a DBB, which requires the spouse at fault to move out of the marital residence. The court enters an official DBB decree, stating that only the husband or the wife shall have the right to live in the marital home.  In that event, the other spouse must leave the home. Why do all of this to separate? Because people are correctly reluctant to move out of the family home for fear of committing abandonment. If a judge rules there is marital fault, it can easily cause a great deal of harm to a spouse during divorce litigation. This DBB process of a judge declaring a person to be legally separated is a rare event indeed, but it is still alive and well in our state.

Laws change. This article is current as of 2023.

Consequences of, and Incidents of, Marriage

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There are numerous legal rights and obligations when someone marries, some of which can be changed by a premarital agreement (or a separation agreement). Below is a brief (believe it or not) list of the rights and responsibilities, known as the incidents of marriage, that are different for unmarried partners:

Adoption (both spouses must join the petition to adopt)

Alimony and spousal support

Bankruptcy rights

Criminal law (duty to support, etc.)

Equitable distribution of marital assets and debts

“Family” rates (auto insurance, gym memberships, health insurance, etc.)

Health insurance rights

Immigration rights

Inheritance rights

Judgments for money owed

Marital privilege (testifying in court)

Military benefits and rights

Name changes

Next of kin designation (hospital, prison, etc.)

Paternity and birth certificates of children

Pension and other retirement benefits

Social security benefits

Survivorship rights

Taxes (filing status, deductions, exclusions, innocent spouse, etc.)

Torts, which are lawsuits for civil wrongs (alienation of affection, criminal conversation, loss of consortium, etc.)

Vital Records (right to personal records such as death certificates, birth certificates, etc.)

Welfare and public benefits

Wiretap Act exceptions allowing recording in some states

Zoning (number of unmarried or unrelated people in the residence)

Child Abuse by the “Good” Parent

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But I Didn’t Do Anything!

There is a common but sometimes overlooked problem when children are abused.  Adults who are not directly responsible for injuries to their baby or child, but allow someone else to injure them, are permitting the abuse which has the same effect on the child. The law demands someone protect the child if the other parent won’t.  But if no one notifies Child Protective Services, the child might not get the protection he or she deserves. A scenario I’ve seen more than a few times in my practice is the parent who is faced with an abusive co-parent who suffers from substance abuse. The sober parent sees himself or herself as the “good parent” who guards or protects the child from the “bad” parent.  Sadly, that is not the case at all.   

But I’m the Good Parent Who is Always There

First, you cannot always be there to “supervise” the other parent or adult.  There are inevitably times you must leave the home or leave the other adult with your child.  Constant protection and surveillance is unrealistic, especially when there is turbulence between the co-parents or other adults who are in the home or spend time around your child. In fact, when a romantic relationship between parents ends and they separate, the other parent might threaten to take the child as a way to get back at you, even when the child does not have a close relationship with him or her.  The other parent might do so while driving drunk or under the influence of controlled substances.  What if he or she is angry and starts throwing things at your child or at you while the child is watching?  Or passed out and doesn’t hear the baby crying or the fire alarm?  Or crying while waiving a weapon and making threats to hurt you and/or commit suicide?

Second, a parent who is intoxicated or impaired can be moody and easily agitated, which can lead to physical assaults.  Time after time I see domestic violence cases filed after a baby is violently snatched from the arms of the “good” parent and used as a pawn to control her or him or to prevent the other parent from fleeing the home. As the child hears all sorts of chaos, screaming and cursing, the parent (and child) may be shoved, pushed, kicked or held against his or her will.  Think about it: to your baby or child, it is meaningless whether or not you were the “good” parent or the bad parent that day.

Stop the Cycle

Parents forget the child sees the behavior modeled by both of them. Aside from teaching children to either become abusive, or tolerate an abusive partner when they grow up, allowing this type of environment is dangerous.  It is not uncommon for children and teens to jump into the line of fire when they try to help the parent or sibling who is being abused in front of them.  Children and teens are not equipped to handle this sort of trauma. Although there are some technical legal distinctions, child abuse is a form of domestic violence. Your kids are dependent on you for protection. It can be hard to break up with the other parent because you feel you are giving up security or the marriage but it is not a secure situation if you do nothing. In fact, the longer a victim stays with the abuser, the more chance the danger will grow. Victims of violence think they will miss the marriage or relationship with the other parent.  However, it is sometimes the case that they miss the relationship they wish they had, not the relationship they are somehow managing to endure every day.

The Bottom Line

Parents are sometimes reluctant to call 911 when there is violence in the home.  They should always call 911 when any violence occurs. Allowing the other parent or another adult to abuse or neglect your child just because they live with you is not okay. Additionally, it creates potential legal liability to you. Failing to remove your child from an abusive environment means Child Protective Services might do it for you because you knew about it and allowed it to happen.  Or, it might mean you try to help your child after it is too late and the damage cannot be undone. There are many complex issues surrounding violent family relationships. If you are facing family violence, consult with a family law attorney immediately about how to safely remove yourself and your child from an abusive environment.

 

Resources in North Carolina (Victim Information Sheet) Or search online for form AOC-CV-323

Personalized Domestic Violence Safety Plan (checklist of things to do when facing violence in a relationship) from NC Dept. of Social Services. Or search online for form DSS-5233

Real Crisis Intervention in Greenville offers counseling, advocacy, information and referrals.

Center for Family Violence Prevention in Pitt County

Laws change. This article is current as of 2023.

Domestic Violence Protective Orders in North Carolina

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People with certain personal relationships may seek domestic violence protective orders (DVPOs). These include household members, parents of a child in common, spouses and former spouses, and others. DVPOs give law enforcement the ability to arrest a defendant if they have probable cause to believe he or she violated the order. Intentionally making a false statement to law enforcement that there is a DVPO when there isn’t one is a crime.

What Counts as Domestic Violence?

North Carolina law specifies three types of domestic violence which are summarized here. One is intentionally causing (or attempting to cause) bodily injury. Another is committing rape and/or sexual assault. The third type of domestic violence is placing a person in fear of imminent serious bodily injury, or continued harassment. As used here, harassment means it reaches a level so bad that it inflicts substantial emotional distress. This definition applies not only the victim, but also the victim’s family or household in some circumstances. Criminal statutes detail the harassment as conduct that is “directed at a specific person that torments, terrorizes, or terrifies that person and that serves no legitimate purpose.” NC Gen. Stat. §14-277.3A.

What is a DVPO?

A domestic violence protective order is awarded by a judge to protect a victim by prohibiting the defendant from assaulting, threatening, abusing, following, harassing (by telephone, visiting the home or workplace, or other means), or interfering with the victim and/or children who live with the victim. DVPOs can also order a defendant to stay away from the victim’s residence, school, place of employment and anywhere else that would be applicable. These are civil cases, not criminal in nature although the violation of a DVPO is a crime. As a separate matter, a defendant might also face criminal charges for assault on a female, battery, interference with a 911 call, child abuse or other charges.

Are There Other Remedies?

DVPOs can also require the defendant to attend and complete an abuser treatment program or prohibit him or her from purchasing a firearm for a period of time. The court has the authority to award temporary possession of personal property, including a family pet. An emergency DVPO might be awarded before the defendant has the opportunity to appear in court.

If a child is exposed to a substantial risk of physical or emotional injury, or sexual abuse, the court might award emergency temporary child custody. The court may require the defendant stay away from the child, to return the child to the other parent, or prohibit him or her from removing a child from someone’s care. The office of the NC Attorney General offers an Address Confidentiality Program, which is a mail forwarding program that adds another layer to the protections of domestic violence victims.

Help and Resources:

Resources in North Carolina (Victim Information Sheet) Or search online for form AOC-CV-323

Personalized Domestic Violence Safety Plan (checklist of things to do when facing violence in a relationship) from NC Dept. of Social Services. Or search online for form DSS-5233

Real Crisis Intervention in Greenville offers counseling, advocacy, information and referrals.

Laws change. This article is current as of 2023.

Putting Humpty Dumpty Together Again: Breach of Contract

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When they separate after being in a relationship, people who are or were married usually resolve their disputes one of two ways, by obtaining a court order or by a contract usually but not always called a separation agreement.

Breach of Contract

Failure to do what was promised in a contract is a violation of it, called a breach of contract. This article assumes a valid contract has actually been made, and it doesn’t look at what defenses someone might have if he or she is sued for breach of contract. If you enter into a contract, you are legally obligated to perform accordingly. Contracts are usually enforced by money damages. Like Humpty Dumpty, the court tries to make the innocent party “whole” again, restored to the position they were in before the other person breached the contract. The law gives the person a legal remedy, they are then finished with the matter, and both are off to live happily ever after.

No Adequate Remedy at Law

Now consider the person in a family law situation. If you are entitled to child support but your ex won’t pay, a legal remedy to enforce the contract would mean that each month after no payment is made, you would sue your ex, have a trial to get a judge to make a ruling, and execute on a judgment for money owed. Needless to say, this legal remedy would be repetitive, expensive and time-consuming. The entire point of child support is to make sure the child is given shelter, food, transportation, etc. Going to court every month would give a completely opposite result. This means the law is substituted with what is called equity.

Remedy at Equity

When the legal remedy isn’t enough to make you whole again, the law is supplemented by equity. Family law is one of the few times when the court has the ability to rely on equity, which is based on justice and what is right and wrong, instead of relying just on a written statute. The distinction between the law and equity is also noticeable when you see it used as an attorney at law. Property claims for marital property are courts at equity because the judge must divide marital property equally “unless the court determines that an equal division is not equitable.” NC Gen. Stat. §50-20. In fact, the division of marital property is called equitable distribution. In several matters related to family law, a judge’s discretion is used, based on what is just and fair.

Family Law: Specific Performance

If the court doesn’t use financial damages to remedy the problem, what does it use? The answer is specific performance, enforcing a contractual obligation to act or perform in a specific way. Besides continuing and repetitive money paid every month, a family law contract may involve obligations such as signing a deed, returning family photos to the other spouse by a certain deadline, filing joint tax returns or naming someone as a beneficiary of life insurance. Money doesn’t fix those types of problems. These are examples of a promise to act or perform in a certain way.

In these instances, a judge will enter a decree of specific performance, ordering the other party to perform in the specific way he or she agreed to do. In the non-family law world, an actor who breaks a contract to star in a movie, for example, is not forced to go to the set and perform. Instead, the actor must suffer the penalty of paying money damages. But in the world of domestic law, a judge will order specific performance. Before a person is court-ordered to perform, the judge must be persuaded that you have performed as you agreed to do in the contract, and that the other party has the ability to perform as promised. If he or she only has the ability to partially perform as promised, that is what the judge will require.