Category: The Court Process

What is the Impact of Marital Debt?

Posted on

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?

Posted on

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

Posted on

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.

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

Posted on

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?

Posted on

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.

Domestic Violence Protective Orders in North Carolina

Posted on

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.

Why Can’t We Use the Same Attorney If We Both Agree?

Posted on

This is a question I often hear during consultations. The potential client may say they agree on everything and don’t want to pay for a second attorney. Depending on the circumstances, there are at least two main reasons a family law attorney usually can’t take a case for both parties.

One reason is that representing both clients is a conflict of interest, or it creates the appearance of one. Another reason is that sifting through the case with an attorney uncovers a number of important issues that weren’t discussed between the parties.

What Is a Conflict of Interest?

A conflict of interest means divided loyalty. An attorney is required to zealously represent a client and act only in the best interest of that client. When that best interest of one party differs from, or conflicts with, the best interest of the other party, an attorney must choose which person to represent. Even taking on responsibilities that limit an attorney’s ability to fully represent the client is a conflict. In most family law cases, one person’s best case scenario is the other person’s worst case scenario. For example, if one spouse is seeking alimony and the other spouse is trying to use legal defenses to avoid payment, there is a conflict of interest. The State Bar has strict rules about an attorney’s ability to represent more than one party so the lawyer’s responsibility is only to one. Even when parties are in agreement about the outcome of the case and want a separation agreement, there are negotiations after the other spouse gets a copy of it to review. Your attorney cannot answer legal questions by the other spouse or give any legal advice to your spouse. Your ex should choose an attorney to advise him or her about the case.

What Else Matters Beyond the Agreement We Have?

Clients tend to think that once they address child custody or support, the house they own, or the payment of certain bills, they are finished with the unpleasant task of legally wrapping up a separation. A client may be disappointed to discover there are numerous topics he or she did not discuss with their ex. Many clients don’t stop to consider the tax implications of their settlement, whether the money they exchange will be taxed as income or as a tax deduction, and whether the division of retirement assets will be subject to taxes and IRS penalties instead of simply being treated as a tax-free exchange of marital property. A court order is usually required to divide retirement assets the proper way, to avoid detrimental tax consequences. Even if the parties agree concerning alimony, it must be addressed properly to get tax benefits (or to avoid tax burdens).

Lots of Details

Clients look at the big picture of custody and visitation agreements. The devil is in the details. When they say they have already agreed to a custody schedule that gives each parent ½ of the Christmas, what does that mean? Do they mean December 24th and 25th every other year or did they assume the holiday was determined based on the school calendar, from the first day off until the day school starts? Does either parent intend to go out of town for Christmas and need to add specifics concerning the travel arrangements over state lines? Other typical problem issues include an “agreed upon” amount of child support. Parents might have an agreement that one pays for daycare while the other pays for health insurance. That tends to be unrelated to the way the state determines child support. Is there an argument that a bonus or commission should be included as income? What about extra-curricular expenses, sports and the payment of medical expenses not paid by insurance? Will there be out-of-state travel expenses by one parent? Should child support be calculated based on a shared visitation schedule or the more typical visitation schedule? And yes, you pay your attorney to be a pessimist, which usually means making sure things are handled properly at the beginning of your case after your attorney gives you legal advice. The decisions will be yours to make, but don’t assume you’ve reached an agreement until you know all the questions have been asked.

My Ex Is Using the Attorney That I’m Paying For?!

Posted on

The Attorney Client Relationship

Clients can be resentful that their attorney is wasting time dealing with the pro se person. In most family law cases, each person has an attorney. When the other person is pro se, Latin for representing himself or herself, lawyers aren’t working for the pro se person and charging you for it as clients sometimes think. That is prohibited. An attorney may represent only one person in a family law case, such as a divorce or child custody case. Failure to do that is usually a conflict of interest. That means what is good for one person might be a bad thing for the other person. For example, if one spouse gets alimony that’s a good thing for him or her, but it is might be a bad thing for the other spouse. The lawyer has to choose one person or the other as a client.

What’s Different?

If your ex had an attorney, your attorney would have to talk with the other about settlement, discovery (documents, etc.), trial matters, and logistics of court events such as depositions. In other words, your attorney would still be taking time to talk with the other attorney. It doesn’t always take more time than it would to negotiate with an attorney. In fact, some people without attorneys are anxious to get down to business instead of posturing the way other attorneys will because they want to avoid court.

The Law and Equality

The law requires everyone to be treated in the same way, regardless of whether they have an attorney or not. The same deadlines, rules, laws and other requirements apply to both sides. In the eyes of the law, people shouldn’t be penalized if they cannot afford an attorney. But the judge is still bound by the law. Judges have to walk a fine line in these cases. Attorneys also have to be very careful when communicating with a pro se person. We certainly can’t give them legal advice but sometimes we do explain the reasons why the offer we are making on behalf of our client is a good one. Depending on the circumstances, the attorney will tell the pro se person that he or should talk with an attorney.

Same Rules as Everyone Else But . . .

Attorneys have specific things they need to prove in court, based on what the law requires in each situation. But in court, judges sometimes give pro se people a little leeway when they testify and present their side of the case because if they were held to a strict standard they probably wouldn’t be able to say much at all. More often than not, the pro se person usually just wants the judge to hear what they want and why they want it. In a democracy, it is important for all citizens to have the right to their day in court. It’s especially important for parents who are in child custody cases to be heard because the judge must award child custody to one or both parents based on what the judge believes is in the child’s best interest, regardless of whether the parent is represented by an attorney.

Businesses in NC Marital Property Division Cases

Posted on

In equitable distribution cases when the court divides marital property, a business ownership interest is an asset to be identified, classified, valued and distributed to (usually) one of them. Like any asset, it might be marital property or separate property and it may be distributed to either spouse if it is marital. The scope of this topic is very broad and cannot be fully addressed here. This article is a brief overview of the things experts, such as CPAs, might consider when performing a business valuation.

Business Entity: What is the Structure?

The way a business is organized impacts the value of it and the manner in which the business is taxed. Sole proprietorships are businesses owned and operated by an individual, created without filing any formal paperwork. Other businesses are created formally by paperwork filed with the NC Secretary of State.  Limited liability companies (designated with “LLC”) are more suited to ownership by an individual or a few people, and they usually require less paperwork. Corporations (designated with “Inc.”) are formal, and require special paperwork to be annually maintained, corporate officers to be elected and formal bylaws to be followed.

Why the Business Structure Matters

There is value added or subtracted from the value of a business based on many factors, including whether the business is publicly traded or owned by a few people as a closely held corporation (CHC).  CHCs owners are often family members who sign buy-sell agreements that require the co-owners to give each other the first right of refusal if one chooses to sell his or her share of ownership. The ability of an owner to sell his or her ownership interest is key because market value is based on what a willing buyer would pay a willing seller. In CHCs for example, willing buyers might require that only a few people, such as family members or business partners, get the first right of refusal in the event a spouse wants to sell. This can reduce the value of the business. If the business owner is a licensed professional, such as a doctor or lawyer, who works alone as a solo practitioner, the value is limited because the value of the practice depends on that one person whose license isn’t transferable. While a business or practice has a value, the actual professional license or business license that terminates on transfer is separate property. Businesses and any co-owners must be named as a party to the lawsuit for the court to have authority to order them to do things.

Factors That Impact Value

Name recognition of the business is known as “good will.”  For example, a local car dealership that has existed for 40 years has more name recognition, and may be more valuable than, a brand-new dealership. Consumers tend to more highly trust an established business. Tangible assets contribute to the value as well. Company assets might include equipment and office supplies, vehicles, bank and investment accounts, certain contractual rights, promissory notes and outstanding accounts payable to the company, inventory, and even real estate. Retained earnings are funds that remain in the business accounts, instead of being distributed or paid to the owner(s). This is critical when determining income for purposes of support to the other spouse, especially if it is unclear whether these funds are counted twice, once as business value and again as income. Company debts and expenses can include mortgages, lines or credit and business loans, insurance, state and federal taxes for the business and employees, payroll, retirement contributions for employees, health insurance, etc.  Business value is also impacted by potential liability in the event the business is faced with litigation (personal injury, unemployment claims, malpractice, bankruptcy, etc.) or the likelihood of anticipated litigation.

 

Medical Records in Family Law Cases

Posted on

In family law cases, a party may seek medical records for several reasons, perhaps to show whether someone is able to work in child support and alimony cases. Another common reason for requesting them is during child custody case to show whether a parent is physically able to care for a child, or whether a parent is mentally stable.

What Are Medical Records?

Medical records (MRs) are described differently in federal and state laws. The critical starting point is determining what MRs are actually being requested, and for what time period. Examples of MRs include pharmacy records, hospital records, therapy records, and patient files at the doctor’s office. MRs can include other sensitive information about STDs, substance abuse, pregnancy and abortion, and mental health history showing a person was suicidal or involuntarily committed to a mental hospital.

Seeking the Records

MRs are confidential. As such, a patient must generally give consent before MRs are provided to anyone. Attorneys typically request MRs in the civil discovery process, usually by requests for documentation to be produced. An attorney may also issue a subpoena to be served on the other party or to a third party, such as the doctor or the pharmacy.

The Law

MRs are privileged, meaning they are generally protected from being disclosed unless the patient consents or there is a court order requiring disclosure. The patient, doctor or other medical provider may file a motion objecting to the release of the MRs. The party seeking access to MRs then has the burden of proof to show they are “necessary to a proper administration of justice.” NC Gen. Stat. §8-53 et seq. There are federal laws such as HIPAA that hold the medical provider to certain standards, as well as state laws. There are special laws that protect mental health and substance abuse records.

What Can the Judge Do?

In Pitt County, the MRs are usually sealed and held by the clerk of court (or the judge) until the trial. Only if the judge finds the MRs are relevant to the issues in the trial, he or she then moves to the next step of deciding what to do with the MRs.  A judge might review the records in camera, which means privately in his or her office. The attorneys do not have access to the records unless the judges makes a ruling on whether some or all of the MRs are admitted as evidence.

After reading the MRs, the judge can deny or grant the motion to admit them as evidence. Or, the judge might limit the scope of the MRs. For example, the only records given to the attorneys might be for the last six months instead of the three years of records the attorney subpoenaed. For any MRs given to the attorneys, the judge has the authority to require the attorneys shred the records after the case is finished. Judges sometimes order the MRs to remain exclusively with the attorneys, not to be reviewed or copied by the clients. Even if the judge doesn’t require the attorneys to do anything specific with the records, attorneys are still bound by State Bar ethics rules to maintain confidentiality of records.