Often when people marry one of the spouses has an ownership interest in a home that was purchased prior to the date of the marriage. When a divorce occurs, the court must determine whether the interest in the home is marital property subject to distribution with the personal property, retirement and other marital property or whether it is it the separate property of the owner-spouse and not subject to distribution.

Classification: Marital/ Separate Property

Under North Carolina law, when parties get divorced the court must first classify property as marital or separate property. Marital property is valued and distributed between the parties. Marital property is defined as all property acquired during the marriage and prior to the date of separation, except property that is classified as separate property. Separate property is defined as all property acquired by a spouse before marriage or acquired by a spouse by bequest, devise, descent, or gift during the course of the marriage. Separate property remains the separate property of the spouse who received the property.

Special Rule Regarding Real Estate

Under North Carolina law, real property acquired prior to the marriage or with separate funds which would ordinarily be the separate property of the spouse/ owner is presumed to be a gift to the marriage if the spouse titles the property as tenancy by the entireties. The presumption can be overcome, but it is the burden of the spouse claiming it was not a gift to show that he or she did not intend for it to be a gift to the marriage. The burden is very high to show that a gift was not his or her intent. Testimony alone is not enough. Additional evidence is required to overcome the presumption that a gift to the marriage was not intended when the owner spouse titled the property as tenancy by the entireties

Hidden Refinance Danger for Spouses

Very often when the owner/ spouse refinances the house, the mortgage company suggests or may insist that title be put in both spouses’ names. One of the reasons given is that the house can pass to the other spouse automatically in the event of the death of one of the spouses. However, the act of titling the house as tenancy by the entireties triggers the legal presumption that the owner spouse intended to gift his or her interest in the house to the marriage.

Active Efforts Create Marital Property

When there is an increase in value of the separate property and that increase is due to the efforts of the owner spouse (“active efforts”), then the increase in value should be classified as marital property and subject to distribution to the parties. With respect to real property, active efforts include payment on the mortgage with income earned during the marriage or increasing the value of the home through additional improvements paid for with income earned during the marriage or with sweat equity.

Analyzing the conditions surrounding the titling of property and the intent of the parties as well as analyzing efforts that are active such that they contribute to an increase in value of the property versus an increase in value from merely passive forces such as the economy are highly technical areas under the law. When parties are getting divorced, there are a number of strategic issues involved in analyzing the transferring intent and the “active/ passive” factors relative to the owner spouse. One of the most important things a spouse must do when faced with divorce is to retain counsel with experience in real property issues in marital dissolution cases to provide essential advice on protecting the rights and assets of the real property owner.

Contributor: Cathy C. Hunt: Cathy C. Hunt, Raleigh Family Law Attorney is a leading North Carolina Divorce Lawyer and is experienced in business valuation in cases of separation and divorce. She is a partner with the North Carolina Family Law Firm of Gailor, Wallis & Hunt, PLLC. For more information contact: North Carolina Family Law Firm, Gailor, Wallis & Hunt, PLLC, 1101 Haynes Street, Suite 201,Raleigh, NC 27604,Tel: 919-832-8488, www.gailorwallishunt.com.

Disclaimer: The information contained in this article is intended as a general guide and is not to be used as legal advice by Gailor, Wallis & Hunt, PLLC. Whether or not you may be entitled to take action in regard to the information addressed in this article can only be determined after a thorough review of the facts and circumstances of your case by a qualified family law attorney

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