The Third and a Half Wheel: Divisible Property (Daly v. Daly)

The two big classifications of property in all equitable distribution cases are “marital” and “separate” property.  These are the ones the get all the attention and are subject to some of the most intense scrutiny and debate; however, there is a third area of property that is equally as important and can at times, prove to be a valuable player equitable distribution cases. Yes, I am talking about “divisible property!” Divisible property is defined as all diminution and appreciation of divisible property and marital property of the parties occurring after the date of separation but before the date of distribution, except that diminution or appreciation in value which results from post-separation activities of a spouse shall not be treated as divisible property. N.C. Gen. Stat. §50-20(b)(4)(a).  Passive increases in value (due to market fluctuations or not a result of individuals’ efforts) are to be considered divisible property subject to equitable distribution until the residence’s distribution by interim order or final judgment, once property is distributed, any passive increases (or decreases) in value occur outside the marital estate. N.C. Gen. Stat. §50-20(i1).

North Carolina case Daly v. Daly (N.C. App., 2017) helps illustrate some complexities involving the valuation of assets when an interim distribution order is entered and valuation of property is not complete.  Under N.C. Gen. Stat. §50-20(i1), “the court may, at any time after an action for equitable distribution has been filed and prior to the final judgment of equitable distribution, enter orders…providing for a distribution of marital property, marital debt, divisible property, or divisible debt.” These orders are called interim distribution orders and once an interim distribution order is entered, any property contained within the order is no longer considered part of the marital estate to be evaluated at the time of a final judgment as it has already been equitably distributed in the eyes of the court. When such an order is entered, the date for determining the value of the divisible property is the date in which the order is entered. In determining the value of the divisible property, the court will look at what the value of the property was at the date of separation, consider evidence that supports either a passive increase or decrease in value to the property, and then distribute that value to the parties equitably.

In Daly, the Plaintiff appeals on several contentions. Specifically, Plaintiff contends the court improperly valued the property by failing to consider lack of market activity surrounding the sale of the residence, valuing the divisible property in the residence at the time of its interim distribution and not at the time of the final order, and treating Plaintiff’s post-separation payments on the former residence as a distributional factor rather than as a credit, amongst other contentions.  In short, the Court of Appeals concluded that lack of market activity and listing prices of homes have no legal significance in determining the market value of the property. Courts have concluded that the sale price of a home is persuasive evidence in determining the market value; however; Plaintiff here had failed to sell the home or receive any offers whatsoever.

Furthermore, the Plaintiff’s contention that the court improperly relied on the value of the divisible property at the time of the interim order as opposed to the final judgment is improper. North Carolina courts have consistently held that marital residences distributed in an interim distribution order become the sole property of the receiving party, and any payments thereon are for the benefit of that individual, not the marital estate. Johnson v. Johnson, 750 S.E.2d 25, 33 (2013). Essentially, Plaintiff is off-base in his reasoning as he has been awarded all the benefits and privileges afforded to owning the residence outright and improperly distinguishes any post-interim distribution payments as factors to be considered in valuing the marital estate moving forward.  The residence was given to him, it then becomes his sole separate property, with the residence being distributed to him and the divisible interest being equitably distributed to each party.

Interim Distribution Orders are a great tool to be utilized by parties navigating complex equitable distribution claims as they can help resolve cases piece by piece. This approach allows parties to focus on specific items of property and not get caught up in trying to divide everything all at once which can be overwhelming and result in inaccurate generalizations of value.  It is important for attorneys in the practice of family law to fully understand the intricacies of equitable distribution claims as the truth is in the details.