Assets Acquired Before Your Marriage

In equitable distribution proceedings, the general rule is that marital property can be divided and distributed between both spouses but separate property cannot. However, the actual legal process of dividing assets and debts is much more complicated in practice.

North Carolina law defines separate property as “all real and personal property acquired by a spouse before marriage… or by devise, descent, or gift during the course of the marriage.”¹ This may sound pretty straightforward, but the statute goes on to include numerous other criteria that must be considered when classifying property as separate, including:

• Whether the gifted property was from one spouse to the other and if intent was clearly stated
• If separate property was exchanged for other property
• The status of professional and business licenses upon transfer

A separate asset is no longer separate after it’s been commingled or transmuted. If your separate property and your spouse’s separate property get mixed together (commingled) or transformed into marital property (transmutation) in another way, then it can be subject to distribution.

Even business income can be considered marital property if not handled correctly during the marriage. In the case of Clark v. Dyer², Husband owned and operated a business for decades prior to marrying Wife. The trial court determined that because Husband deposited, transferred, and withdrew business and marital funds to the point that separate contributions could not be traced, his bank account balances on the date of separation were considered marital property. The Court of Appeals agreed with the trial court’s ruling on this issue.

In this case, it did not matter that Husband owned his business and held his bank accounts prior to marriage. His behavior and treatment of those assets made them irreversibly commingled. The Clark v. Dyer case referenced another case in which commingling was a central issue – Fountain v. Fountain³. In Fountain, the judge determined that commingling of separate and marital property does not automatically transmute property. The distinction comes when the person claiming separate property status cannot trace the initial deposit sufficiently, which is what happened in Clark v. Dyer.

If you have questions about how an asset you owned prior to marriage may be classified in your equitable distribution matter, contact the Woodruff Family Law Group. We have a team of Greensboro divorce lawyers serving the Piedmont Triad area that have extensive experience handling complex equitable distribution and divorce cases.

¹ North Carolina General Statute § 50-20.
² Clark v. Dyer. 762 S.E.2d 838 (N.C. App. 2014).
³ Fountain v. Fountain. 148 N.C. App. 329, 559 S.E.2d 25.