In Crago v. Crago, 268 NC App 154 (2019), the court of appeal rejected a request to apply the analytic approach to classify life insurance proceeds received by wife before the date of separation. The analytic approach is the classification approach adopted by the appellate court to classify personal injury settlement proceeds, see Johnson v. Johnson, 317 NC 437 (1986), and workers compensation payments, see Freeman v. Freeman, 107 NC App 644 (1992). The analytic approach classifies the proceeds according to what the payments were intended to compensate. So, to the extent a personal injury settlement replaces economic loss to the marriage, it is marital. To the extent it compensates a spouse for future lost wages or personal pain and suffering, it is separate.
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Tag: classification
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Equitable Distribution: Classification of a Lawyer’s Contingency Fee
In the recent case of Green v. Green, (N.C. App., Oct. 3, 2017), the court of appeals held that a fee received by a lawyer as the result of the resolution of a case his firm took on a contingency basis before the lawyer separated from his wife was not marital or divisible property. The court based this decision on the fact that the lawyer did not receive the fee until after the date of separation and did not have a right to receive the fee on the date of separation because the agreement provided that no fee would be received if there was no recovery in the case. The appellate court reversed the trial court decision that a portion of the fee was ‘deferred compensation’ for work the husband performed before the date of separation. The trial court had classified this portion of the fee as divisible property pursuant to GS 50-20(b)(4)(b) which provides that divisible property includes property received “as the result of the efforts of either spouse during the marriage and before the date of separation.”
This decision by the court of appeals is significant because it is the first time the court of appeals actually reviewed a decision by a trial court interpreting this particular category of divisible property and because the holding of the appellate court seems to say this category is much more limited than the language of the statute indicates. Continue Reading
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Equitable Distribution: The Marital Property Presumption
Immediately following the definition of marital property in G.S. 50-20(b)(1), the statute states “[i]t is presumed that all property acquired after the date of marriage and before the date of separation is marital property except property which is separate property under subdivision (2) of this subsection.” This presumption probably is the most important core principle of classification of property in North Carolina equitable distribution because it defines the burdens of proof. Continue Reading
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Equitable Distribution: Post-Separation Changes in Debt
Almost every equitable distribution case involves marital debt. And because there often is a significant amount of time between the date of separation – the point in time when the marital estate is created and valued – and the date the marital estate actually is distributed, most every case also involves post-separation changes in the amount owed on that marital debt. The amount either increases because neither party pays the bills and interest and finance charges accrue, or the amount decreases because one of the parties make payments. North Carolina law has struggled to determine the best way to address these changes in the distribution process.
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When is a 401k Not a Retirement Account?
The equitable distribution statute contains specific requirements for the classification and distribution of “pension, retirement or other deferred compensation benefits.” GS 50-20.1. Because these retirement accounts frequently are the most valuable asset in an equitable distribution case, it is significant that the court of appeals held in Watkins v. Watkins, 746 S.E.2d 394 (N.C. App. 2013), that a 401K, one of the most common retirement accounts today, generally is not “deferred compensation” and therefore does not fall within the restrictions of GS 50-20.1.