Equitable Distribution and Debts in North Carolina

Assets like real estate and bank accounts may be the first types of property to come to mind when thinking about equitable distribution in divorce cases, but debts can also be distributed in North Carolina divorces. In the case of Read v. Read, Husband was ordered to pay a percentage of Wife’s student loans because a large portion of the loans were used to cover living expenses for the spouses and their children while Wife was in school.

Read v. Read

Husband appealed the final order and equitable distribution judgment entered by the trial court. During the marriage, Wife attended chiropractic school, and it was necessary to take out student loans to cover the cost of tuition and living expenses. The couple had two children while Wife was enrolled in chiropractic school, and the spouses took out loans that exceeded the cost of tuition in order to support their family. The total amount of loans was over $190,000, while the cost of Wife’s tuition was just under $50,000. The majority of the loans were in Wife’s name, but Husband also co-signed on a few.

After graduating and passing the North Carolina boards to become a licensed chiropractor, Wife bought a chiropractic business but only netted around $20,000 annually. The couple had a third child, and Husband began working at Wife’s practice as an office manager. He did not receive a paycheck and took draws from the business bank account instead. During this time, Wife’s student loans were in a hardship forbearance status.

The parties separated in 2001, at which time the loan balance was over $198,000. During the 17 years that they were separated before filing for divorce, Wife made over $60,000 in payments toward the interest on the loan, but the balance continued to grow, reaching over $280,000 by the time of the equitable distribution hearing. At this point, Husband had made no payments on the loan.

The trial court ruled on Wife’s equitable distribution claim and entered an order in February 2022. Husband appealed.

Statute of Limitations on Equitable Distribution

One of Husband’s arguments was that Wife’s claim for equitable distribution was not timely and violated the fairness aspect of North Carolina’s statute. The Court of Appeals disagreed. State law says that either party may request equitable distribution once they begin living separately and apart. Since neither spouse had filed for divorce prior to this, they were not released from the bonds of marriage, and equitable distribution was still allowed.

Student Loans and Equitable Distribution

Another argument raised by Husband in his appeal was that the trial court made a mistake when it ordered him to pay 30% of the parties’ marital debt. Courts must consider the spouse’s debts when determining equitable distribution, including joint debt and individual debt accrued during the marriage.

Because over three-fourths of the loan amount was used to pay the parties’ living expenses, it was partially Husband’s responsibility to pay off the loans. The Court of Appeals affirmed the lower court’s ruling that required him to pay 30% of the student loans.