529 Savings Plans

Equitable Distribution:  529 Savings Plans

In an Equitable Distribution NC proceeding, how does the Family Court judge classify college savings plans?  Specifically, are 529 Savings Plans, funded during the marriage and using marital funds, classified as a marital asset, divisible property, or separate property?

In a case of first impression clarifying Equitable Distribution, the North Carolina Court of appeals classified savings pursuant to 529 Savings Plans a marital asset, and therefore subject to distribution – Bill Powers, Charlotte Family Law Attorney 

In an August 7, 2018, published opinion written by the Honorable Richard Dietz, the Court decided a Mecklenburg County divorce matter known as:  Berens vs Berens

How is Equitable Distribution NC Decided?

Under the Equitable Distribution laws in North Carolina, the trial court is required to “classify” the property into one of 3 categories:

• Separate Property
• Divisible Property
• Marital Property

Thereafter the court must then “distribute” the respective divisible and marital property.  See:  N.C.G.S. Chapter 50-20.  Marital property in North Carolina is:

All real and personal property acquired by either spouse or both spounses during the course of the marriage and before the date of the spearation of the parties, and presently owned, except property determined to be separate property or divisible property

As a general rule, property acquired during the marriage yet given away to another party (not the husband or wife), including gifts to minor children, is not subject to equitable distribution.

Gifts Under the Equitable Distribution Laws

In order to constitute a “gift” under the law, there are two requirements:

1. Present intent to make a gift, also known as donative intent; and,
2. Delivery of the gift or actual or constructive delivery 

That “delivery” must remove from the gift-giver all control, right, and title over the property.

As they relate to the Equitable Distribution Laws, 529 Savings Plans are NOT gifts.  Unless specifically divested of an ownership interest, plan participants normally retain control over and ownership of the Savings Accounts.  The children deemed beneficiaries of 529 Savings Plans do not control the assets under the Account.

Furthermore, pursuant to North Carolina 529 Savings Plans, the parents are not required to spend the funds on college or educational expenses for the benefit of their children (the plan beneficiaries).  Technically parents have the legal right to withdraw all the funs associated with the 529 Plan, although there would be a hefty tax penalty.

Therefore, without some additional action undertaken by the parents to fully “gift” the 529 funds or restrict the use of the 529 Savings Plan, any savings accrued remain “solely the property of parents.”  And as such, 529 Savings Plans are marital property and subject to Equitable Distribution as a marital asset.

Findings of Fact and “Unequal Distribution”

Chapter 50-20 authorizes the Family Court to Order an unequal distribution of marital property, subject to the Court’s proper consideration of the factors as listed within the “statutory factors” including things like:

• Property, income, and Liabilities of the parties
• The amount of time the parties were married
• The mental health and physical health of the parties
• Pensions, retirement accounts, and future deferred compensation not considered marital property

Any time the Family Court orders a division of marital property on an unequal basis, the court must make findings of fact as to each factor presented in evidence.”  Many disputes regarding the distribution factors involve the findings of the court and how specific the court must be in specifying those findings of fact.

Divorce Lawyer Charlotte NC – Bill Powers

If you have questions about property distribution of marital assets, we are here to help.  As Berens vs Berens makes clear, the process can be extremely complicated and have long-term financial consequences.  Even in divorce cases that are generally amicable, disputes can arise over whether the property (both personal property and real property) is a marital asset.

Call Charlotte Divorce Attorney Bill Powers to schedule an in-person consultation: 704-342-4357