Coltrane Grubbs & Whatley Blog

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May is National Elder Law Month

Did you know that the entire month of May is designated nationally as Elder Law Month? May also happens to be the month designated for ALS Awareness, Asthma Awareness, Better Hearing and Speech, Mental Health Awareness, Mobility Awareness, and Stoke Awareness.

While having a specific month on the calendar might help to bring awareness to some of the issues mentioned above, these issues continue to be foremost in the minds and hearts of many people EVERY month of the calendar year. You or someone you know is dealing with Elder Law issues right now. Someone close to you may be dealing with Elder Law issues in the very near future.

What is Elder Law?

Elder Law deals with legal issues that affect people as they age. Elder Law encompasses many different fields of law, including, but not limited to:

– Access to health care in a managed environment

– Age Discrimination in employment

– Applying for government benefits such as Medicare, Medicaid, Social Security, and Veterans’ Benefits

– Asset protection

– Disability planning (which may include the execution of Durable Powers of Attorney, Trusts, Health Care Powers of Attorney, and Living Wills)

– Elder abuse and fraud recovery

– Estate planning (which may include Wills, Trusts, or both)

– Guardianship or conservatorships

– Health Law

– Mental Health Law

– Placement in long-term care communities

– Probate and Administration of Estates

– Retirement benefit management (including public and private retirement benefits, survivor benefits, and pension benefits)

– Tax Planning

– Trust Administration

Most attorneys who practice Elder Law handle only SOME of the matters mentioned above. A good Elder Law attorney should be willing and able to refer you to other local Elder Law attorneys who practice in specific areas they do not. You certainly want to choose an attorney who REGULARLY handles the issues that are pertinent to your own individual situation. Such attorneys should have strong networking relationships with social workers, geriatric care managers, psychologists, insurance providers, financial advisors, and other long-term care specialists, who may be of additional assistance to you or your loved one, if and when needed. Putting together a workable ongoing plan often requires the cooperation of many related professionals and the attorney you choose should be willing and able to be a functional cog in the machine.

Who Knows the Elder Law Attorneys in Your Area?

While the Yellow Pages or Google might be a place where you can get a list of Elder Law attorneys (or at least a list of ones who spend money marketing themselves that way), you still won’t know which of those attorneys on the list are competent, trustworthy, or otherwise reputable in the community. The best places sources for specific, qualified referrals would be local and national agencies who specialize in working with the problems people face as they age. Such agencies might include:

– Alzheimer’s Association

– Area Agency (or Council) on Aging

– National Academy of Elder Law Attorneys (NAELA)

– Long-term Care Facilities’ Staff and Administrators

– Senior Services Personnel

What Questions Should I Ask?

Before you sit down with a particular attorney, you should ask whether Elder Law is the focus of his or her practice. Too many attorneys merely dabble in Elder Law. The issues involved are far too sensitive (and the laws which govern such issues change far too frequently) for a mere dabbler to be effective. How long has the attorney been practicing Elder Law? Is there a consultation fee, and if so, how much is it? Will the consultation fee be applied to work done pursuant to your consultation? Given the nature of your particular concerns, what information should you bring with you to the initial consultation? In my experience, it is better for clients to bring more information rather than less; you’ll never know what your attorney might need. If the amount of paperwork involves a heavy crate of files that is too cumbersome to lug around, then the crate of information can be left in the locked car in the parking lot. If such information is needed, then it can be accessed easily.

More than anything, you should feel comfortable with the attorney you select. There is a certain amount of synergy and trust that is necessary, especially if you are sharing personal private family issues and personal private family financial information. If, after the initial consultation, you do not feel that your information is safe or that the attorney truly understands and is willing to address the issues that he or she can, then you are not obligated to hire that attorney to complete any legal work.

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Do I Need to Incorporate/Organize my Business?

Our firm regularly encourages and supports businesses in the process of getting on their feet. Starting a business can be a treacherous endeavor, and there is a certain temptation to keep things simple by remaining unincorporated/unorganized. If you are doing business in our state, there are quite a few reasons why doing so is an unnecessary risk:

Reason #1 – Protection of your personal assets.

Shareholders in a corporation and members of an LLC have “limited liability.” What this means is that almost any misdeed, misstep, wrongdoing, or other issue imposing liability on the organization can only affect the owner to the extent that they have invested in the business. This is most useful with respect to debts incurred by the business—if the organization cannot services its debts, the owner/shareholder will not be on the hook for those liabilities (with limited exception for fraud and some tax liabilities). Typically, this is the main feature and benefit of incorporating/organizing your business.

Reason #2 – Tax Flexibility & Benefits

At first blush, the added tax burden of “double taxation” makes incorporation a disadvantageous tax approach. With the advent of the Limited Liability Company and the S-corporation election, however, owners can make tax decisions that allow them to be taxed once as a “pass-through” instead of twice. From a bookkeeping standpoint, it is easier to maintain clean books with the existence of the separate LLC/Corporate entity, which will have its own accounts and liabilities. Importantly, studies have shown that incorporated/organized entities are audited at a much lower rate than sole proprietorships. Studies going back to 2006 show that the audit rate for sole proprietorships is almost four times higher than that of a normal tax filer.

Reason #3 – Durability

Since sole proprietorships are considered to be and extension of the individual, the sole proprietorship cannot continue to exist once the owner has died or otherwise been unable to operate the business. For the longevity of the business, having an organizational entity makes it possible to continue the existence of the business indefinitely. With respect to partnerships, sometimes the death or disability of one partner can put a stranglehold on business operation, which could be avoided by use of an LLC or Corporation.

Reason #4 – Liquidity/Transferability

It is very difficult to transfer an interest in a sole proprietorship or partnership. Think about all of the time you work in building your business so that it can be viable and valuable to clients. At some point, it makes sense to be able to freely transfer your ownership to someone else who is interested in continuing to provide that value to your customers. For some folks, the value and goodwill in their business is their retirement plan. Without an organizational body, it is quite difficult to transfer interests to other individuals, whether you are selling out, adding a member, or otherwise transferring interest in the business.

Reason #5 – Brand Protection

Once your name is filed with the North Carolina Secretary of State, it is your name, and it is your brand. They will not issue the same name to another business in the state. Companies interested in using your name, moreover, are going to be reluctant to do so when you have already locked it in with the Secretary of State.

Reason #6 – Credibility

How many successful companies do you see that are unincorporated or unorganized? Organization/incorporation adds creditability to your business. It shows a professional attitude and understanding of the need to conduct business independently from personal endeavors. Importantly, it can be a requirement if your business is looking for funding, as many banks and lenders are going to require the existence of a corporate entity to protect themselves in the event of default or subsequent problem. Just the mere addition of Inc. or LLC at the end of a name adds a certain credibility for a business as they look to attract investors and customers.

Do I Need an Attorney to Organize or Incorporate my Business?

The short answer to this question is no, but it really is not the full answer. You can visit the Secretary of State’s website and pull down the requisite forms, fill them out, and send them in. Doing so will get you the bare minimum, but really does not help you with respect to Reason #1 above.

The first and foremost reason to form a corporation or LLC is to limit your liability. Limited liability is often referred to as the corporate veil. The corporate veil is the shield that protects the owner, personally, from the liabilities of the business. If something happens in the business, a weak corporate veil might mean that a creditor/plaintiff can “pierce” the veil, and successful assert liability against you personally. In other words, if you don’t have the necessary formalities in place, you might be defeating the purpose of incorporating in the first place.

An attorney can help you add necessary formalities, with things such as (1) an operating agreement or bylaws, (2) organizational minutes, (3) corporate books, and (4) other foundational documents that help show that the business is a standalone legal entity. “Going it alone” is not a good option if you want to make sure you have a strong corporate veil. A weak corporate veil gets pierced.

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Planning for Beneficiaries with Special Needs

Chances are you know someone with special needs or know someone who has a family member with special needs. Such special needs can arise due to a mental or physical defect existing at birth or an injury occurring later in life due to an automobile accident, drug and/or alcohol abuse, injury on the job (including an injury suffered while serving in the military), or the onset of dementia.

Disabled Americans have access to several programs providing both emotional and financial support to help them and their families thrive. When you have a disabled person in your family, it is important to make sure that your own estate plans are crafted in such a way so that the disabled family member continues to have access to all such support programs.

Special Needs planning often includes protecting assets for the benefit of loved ones, who, for whatever reason, are not able to manage an inheritance properly OR would be negatively affected by the direct receipt of an inheritance.

A Wife with Dementia

A husband might come to see me if he is worried about his wife. She has been having some memory issues and is no longer able to manage money on her own. He and his wife have had several wonderful years together and he wants to make sure that her needs are met after he’s gone, but if he were to pass away first, what would she do with the family savings? Who will make sure the money is used properly for her care? Who will protect the assets from future long-term care costs?

A Paralyzed Son

A mother might come to see me if she is worried about her son. Her son was injured in a car accident a few years ago, which left him partially paralyzed. She has been taking care of him since the accident, but realizes that there may be a time in the near or distant future, when she cannot care for him like she is now. The mother wants her son to inherit from her, just as her other children will someday, but she also wants to make sure that he continues to enjoy the same governmental support that has helped them both cope since the accident. Who will take care of him after she’s gone? Who will make sure his inheritance from her is used properly for his care? Who will protect the assets from future long-term care costs?

An Autistic Granddaughter

Grandparents might come to see me if they are worried about their young granddaughter’s health care needs. Recently diagnosed with Autism, their oldest granddaughter’s future ability to manage her own health care decisions and finances is unknown. The grandparents want their children to inherit equally, but also want to make sure that if their granddaughter inherits directly from them, that their granddaughter’s inheritance is managed by someone that they trust. They want to make sure the funds are used specifically for her education and health care needs and NOT on frivolous things. If their granddaughter is already receiving governmental benefits, they certainly do not want to disrupt that!

Without proper planning in these situations, special needs beneficiaries (like the wife, the son, and the granddaughter, above) would likely NOT be entitled to as many support programs as they would otherwise receive. If ineligible due to poor planning (or no planning), the burden for providing equivalent services would fall to family and friends. Most clients want far more control over their futures and want to ensure that they do not become burdens on their family and friends.

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Landlord Basics: 7 Tips to Rental Success

Managing rental property may seem simple and profitable to the uninitiated—in truth, the landlord-tenant relationship is ripe for conflict. In our state, landlord-tenant laws have been written and construed in such a way that tends to give the benefit of the doubt to the tenant. As a result, dealing with stubborn or clever tenants that are uncooperative can oftentimes be costly and time-consuming. We here at Coltrane Grubbs & Whatley are glad to assist you in the event that you have reached a difficult stretch with one of your tenants. If you are not in such a predicament, but are a landlord renting property in our state, there are some steps that you can take proactively as a landlord to prevent problems and help solve problems quickly in the event that they occur. The following are some important tips for landlord success:

1) Have a Written Lease Agreement

In North Carolina, oral lease agreements are typically enforceable, depending on some specific factors. Still, having an oral lease agreement is risky for an obvious reason: in the event of some dispute over the terms of the agreement, it becomes difficult to determine (from an evidentiary perspective) which party is telling the truth. As a tenant, you wouldn’t want your landlord hauling you into court several months into your tenancy to collect $800 in rent when you were under the impression that the rate was $400. As a landlord, the opposite scenario happens with alarming regularity: the landlord comes into court claiming that the tenant has been $100 short on their rent for three months, and the tenant defends by saying that they thought the rent was a lesser number. Nothing can disarm a landlord-tenant dispute better than a well-crafted lease agreement signed by both parties. Our office regularly drafts lease agreements that can suit this purpose.

2) Conduct Move-In and Move-Out Inventories

The condition of the apartment is the aspect of tenancy relationships that is most commonly disputed by the parties. The best way to deal with, and prevent, disputes with your tenant is to have a clear record of the condition of the apartment prior to the tenancy. It is recommended that you take the time to walk through the apartment with the tenant to identify those issues that the tenant sees, but you do not. Make sure to point out and record the condition of appliances, carpets, flooring, fixtures, and bathroom ceilings/walls. After the tenant leaves, it is equally important to take another thorough inventory, using the initial move-in inventory as a comparison point. This inventory is what you will use to identify issues that exceed normal “wear and tear” and justify application of security deposit funds towards repair.

3) Properly Handle Security Deposits

Speaking of security deposit funds, North Carolina statue specifically provides for the proper handling of security deposit funds. While I won’t go into exhaustive detail here, a previous blog post (found here) can give you all the information you need to know about how to handle security deposits. Many landlords handle security deposits improperly, because they just do not know the rules.

4) Keep Meticulous Records (Don’t Be Lazy)

Landlords have a tendency to take your check every month, deposit it, and go on about their business. Please don’t be lazy! Keep an accurate and up to date ledger of payments received from your tenant. Keep up with repairs that are made during the tendency. Keep up with your inventories. Documentation and records can be the difference in the event that there is some dispute about the condition of the tenancy or the amount/existence of rental payments.

5) Know Your Neighbors

Let’s face it, neighbors are nosy. Use your nosy neighbors to your advantage – it is good to have a neighbor who will be willing to tell you when something is going on that should not be happening on your property. In many cases, your neighbors can be your first line of defense and information in the event that your tenant is up to no good.

6) Know How to Evict (Don’t be Afraid to Get Help)

Eviction in North Carolina can be a difficult and complicated task, given the wrong set of circumstances. Know that self-help eviction is prohibited in our state for residential tenancies. Know also that it can be advantageous to seek the assistance of an attorney early in the case, even if it is only to get advice about how to handle the eviction on your own. Oftentimes, paying for an attorney’s advice or assistance on the front end can prevent repeat filings and prolonged disputes.

7) You are Only as Good as Your Tenant

This is the most important piece of advice that I have for landlords: you are only as good as your tenant. Before you sign a lease, make sure that you have gathered as much information about your tenants as possible. If they have references, check them. If they are willing to provide a credit report, get it. If you know them personally, or by acquaintance, find out what you can from your contacts. The vast majority of tenants will pay regularly, keep the tenancy in good condition, and are otherwise reasonable. It is the “one-in-ten” tenant that you really have to avoid – these tenants can cost you dearly in frustration and court/attorney costs. A clever and dishonest tenant can be a serious problem in our state, no matter what precautions you take.

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Empowering Yourself through Powers of Attorney

When people ask me what area of law I practice, I tell them that, among other things, I practice Elder Law. That response often has me answering a follow-up question: “What is Elder Law?” The definition that I have carefully chosen to give in response focuses on empowerment. I help older adults proactively manage their futures.

When people envision growing older, some may look forward to retirement—traveling, spending time with grandkids, focusing on old hobbies or taking up new ones. They have a clear picture of independence—a joyous graduation from the daily grind they remember from their working years, raising children. However, that clear picture may be dulled by a fear that such independence may be short-lived, as the loss of physical mobility, mental sharpness, sight or hearing may require dependence on others to get by. There are cartoons that poke fun at old age, likening it to a reversion back to infancy, when we were all entirely dependent on caregivers.

While we did not have much control over who our caregivers were as infants, as adults facing the POTENTIAL future need for assistance from others, we certainly DO have the power to choose NOW. As an Elder Law attorney, I draft legal documents in which my clients choose WHO has the authority to help them with future potential needs, WHEN that authority will become effective, and WHAT decisions the chosen individuals will be allowed to make.

Durable Power of Attorney

A Durable Power of Attorney (or DPOA, for short) is the document signed by a client that designates an agent (called an Attorney-in-Fact, or AIF, for short) to help the client make legal and financial decisions. The document can be drafted to allow the agent to be able to help immediately or only upon the incapacity of the client. The document can be drafted to be very wide in scope, allowing the agent to help the client with just about anything OR can be limited to just a few certain transactions.

Health Care Power of Attorney

A Health Care Power of Attorney (or HCPOA, for short) is the document signed by a client that designates a series of agents (called health care agents or healthcare proxies) to help the client make health care decisions. The document generally takes effect only upon the client becoming unable to make sound healthcare decisions for him or herself. The client, however, can choose what health care decisions the agents or proxies can make in the client’s behalf. A well-chosen health care agent should be a person you trust, who KNOWS your health care issues and concerns, and is willing and able to follow your wishes. The health care agent or proxy may be called upon to make end-of-life decisions for you, so it is important that you trust your agent enough to discuss your feelings regarding end-of-life openly and honestly.

Guardianship Proceedings

If you are not blessed with family or friends you trust enough to help you with legal, financial, or health care decisions, or you never sign a Durable Power of Attorney or Health Care Power of Attorney granting them the authority to assist you, the court system does have a procedure for appointing an individual to help you if you are found to be unable to help yourself. This procedure involves an interview by a representative of the court system, who helps the clerk of court determine if you are incompetent. If you are determined to be incompetent, it is the clerk of court who decides who will assist you with health care decision (called a Guardian of the Person) and who will assist you with legal and financial decisions (called a Guardian of the Estate). The clerk can only choose among the individuals who have applied to be Guardian…or if no one has applied, the clerk can choose a governmental agency (like the Department of Social Services or the Public Administrator for the county) to serve as Guardian.

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Changes to Forsyth County Policies on Non-Speeding Traffic Infractions

For some time now, the Forsyth County District Attorney’s Office has dealt with traffic infractions through use of a representative in Courtroom 1B at the Forsyth County Hall of Justice. Recently, however, the number of defendants coming through Courtroom 1B on any given Tuesday or Thursday has increased to the point where defendants are waiting several hours in line to have their matter resolved. Without room for expansion or capacity to alter the process to accommodate the volume of defendants, the Clerk of Court and District Attorney’s Office have decided on a new protocol for handling certain traffic infractions outside of the Forsyth County Hall of Justice.

Which infractions?

Specifically, many non-speeding traffic infractions can now be handled via the www.ncfcc.us website, without having to physically appear in court. A list of those infractions that can be handled via the website follows:

No Operator’s License (G.S. 20-7(A)

Expired Operator’s License (G.S. 20-7(F))

Driver’s License not in possession (G.S. 20-7(A))

Failure to carry a Valid Driver License (G.S. 20-7(A))

Failure to notify DMV of address change (G.S. 20-7.1)

No Insurance (G.S. 20-313(A))

Expired Registration Card/Expired License Plate (G.S. 20-111(2))

Failure to Carry Registration Card (G.S. 20-5(C))

Failure to Sign Registration Card (G.S. 20-57(C))

Registration Card Address Change Violation (G.S. 20-67(A))

Expired / No Inspection (G.S. 20-183.8(A)(1))

This list encompasses those infractions which, typically, can be dismissed with a relevant offering of proof. For example, a citation for Failure to Carry Registration Card can oftentimes be resolved by showing proof of registration.

Why not just pay the citation?

There is at least one very compelling reasons to avoid a plea of responsible on one of the charges listed above. Upon entry of such a plea (known as “pleading responsible,” “admitting responsibility,” or sometimes “pleading guilty”), you will be required to pay fines and fees that are listed at the bottom of your citation. The offenses listed above are typically dismissed by an offer of proof, which will save you the $300 or so in fines listed.

Moreover, if you receive a citation for lack of insurance, this citation can result in driver’s license points. A voluntary dismissal of any of these offenses is better than a responsible plea which can remain your driving history permanently.

Can I just ignore the citation? The officer said it wasn’t a big deal…

The unequivocal answer to this question is no. The worst thing you can do with a traffic infraction is ignore it. Failure to respond to a citation or otherwise appear frequently results in a “Failure to Appear” charge. In many cases, a Failure to Appear results in the suspension of your driving license. Moreover, to resolve a Failure to Appear charge, the Clerk of Court will require that you pay an extra $200 fee, assuming you are successful in recalendaring the case.

We have seen this happen to our clients: it is easy to forget about a minor traffic citation like the ones listed above. In some cases, you won’t learn about the failure to appear until you have been pulled over for a subsequent offense and the police officer informs you that, surprise, your license has been suspended. If you think you have a failure to appear, or you have been told that you have one, please give our office a call. We are glad to assist you in the process of recalendaring the case and resolving it. Once it has been resolved, you will be able to ask the DMV to reissue your license, etc.

So, what should I do?

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Your Lawyers. Every Step of the Way … What Does that Mean?

For those of you who follow happenings in the Kernersville business/legal community, you may have noticed changes in our firm and our brand during the past year. Excitingly, our name has changed as we have added Julie Whatley as a named partner, making our firm name Coltrane Grubbs & Whatley. Along with this change, we have debuted a new brand, featuring a new logo, which is featured prominently in our marketing materials and our completely re-vamped website.

For all of the changes and enhancements we have made over the last year, the most important is the adoption of a new tagline: Your Lawyers. Every Step of the Way. For us, this tagline represents more than just a new creative or engaging way of presenting our firm. This tagline represents what we expect Coltrane Grubbs & Whatley to be for our clients and the Kernersville community.

This motto is an encapsulation of our mission and expectation as a law firm. Our mission is to provide trusted advice that guides our clients through their legal issues while developing lasting professional and personal relationships. This mission is at the core of Coltrane Grubbs & Whatley—as attorneys and as counselors-at-law, our goal is to build relationships with our clients.

Our Practice Areas

So, does this mean that we handle every legal matter? No. Frankly, the specialization of attorney practices have made it very difficult to cover every single complex area of practice. However, we do seek to cover a wide variety of practice areas more than just competently, but excellently. In so doing, we are able to meet the legal needs of our clients while providing the service that you would expect out of a larger law firm.

By way of example, this is our exhausting, non-exhaustive list of practice areas: Chapter 7 Bankruptcy Petitions, Chapter 13 Bankruptcy Petitions, Motion to Claim Exemptions, Debt Negotiations, Creditor Bankruptcy Representations, LLC Formation, Corporation Formation, Organizational Document Drafting, Asset Purchases, Stock Purchases, Miscellaneous Business Drafting, Business Document Review, Durable Powers of Attorney, Health Care Powers of Attorney, Living Wills, Simple Will Drafting, Trusts – Revocable, Trusts – Irrevocable, Complex Will Drafting, Absolute Divorces, Separation Agreements, Family Law Violence Litigation, Prenuptial Drafting/Review, Equitable Distributions, Child Custody and Support, Post Separation Support and Alimony, Adoptions, Traffic Tickets – Forsyth County, Traffic Tickets – Guilford County, Personal Injury Litigation, Business Litigation, Landlord/Tennant Disputes, Evictions, Demand Letters, Real Estate Litigation, Spouse’s Year Allowances, Probate Small Administrations, Probate Full Administration, Beneficiary Representation, Quitclaim Deeds, Seller Document Preparation, Cash Real Estate Purchases, Financed Real Estate Purchases, Refinance Closings, Title Research and Opinions, Draft/Review Leases, Offers to Purchase, Complex Real Estate Drafting, Homeowners’ Association Representation, Commercial Leases, Commercial Refinances, Commercial Deed of Trust Drafting, Medicaid Planning, Veteran’s Administration Planning, Special Needs Trusts, and Guardianship Proceedings.

Every Step of the Way.

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Estate Planning and Long-Term Care Planning During the Holidays

While most people DO get together with their families for at least one of the upcoming holidays, it is rare that the PLANNED discussion involves estate or long-term care planning. However, I have found in my years of practice, that while these discussions are not usually planned, they often occur nonetheless, rather spontaneously. There are excellent books and articles published about HOW to go about starting such conversations… but I honestly doubt that most such conversations start the way they are planned. Corresponding to these family discussions (whether planned or spontaneous), my estate planning practice usually increases during the holiday season.

Long-Term Care Planning

It is during these family gatherings that the needs and desires of family members come to the forefront. Perhaps you talk to your mom or dad frequently over the phone, but will not see him or her until a holiday gathering is upon you. It is only then that you really see how your mom or dad’s physical, emotional or mental condition has changed since the last time you met face to face. It is often, during the weeks and days surrounding such family gatherings that doctors’ visits or legal consultations are scheduled. The children may initiate these visits out of concern… or the parents’ may initiate these visits while they have family in town who can drive them to appointments and can keep them company at such appointments.

Powers of Attorney and Living Wills

Perhaps you are waiting until a family gathering to discuss roles some family members may play in your estate and long-term care plans. An elderly client might choose to pull aside a son and daughter to discuss naming them as Attorneys-in-Fact in a Durable Power of Attorney or as Health Care Agents in a Health Care Power of Attorney. A young parent may pull aside his or her brother, sister, mom or dad, to discuss with them the possibility of serving as their minor child’s guardian or trustee. And while it is generally no one’s idea of happy mealtime conversation, it is often during such family gatherings that candid commentaries regarding end-of-life care are made. Some commentary may be made with heartfelt sincerity, while other commentary may be made in jest to lighten the mood. Most of my clients’ views on end-of-life decision-making stem from their own recent personal experiences regarding the end-of-life care of a close family friend or relative. While such discussions may start out being very public (around the dinner table or in the driveway), they do often spur insight and more private discussions with the family and friends you choose to be involved in such decision-making for you.

Last Wills and Testaments

Such gatherings also usually bring to mind the family members who may not be present this year. Such family members may be absent due to death, illness, estrangement, or merely relocation for a new job, school or marriage. Talk of such family members may bring to mind just how your family dynamics have changed over the years and what changes may need to be made to your estate plans to reflect the current dynamics. The sister you had previously selected as your Executor may not be able to serve due to illness. The brother and sister-in-law you had previously selected to be the guardian of your children may have gotten separated or divorced. The spouse you had previously selected to receive your entire estate may have developed dementia and may not be able to manage the inheritance he or she may receive from you. In any event, such discussion should spur you to revisit your current estate planning and long-term care planning documents to see if they will serve you as they are currently drafted.

Another Set of Eyes and Ears

Many of my clients wish to amend their estate plans during the holidays because they have family and friends around to review the documents with them. It is not uncommon for a client to bring his or her children, siblings, or friends along for the estate planning appointment. These “guests” offer another set of ears to hear the questions asked and the answers given, but also even serve as scribes, writing down information that may need to be gathered. With the permission of the client, these guests may also ask their own questions to help them better understand the discussion or to bring up a question that the client may be too embarrassed to ask.

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How is Child Support Calculated in North Carolina?

North Carolina Child Support Guidelines

Child support generally is resolved by an application of the North Carolina Child Support Guidelines, which are adopted by the Conference of Chief District Court Judges at least once every four years.  The current guidelines were adopted in 2011, so they will likely be revised sometime in 2015. 

When do the North Carolina Child Support Guidelines Apply?

The guidelines apply as a rebuttable presumption in every child support case, which means that a Judge will use them in calculating the parties’ respective child custody obligations, unless one or both parties can show the court why they should not apply.  It is possible to request a deviation from the Child Support Guidelines. Presently, the Guidelines are applicable to cases where the combined household incomes are less than $300,000.00 per year.

How do the North Carolina Child Support Guidelines Work?

In most cases, child support is calculated based upon the following:

1. The gross monthly income of each parent

2. The monthly cost of work-related child care; and

3. The monthly cost of health insurance benefits for the children. Health insurance benefits include vision and dental insurance.

What About Extraordinary Expenses?

The court may consider extraordinary expenses which are defined in the Guidelines as including (1) uninsured medical expenses in excess of $250.00 per year; (2) medical expenses for costs that are reasonably necessary for orthodontia, dental treatments, asthma treatments, physical therapy and any insured chronic health problem; (3) expense for attending any special or private elementary or secondary school to meet the particular educational needs of a child; or (4) transportation expenses for the child to travel between the parents’ homes.

The Judge will generally require the parents to share uninsured medical and dental expenses in the same proportions as their respective incomes.

What Happens if the Court Finds that the North Carolina Child Support Guidelines Don’t Apply?

If the Guidelines are not applicable or if the Judge deviates from the Guidelines, the court determines child support based upon the reasonable needs of the child, taking into the account the accustomed standard of living of the family and the reasonable needs of each parent.  The Judge then considers the incomes and earning abilities of the parents, and their respective abilities to contribute to the needs of the child, taking into consideration their own needs for support. This is a very unscientific process, and results often vary widely from case to case.

When Do Child Support Obligations in North Carolina Stop?

Child support is payable until the child is 18. If the child has not graduated from high school when he or she reaches 18, then the obligation continues until the child graduates from high school or stops attending school on a regular basis, whichever first occurs.

Guidelines do not require parents to contribute toward the cost of private school education, unless the child has some special educational needs which cannot be met in a public school system.

The court cannot order a parent to contribute to a child’s college education. When parents are negotiating an agreement for child support, they may address these costs.

The tax laws provide that the custodial parent is entitled to the dependency exemption of the child in connection with income tax returns unless the custodial parent waives such right. Our state courts have the discretion to require a custodial parent to give up the dependency exemption and to award it to the other parent.

What If I Need Help With Child Support?

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What goes into a Chapter 13 Bankruptcy Plan Payment?

Chapter 13 bankruptcy is based on the principle of debt reorganization, rather than asset liquidation—you take all of your debts, put them into a pile, and then make repayments into that pile over a three to five year period. (If you need more information about the basic difference between Chapter 7 and Chapter 13, look here.) The central concept of a Chapter 13 is that your repayments aren’t based on what your creditor’s say that you owe, rather, the payments are based on your disposable income. The chief benefit of this approach is that a Chapter 13 debtor has the opportunity to account for important daily expenses (i.e. gas, food, rent, clothing, cell phone bills, utilities, etc.), before making payments to their creditors.

This basic conceptualization of a Chapter 13 plan payment, however, does not adequately capture the practical impact of different varieties of debt. When it comes to secured debt and unsecured “priority” debt, understanding the components of a Chapter 13 repayment plan can be difficult.

A Threshold Question: Are You Above or Below Median?

The first question that we ask in a Chapter 13 context has to do with your “commitment period” under 11 USC §1325(b)(4). In other words, do you qualify for a three year bankruptcy, or are you required to stay in your Chapter 13 bankruptcy for five years? Learn more about means testing and median income threshold in our previous post, here. If your household income is below-median, you qualify for three-year Chapter 13; if your income is above-median, then you are required to stay in your Chapter 13 for five years.

As importantly, this determination bears heavily on the calculation of your disposable income for the purposes of your Chapter 13 plan. If you are above-median, then your disposable income is determined on the basis of the subsequent means test calculation (see more here). If you are below the median for your household size, then your disposable income is calculated in a less formulaic manner, based on the self-reporting that you do on Schedules I and J. Always keep in mind that all of your disposable income must be included in your plan in order for the court to confirm it. Consequently, determining your disposable income can be an important exercise in anticipating your potential payment in a Chapter 13 bankruptcy.

What about my House and Car Payments?

A common misconception is that Chapter 13 bankruptcy can eliminate (or drastically reduce) car or house payments to make them more manageable. For most debtors, this is untrue, although there are some uncommon scenarios where you can have your car payment reduced (ask your attorney about cram downs) or a second mortgage payment extinguished (ask your attorney about lien stripping).

The general rule is that you should expect to make payments for those houses or cars (or other secured debt) which you plan to keep through the bankruptcy. If you want to keep your house, you better be prepared to make the regular mortgage payment. Same goes for the car, unless you are eligible for a cram down—even in the “cram down” context, you will still have to make payments on the secured debt.

Of course, arrearages come into play here as well. If you are behind on your house or car payment, you can plan on paying back that arrearage over the life of your bankruptcy. Remember that Chapter 13 rearranges secured debt, but rarely does it discharge it altogether. If you want to keep your stuff, and it is pledged as collateral, you are probably going to be paying that debt back in full.

What is Priority Debt?

The most common examples of priority unsecured debt are monies owed to the government (i.e. taxes) and payments/arrearages owed as part of a domestic support obligation. Domestic support obligations commonly include child support and/or alimony payments. There are certainly other kinds of priority debt, a list of which you can find here. If you owe arrearages on unsecured priority debt, you should expect to pay those arrearages back over the life of the bankruptcy.

Tell Me How Much.

Unfortunately, it is rarely so easy. Even in the event that you file a Chapter 13 bankruptcy, the trustee can, and often does, modify the proposed repayment amount. While every Chapter 13 plan is different, you can expect to pay the following in your Chapter 13 plan:

Trustee’s Fees;

Attorney’s Fees;

Regular Payments on Secured Debt (for property you intend on keeping);

Regular Payments on Priority Debt (typically for an ongoing domestic support obligation);

Repayment of Arrearages on Secured Debt;

Repayment of Arrearages on Priority Unsecured Debt;

Payment of any and all disposable income left over.

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Post Separation Support and Alimony: What’s the Difference?

Often, as part of the separation and divorce process, couples have to resolve issues related to post-separation support (PSS) and alimony. 

What do the terms “Post-Separation Support” and “Alimony” Mean?

PSS and alimony are both claims for spousal support. An essential requirement for both claims is that the claimant be a “dependent spouse” and that the other spouse be a “supporting spouse.” A dependent spouse generally is someone who is actually substantially dependent upon the other spouse for his or her support and maintenance or is substantially in need of maintenance and support from the other spouse. Basically, this means that the person does not have sufficient income to maintain the standard of living which he or she enjoyed during the marriage without financial support from the other spouse.

At the risk of oversimplification, post-separation support is basically a form of temporary support which is usually payable until the Court can resolve the alimony claim.

In post-separation support claims, the Court can consider a number of economic factors. A dependent spouse will be entitled to an award of post-separation support if, based upon consideration of these factors, the Court finds that the resources of the dependent spouse are not adequate to meet his or her reasonable needs and the supporting spouse has the ability to pay post-separation support.

In alimony cases, the Court awards alimony to the dependent spouse upon a finding that one spouse is a dependent spouse, the other spouse is a supporting spouse, and that an award of alimony is equitable after considering all relevant factors. The statute lists a number of factors which the court may consider.

What about “fault”?

What role does “fault” play in post-separation support and in alimony claims? In the statutes, “fault” is generally referred to as “marital misconduct” and includes a variety of conduct, including the following: 

(a) Illicit sexual behavior engaged in by a spouse with someone other than the other spouse;

(b) Abandonment;

(c) Indignities which render the condition of the other spouse intolerable and life burdensome;

(d) Reckless spending of the income of either party or the destruction, waste, or concealment of assets; and

(e) The excessive use of alcohol or drugs which renders the condition of the other spouse intolerable and life burdensome.

Theoretically, fault on the part of the supporting spouse is not a prerequisite to obtaining an award of post-separation support or an award of alimony. A judge can make an award of PSS or alimony without any evidence of marital misconduct. As a practical matter, however, the presence or absence of fault may influence a judge, both in regard to the question of entitlement to support, and also in deciding the amount and duration of support. Likewise, marital misconduct on the part of the dependent spouse will be relevant to the amount and duration of support. If a dependent spouse participates in an act of illicit sexual behavior during the marriage and prior to the date of separation, the Court is precluded from awarding alimony. If the supporting spouse committed an act of illicit sexual behavior during the marriage and prior to the date of separation, then the Court must make an award of alimony, although the amount and duration are within the discretion of the Court.

How long does alimony last?

The amount and duration of alimony payments are entirely within the discretion of the Court. Unlike child support cases, there are no guidelines for determination of the amount and duration of alimony. Alimony could be a single lump-sum payment, or it could be monthly installments payable indefinitely until the dependent spouse dies or remarries.

If alimony is awarded by the Court, the Court’s judgment will not be “final”; the Court’s rulings with regard to the amount and duration of alimony payments will be subject to possible future modification in the event of the occurrence of substantial changes in circumstances affecting one or both parties. For example, if the payor spouse is injured and becomes disabled, and experiences a substantial decrease in income, that spouse can petition the Court to reduce or suspend future alimony payments. This is not to say that the Court grants every such request, but only to say that such request can be made and sometimes is granted.

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Post Separation Support and Alimony: What’s the Difference?

Often, as part of the separation and divorce process, couples have to resolve issues related to post-separation support (PSS) and alimony. 

What do the terms “Post-Separation Support” and “Alimony” Mean?

PSS and alimony are both claims for spousal support. An essential requirement for both claims is that the claimant be a “dependent spouse” and that the other spouse be a “supporting spouse.” A dependent spouse generally is someone who is actually substantially dependent upon the other spouse for his or her support and maintenance or is substantially in need of maintenance and support from the other spouse. Basically, this means that the person does not have sufficient income to maintain the standard of living which he or she enjoyed during the marriage without financial support from the other spouse.

At the risk of oversimplification, post-separation support is basically a form of temporary support which is usually payable until the Court can resolve the alimony claim.

In post-separation support claims, the Court can consider a number of economic factors. A dependent spouse will be entitled to an award of post-separation support if, based upon consideration of these factors, the Court finds that the resources of the dependent spouse are not adequate to meet his or her reasonable needs and the supporting spouse has the ability to pay post-separation support.

In alimony cases, the Court awards alimony to the dependent spouse upon a finding that one spouse is a dependent spouse, the other spouse is a supporting spouse, and that an award of alimony is equitable after considering all relevant factors. The statute lists a number of factors which the court may consider.

What about “fault”?

What role does “fault” play in post-separation support and in alimony claims? In the statutes, “fault” is generally referred to as “marital misconduct” and includes a variety of conduct, including the following: 

(a) Illicit sexual behavior engaged in by a spouse with someone other than the other spouse;

(b) Abandonment;

(c) Indignities which render the condition of the other spouse intolerable and life burdensome;

(d) Reckless spending of the income of either party or the destruction, waste, or concealment of assets; and

(e) The excessive use of alcohol or drugs which renders the condition of the other spouse intolerable and life burdensome.

Theoretically, fault on the part of the supporting spouse is not a prerequisite to obtaining an award of post-separation support or an award of alimony. A judge can make an award of PSS or alimony without any evidence of marital misconduct. As a practical matter, however, the presence or absence of fault may influence a judge, both in regard to the question of entitlement to support, and also in deciding the amount and duration of support. Likewise, marital misconduct on the part of the dependent spouse will be relevant to the amount and duration of support. If a dependent spouse participates in an act of illicit sexual behavior during the marriage and prior to the date of separation, the Court is precluded from awarding alimony. If the supporting spouse committed an act of illicit sexual behavior during the marriage and prior to the date of separation, then the Court must make an award of alimony, although the amount and duration are within the discretion of the Court.

How long does alimony last?

The amount and duration of alimony payments are entirely within the discretion of the Court. Unlike child support cases, there are no guidelines for determination of the amount and duration of alimony. Alimony could be a single lump-sum payment, or it could be monthly installments payable indefinitely until the dependent spouse dies or remarries.

If alimony is awarded by the Court, the Court’s judgment will not be “final”; the Court’s rulings with regard to the amount and duration of alimony payments will be subject to possible future modification in the event of the occurrence of substantial changes in circumstances affecting one or both parties. For example, if the payor spouse is injured and becomes disabled, and experiences a substantial decrease in income, that spouse can petition the Court to reduce or suspend future alimony payments. This is not to say that the Court grants every such request, but only to say that such request can be made and sometimes is granted.

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The Bankruptcy Means Test: What does it Mean?

In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act, known more familiarly for its unwieldy acronym/nickname, BAPCPA (pronounced “bap-see-pa”). One of the critical, and most criticized, inventions of BAPCPA was the creation of the “means test.” The key principle behind the means test was the idea that individuals with high levels of income should not be allowed to file bankruptcy. In theory, the means test component would eliminate some abusive and unnecessary bankruptcy filings—in practice, the means test served to complicate bankruptcy filings.

Suffice it to say that the means test is one of the more complex aspects of modern bankruptcy practice. A full explanation of the means test is beyond the scope of one blog post—please consider this post a primer on the means test. If you are uncertain about means testing or whether you would be able to pass a means test, the best thing to do would be to contact our office and talk to our bankruptcy attorney. We offer a free bankruptcy consultation, part and parcel of which is consideration of your ability to pass the means test.

The Threshold Question (the CMI Test)

The threshold question for means testing purposes is whether your household current monthly income is less than the median income for a household of your size in North Carolina. This is commonly called a CMI determination. This determination has a couple of nuances: first, figuring out your household size in North Carolina can be tricky. For those households with complex living situations, it can be difficult to determine household size without the advice of an attorney.

Current monthly income is a product of the bankruptcy code, and one which is not necessarily an accurate indicator of your “current” income. Current monthly income considers your gross income over the last six months. For calculation of current monthly income, you do not consider the month in which you are filing, but the six months preceding the month of filing. If your income has fluctuated over that six-month period, the means test requires that you average your gross income over that six-month period and then annualize it for the comparison to NC’s median income for your household size. Median income numbers fluctuate, but you can find the most current numbers here.

Well that Was Easy

Not so fast. It is very common for debtors to fail to consider all sources of income in calculating their current monthly income. It is important to include all sources of income over the last six months, excluding those funds received from the Social Security Administration. Some commonly excluded income sources that should be included are pension/retirement income, support from family members, income of children contributing to the household, child support, 401(k) and retirement withdrawals, self-employment income, dividends or investment income, and rental income. It all has to be included before making your threshold determination for means testing.

My Income is Too High—What about my Expenses? (the DMI test)

If you do not pass the threshold CMI test, you do not necessarily fail the means test. There is a secondary test that allows you to make certain deductions from your CMI to reach a determination as to your disposable income. This is commonly called a DMI (Disposable Monthly Income) test. For a DMI determination, you must reduce your CMI by certain actual and imputed expenses. The actual expenses include income taxes paid, monthly payments for mortgages/rent, monthly payments on vehicles, monthly payments on other secured debt, average monthly charitable contributions, and payments on prepetition priority claims (ex. child support and/or alimony). Imputed/standardized expenses are determined by IRS standards and include deductions for food, clothing, utilities, transportation, healthcare, childcare, and insurance. After taking deductions, if your DMI, multiplied by sixty, is less than $7,475.00, then you have passed the means test.

If your DMI times sixty is more than $12,475.00, than you have not passed the means test and there is a presumption of abuse in the event that you file bankruptcy. If your DMI times sixty is between $7,475 and $12,475, then a third means test section asks whether your DMI times sixty equals more than 25% of your unsecured debts. If it is less than 25%, than you will pass the means test.

Bottom Line

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What Exactly is Probate? Estate Administration in NC

Probate is the process of administering a decedent’s (deceased person’s) estate.  The word “probate” comes from a Latin word, probare, which means “to prove.”  After your death, the person who approaches the clerk of court to begin administering your estate must first “prove” either of two things:  1) that your Will, if you have one, was the last one you’d done and that it was validly executed or 2) if you had no valid Will, that he or she can testify, under oath, about the family members you left behind—your heirs at law.

Once the Clerk of Court has verified that the decedent is, in fact, dead and has verified the decedent’s beneficiaries and/or heirs at law, the administration process begins.  If there is a Will, the Executor named in the Will is sworn-in.  If there is no Will, an administrator is sworn-in.  The Executor or Administrator is swearing (or affirming) to do the following things:  1) find out what assets the decedent had, 2) find out what debts the decedent owed, 3) pay costs of administration of the Estate out of the available assets, and 4) distribute the balance of what remains according to the Will or according to the law of the State.

Categorizing Assets into Probate and Non-Probate

One of the most tedious parts of administering an Estate can be discovering the assets of the decedent.  While many Executors or Administrators know about a decedent’s financial affairs because they were once the decedent’s caretaker, that is not always the case.  Some Executors/Administrators have very little knowledge of the decedent’s financial affairs and must resort to monitoring the decedent’s mail to see what financial information arrives.  One of the first tasks of an Executor/Administrator is not only to discover what assets the decedent had at the time of his or her death, but also to categorize those assets into “probate assets” and “non-probate assets.”

Basically, probate assets are the assets that will be reported to the Clerk of Court, be used primarily to pay costs of administration and valid debts, and then will be distributed among the beneficiaries and/or heirs of the decedent according to the Will or state law.  Non-probate assets will generally pass to beneficiaries directly and will not be subject to costs of administration and or debts of the decedent.  How do you know which is which?

Which Assets are Non-Probate Assets?

Non-probate assets are those which name designated beneficiaries (either by contract or by law).  The most common examples include:  a bank account held joint with survivorship with another individual, a parcel of real estate held joint with right of survivorship with another individual, an account which lists a Pay-on-Death (POD) or Transfer-on-Death (TOD) beneficiary, an annuity with a named surviving beneficiary, or a life insurance policy with named surviving beneficiaries.  For each of these assets, the decedent, during his or her lifetime, indicated specifically who the beneficiary of each asset would be.  As long as the named beneficiaries survive the decedent, the beneficiaries will generally take the assets upon death either automatically or by submitting a beneficiary claim form.  These assets will generally not be subject to the claims of the decedent’s creditors.

Which Assets are Probate Assets?

If you cannot prove that an asset is a non-probate assets (i.e., if you cannot prove that there is a named surviving beneficiary) then the Clerk of Court will generally consider the asset a probate asset.  The most common examples of probate assets include:  a bank account in the sole name of the decedent, a brokerage account in the sole name of the decedent, or parcel of real estate in the sole name or the decedent, an interest in a vehicle (even if shared), and accounts and/or policies which do not have surviving beneficiaries named or which list “the Estate” as beneficiary.  Because the decedent, during his or her lifetime, did not indicate specifically who the beneficiaries of each asset would be, the Clerk of Court will oversee the asset, use it to pay administrative costs and debts, and then distribute it according to the Will or state law.

What are Probate Fees?

Since the Clerk of Court must dedicate its courthouse staff to oversee the distribution of probate assets, the Clerk charges what is referred to as a “probate fee.”  The probate fee is a small percentage of the date-of-death value of the personal property assets determined to be “probate assets.”  In North Carolina, the probate fee is currently 0.4%.  With proper planning ahead of time, you can arrange your assets to reduce potential probate fees and reduce your future estate’s exposure to creditors’ claims.

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IF YOU ARE GOING TO BE THE BANK ... ACT LIKE THE BANK

We often receive questions from clients who are thinking about loaning money to a friend, family member or business associate, or are thinking about co-signing a loan with them. Sometimes our clients are thinking about “seller-financing” someone else’s purchase of real estate or a vehicle they own. In these situations, our clients are putting themselves in the position of a traditional bank or other lender and their questions revolve around “Should I do it?” and, if so, “What should I do to protect myself?” Our advice in these situations is always the same: “If you’re going to be the ‘bank’ in this transaction, you have to do things the way a bank does them.”

How Do I “Act Like the Bank?”

When we tell folks they should “do the things that a bank does” we’re telling them to approach the potential transaction from an objective, business-like perspective. Banks make decisions about extending credit based on the likelihood that they will be repaid in full and with interest, and they evaluate potential borrowers based on what the bank believes is their ability to repay the loan (this is the foundation of credit reporting and scoring). This evaluation process includes gathering information about the borrower, checking credit reports, asking for references, etc. Another part of the evaluation process is determining if the potential borrower has enough equity or “skin in the game” in a potential transaction to ensure that they won’t walk away from an obligation to repay borrowed money. For instance, if a borrower doesn’t pay a down payment on the purchase of a vehicle and borrows the entire purchase price, if soon after the purchase they decide to walk away from the vehicle, they have nothing to lose.

Once a bank has made a decision to make a loan, they use legal documents which help protect the bank from the risk that the borrower will stop repaying or “default” on the loan. These documents include promissory notes (contracts to loan and repay money), and security instruments, which make personal property or real estate “collateral” or “security” for the loan (these can include liens, deeds of trust, security agreements, etc.). An individual who makes the decision to loan money, co-sign, seller finance, etc. needs to use the same type of documents to protect themselves. Our firm can help you put these documents in place so that you have the best possible chance of being re-paid.

Ask Yourself: “Why Are We In This Situation?”

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Exemptions in North Carolina – How NC Law Protects you from your Creditors

In North Carolina, there are many statutory and common law protections in place that help a debtor keep their wages and property, even in the face of claims by credit card companies or other creditors. North Carolina has stringent restrictions on wage garnishment, about which you can learn here. Even outside of the wage garnishment context, North Carolina exemptions can help you keep real and personal property from the reach of your creditors.

What is an Exemption?

The legal term “exemption,” in the creditor-debtor setting, is a fancy term for “protection.” North Carolina General Statute § 1C-1601 protects property from the claims of creditors up to a certain value. The rationale for this protection is that all North Carolina citizens are entitled to certain real and personal property as a matter of right. Importantly, exemptions do not necessarily protect the value of that property, but rather, the amount of equity you have in the property. This can be very important when you have a valuable asset which has a lien or security interest on it—you still can protect that property as exempt as long as the equity you own falls within the statutory guidelines.

If you have not already gathered, determining whether your property is exempt can be a difficult and complicated exercise. There are many variables that can affect exemptions, including instances where property is co-owned, where property is owned with a spouse, where property has been recently acquired, where property is not a residence, and various other examples. Here is a grossly oversimplified, and non-exhaustive, list of those exemptions which are commonly used in North Carolina:

Real Property

Real Property can be exempted up to $35,000 in equity. There are various caveats to this exemption, which is commonly called the “homestead” exemption. Importantly, you must be residing in the real property to use the homestead exemption. If you are (1) sixty-five or older, (2) hold the property as a joint tenant or tenant by the entirety, and (3) the surviving spouse has passed, then this exemption is increased to $60,000 in equity. Property owned as tenants by the entirety is exempt without any equity limit with respect to the debts of one spouse (ex. your spouse has a judgment against her for a credit card debt but you are not listed on the judgment and the property is owned by the entirety). In the event that the debt is joint, you are permitted to each use your $35,000 exemption, which means that you can protect up to $70,000 in equity in your primary residence.

Cars

In North Carolina, you can claim an exemption up to $3,500 in equity in a single vehicle. Please keep in mind that this exemption may not apply if you have purchased the vehicle within 90 days of claiming the exemption.

Household Goods

Household goods can be exempted up to $5,000 per debtor. You are permitted an additional $1,000 per dependent of the debtor (for up to $4,000 extra) as well. Household exemption typically includes clothing, furnishings, appliances, books, and other household items that are used as part of everyday residential existence.

Retirement Accounts

In North Carolina, most retirement savings accounts are 100% exempt. All tax exempt retirement accounts are fully exempt, including 401(k), 403(b), and simple IRAs are exempt under NC statute. State and federal employee retirement contribution plans typically receive full protection as well. This is why we typically discourage our debtors from withdrawing or taking loans against 401(k) accounts, absent extenuating circumstances.

Wildcard Exemption and Other Exemptions

There are other relevant exemptions too numerous to name here, including property such as the following: tools of the trade, life insurance, personal injury compensation, prescribed health aids, public benefits, and alimony/child support payments. There exists what is called a “wildcard” exemption under the North Carolina statutory scheme, as well, which allows you to claim up to $5,000 in any property, provided that you have used less than $30,000 of your homestead exemption. This can be a helpful tool for allowing flexibility in developing your exemptions.

When Do I Need Exemptions / Why Should I Worry about This?

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When Divorce Goes to the Dogs: Custody of Family Pets During a Divorce

When a marriage ends through separation and/or divorce, two of the primary issues the spouses have to deal with are custody of minor children and dividing marital property and responsibility for marital debts. But what about beloved family pets? For many of us our dogs, cats, fish and other pets are an important part of the family. What happens when you and your spouse can’t agree on what happens to Fido or Felix?

Are Pets Property or Family Members?

Courts usually to take one of two approaches to how to handle custody or possession of pets during a divorce. Some states view custody of family pets the way they view custody of minor children: they analyze the needs of the pet and determine what is in the pet’s best interest and then award custody and/or visitation accordingly. Other states, including North Carolina, view family pets as marital property to be included in the overall process of classifying, valuing and dividing the marital estate. 

How Do North Carolina Courts Handle Pets in a Divorce?

In North Carolina, family pets are lumped in with other marital assets such as furniture, bank accounts, jewelry, vehicles, etc. which are first classified as either “marital” or “separate” property, and then each given a value, the total of which is then usually equally divided between the parties. In classifying a pet as martial or separate property, a court will look at whether one of the parties owned the property before the marriage or whether the pet was acquired during the marriage. If acquired during the marriage, the pet is then valued based upon replacement cost to acquire a pet of a similar breed, age, condition, etc. Intrinsic, emotional, or sentimental value is not taken into consideration in valuing the pet. Since the pet can’t be divided in half, possession of the pet will be awarded to one spouse or the other, and the spouse not receiving the pet will offset the pet by receiving other marital property of equal value. 

What If I Don’t Want a Judge to Decide Who Gets Fido?

An alternative to allowing a court to award a pet as part of the equitable distribution proceeding would be to include provisions related to “custody” and/or “visitation” of a pet in a Separation Agreement [include link to separation agreement blog post].  Using this approach, the parties can craft an arrangement where each is allowed to enjoy time with a pet and share in the cost of the care and feeding of the pet.  If there are minor children of the marriage, we often counsel our clients to consider having the family pet follow the same custody schedule as the children.  Having a beloved companion with them as they navigate a shared custody arrangement is often reassuring for children.

What Should I Do If I’m Worried About Losing My Pets?