Business Division In South Carolina
When couples divorce, they must also divide their assets. For couples who are also business partners, dividing assets can add extra complications to the separation process. Like other property, a business’s assets and debts may be “marital property” or “separate property.” Spouses can choose to let the court decide an equitable (fair) division of a business, or they can negotiate an agreement between themselves for the court to approve.
Marital property includes most real property (land) and personal property (everything else, including business assets and debts) that either partner acquires during the marriage and which the parties own when they begin marital litigation (separation or divorce proceedings).
A few categories of property can be excluded from this designation and kept solely by one partner as separate property. The most common exceptions include property obtained before the marriage, acquired after the marital litigation was filed, or obtained by gift, bequest, or inheritance from someone other than the spouse. Spouses can also contractually exempt particular property otherwise considered marital property.
For example, a valid prenuptial agreement might provide that one person would retain the ownership rights of a business as separate property in case of divorce.
Equitable Distribution by the Court
South Carolina uses the principle of “equitable distribution” to assign marital assets to each spouse in a divorce. To determine what is equitable, the Family Court hears testimony and considers evidence before making a judgment. It may appoint experts to help value a business and take judicial notice of information from public records like tax records.
When calculating the fair division of marital property, a South Carolina family court considers these factors, per statutory guidelines:
- The duration of the marriage and the parties’ ages at the time of their marriage and when the marital litigation begins.
- The misconduct or fault of the parties (subject to certain limitations).
- The value of the marital property and contribution of each spouse, including the value of a spouse as a homemaker if applicable.
- Each spouse’s income and earning potential, both present and future.
- Each spouse’s physical and emotional health.
- The need of one or both spouses for additional training or education to achieve their income potential.
- Each spouse’s nonmarital property, if any.
- Any vested retirement benefits or the lack thereof.
- Whether the court will award separate maintenance or alimony.
- The desirability of awarding the family home as part of equitable distribution or the right to live there for reasonable periods due to the spouse’s custody of any children.
- The tax consequences for each spouse from the distribution.
- Either spouse’s pre-existing support obligations like child support or alimony.
- Liens, encumbrances, and debts of the spouses on the marital property and any separate property.
- Child custody and child support obligations related to the divorce.
- Other relevant factors (which the court must expressly state in its final order).
The court has the discretion to consider these factors as a whole or assign more weight to certain ones. Relevant aspects will vary from case to case, depending on the facts and circumstances. An experienced, capable divorce attorney can present a clear, accurate picture of your marital assets and debts to the court and help make sure you obtain the financial resolution you deserve.
Business Valuation and Division
A business owned jointly by a couple would almost certainly be a marital asset subject to equitable division by the court (unless there is a written agreement to the contrary). However, a business that only one spouse owns is often marital property. In certain circumstances, if a spouse owned a business before they got married, a court might consider only the company’s increase in value during the marriage to be marital property.
Generally, the court will consider all the applicable factors mentioned above in determining how to divide the assets of a jointly owned business. One significant consideration is how much labor each spouse contributes to the company. Owning controlling shares in a company that the spouses do not personally operate is very different from owning a small business that one spouse runs full-time while the other spouse has a separate career. A court will also consider the contributions of the spouse who does not directly operate a business that enabled its startup or continued operation.
For example, imagine one spouse owns a tech company valued at millions of dollars at the time of the divorce. Twenty years before, the individual started that business while the other spouse financially supported the family. The non-owner spouse will probably receive a significant share of the business’s overall value, even if they weren’t directly involved in its creation or operation.
Courts will require a complete and thorough valuation of any business involved in marital litigation. The parties may agree to engage the expert of their choice, arrange for multiple experts to testify regarding the business’ value, or let the court appoint an expert and allocate the cost as part of the division of assets. Expert testimony, along with evidence showing each spouse’s financial and personal contributions, is essential to dividing a business fairly.
Agreeing to the Division of Business Assets
A court’s determination of the equitable division of a business may direct the parties to sell the business entirely or for one spouse to buy out or otherwise compensate the other. The parties may strongly disagree with a court’s determination of “fair,” especially if it means they must sell the business.
Fortunately, the parties can negotiate an agreement that settles the division of marital assets, including the division of a business, rather than leaving the determination to the court. Spouses can agree on a division of property that is agreeable to them that may not seem objectively equitable to a court if they do so voluntarily and without coercion or duress.
For example, a spouse who contributed much more time and money to a business than the other can choose to give up their rights to the company in exchange for full ownership of the cherished family home. Even if the monetary value of these assets isn’t comparable, this resolution may be better for both parties than if the court forces the sale of both the business and the home.
Equitably separating business assets can be a complicated, emotional process. Both spouses should seek professional legal representation. An experienced divorce attorney will help you negotiate creative solutions that respect your values and preserve the success of your business. Contact Indigo Family Law today to discuss your unique situation and learn how we can help you.
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