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Is a Business Marital Property in North Carolina

Is My Spouse Entitled to Part of My Business?

Is your business marital property? When couples in North Carolina face divorce, the division of a business in an equitable distribution case can become a complex and emotionally charged process. Frequently one spouse has dedicated significant time and effort in starting a building a business during the marriage. One of the most challenging aspects can be determining whether a business is marital property.

Marital vs. Separate Property

Under North Carolina law, generally property acquired during the marriage is presumed to be marital property regardless of how it is titled, while property acquired before the marriage is considered separate property. However, the distinction is not always straightforward, especially when it comes to businesses.

Factors Influencing Business Classification

Timing of Acquisition: If a business was started or acquired during the marriage, it is generally considered marital property. Conversely, if the business was established before the marriage, it is usually deemed separate property. There are some exceptions, for example, starting a business with separate funds may have some impact on its classification. Note however, that even if a business is started with separate funds, active efforts during the marriage that increase the value of the business may still render a business marital property.
Contribution of Marital Assets: Even if a business was started before the marriage, a portion of the business may be classified as marital property if marital funds or significant effort from either spouse were invested in the business during the marriage. For instance, if both spouses worked in the business or if marital savings were used for its expansion, part of the business may be considered marital property.
Commingling of Funds: When separate property and marital property are mixed, a process called commingling, it can complicate the classification. For example, if profits from a separate business are deposited into a joint bank account, those funds might be considered marital property.

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How is the Value of a Business Calculated in a Divorce?

When a business is classified as marital property, it must be valued and divided equitably. Valuation of a business often requires an expert witness to conduct a business evaluation to determine the business’s worth, considering factors such as:

Financial statements
Market conditions
Business assets and liabilities

The court may decide to:

Award the business to one spouse while providing the other spouse with assets of equivalent value
Order the sale of the business and division of proceeds
Implement other arrangements that ensure an equitable distribution

How Do I Protect My Business From Becoming Marital Property?

Business owners can take steps to protect their business from becoming marital property:

Prenuptial or Postnuptial Agreements: These agreements can clearly define the business as separate property, regardless of contributions made during the marriage. Refer to our guide on prenuptial agreements for more information.
Proper Documentation: Maintain clear and thorough records of financial records and business transactions, especially distinguishing between personal and business expenses.
Avoid Commingling Funds: Keep business finances separate from personal finances to prevent the mixing of assets.

Conclusion

In North Carolina, whether a business is considered marital property depends on various factors, including the timing of acquisition, contributions from marital assets, and the commingling of funds. Given the complexities involved, seeking legal advice is essential to navigate the intricacies of asset division in divorce. Understanding your rights and responsibilities can help protect your business interests and ensure a fair resolution for both parties.

Whether you believe you should be entitled to your business or you want to ensure that you receive a fair share of a marital business, our attorneys have experience in handling equitable distribution cases involving multi-million dollar businesses. We have built relationships with renowned expert witnesses who can assist in the valuation process. It is crucial that you identify and designate experts early in your equitable distribution case. Don’t waste time in retaining an attorney who can assist with this process. Contact us today.