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What's fair when your business is part of your divorce?

Divorce can be an emotionally and financially taxing ordeal. If you have accumulated a considerable amount of wealth, it can be even more so, particularly when there is a lucrative business at stake.

For the last 35 years, North Carolina has been an "equitable distribution" state, which means courts seek a fair division of property based on monetary and non-monetary contributions to the marriage. However, deciding what is "fair" when a business is involved can require negotiation and litigation skills as well as expert testimony.

Courts in North Carolina look at several factors when deciding whether a business or its assets belong to one or both spouses.

Is the business a marital asset?

Businesses owned prior to a marriage are often exempt from the division of property in a divorce. If business operations began while married, it generally falls under the marital asset umbrella. However, there are a few exceptions to that rule, such as the use of non-marital funds, gifts and inheritances.

These exemptions are not clear-cut. Even if a company appears separate on the surface, there are factors that may lend credence to it being marital property. Here are a few items to consider:

  • How long before the marriage did the company start?
  • What was the value of the company when married?
  • What is the current value of the business?
  • Were marital assets invested?
  • Did marital support play a role?

Determining business values

Courts look at the net value of a business and subtract its debts and liens. This simple "book value" approach may make sense for a brick and mortar property, but not for a company with ongoing revenue. In this case, spouses may have very different perspectives on the business's portfolio, such as:

  • Potential earnings: One side may argue for an economic downturn and the other for growth, depending on what's in their best interest. You will likely need to enlist industry professionals and experts to support your position.
  • Practice-based businesses: There are certain types of companies that the person and not the assets generate revenue. Medical practices are good examples. A determining factor comes down to how much time and energy the practitioner invests and plans to invest going forward.
  • Sudden income deficit syndrome: In businesses controlled by one spouse, the workflow, billing and income can take a sharp, "unexpected" decline during divorce.

It's important that both parties have separate appraisals conducted. If one spouse keeps the company and makes a quick, large profit by selling it soon after the divorce, this could open the door to a fraud lawsuit.

Seek professional help

Don't try to resolve your divorce on your own, especially if either spouse owns a business. Seek the advice of an experienced divorce attorney from Epperson Law PLLC if you are facing a divorce involving a business or considerable assets.